TTIP Update XLIV

The TTIP negotiations have started in earnest - before, meetings were largely preliminary, aimed at establishing the general positions of both the EU and US.  And yet, curiously, very little seems to be happening, at least publicly.  The next official round is not until early February next year, although it seems likely that informal meetings are still taking place behind closed doors. 

One reason for this hiatus is that there has been a change at the top.  Karel De Gucht has relinquished his post, which has been taken by the Swede Cecilia Malmström.  She is adopting a very different style, not least in terms of her attitude to the public.  Faced by the growing scepticism about TTIP's benefits, and anger over its complete lack of any meaningful transparency, Malmström has taken a conciliatory approach, promising more openness, some of which has now been announced.

But Malmström is still trotting out the same old misinformation about TTIP.  In a recent opinion piece she published in the Frankfurter Allgemeine Zeitung, the paragraph about ISDS is particularly pernicious.  Malmström says that European member states have signed a total of 1400 agreements that include ISDS; this is presumably to "prove" that ISDS is completely normal and totally harmless.  Neither is true.

Those 1400 agreements were overwhelmingly with developing nations.  The ISDS clauses were there to protect European investments in countries where the judicial systems were perhaps less than fair and reliable.  In a sense, these were one-way ISDS chapters, since companies from those emerging nations almost never invested in Europe, and thus were unable to avail themselves of the ability to sue for alleged expropriation there - that's why European nations have rarely been sued under these trade agreements.

Moreover, just seven of those 1400 agreements were with the US.  The countries involved were former Soviet states, plus Poland.  Even though in retrospect the terms of those agreements were pretty bad, they looked good as a way of escaping the clutches of Russia, and of encouraging the US to support the countries signing them.  Like the other ISDS chapters with developing countries, they are unrepresentative of what will happen with TTIP. 

For a start, US investment in those ex-Warsaw Pact countries is relatively low, which means the opportunities for it to use ISDS clauses are very limited.  Compare that with the whole of the EU, where there are around 50,000 subsidiaries of US companies, representing very substantial investments, and you can see that the risks of the EU or a member state being sued under ISDS in TTIP are vastly greater than was the case for those 7 earlier examples.  So Malmström's claim that ISDS wasn't a problem then, and so won't be a problem now, is simply false.

She then goes to admit that the current ISDS chapters are problematic, but that the EU has already addressed that objection by reforming ISDS in CETA, the trade agreement with Canada.  Specifically, she claims that in CETA:

Nations always have the freedom to decide about health systems, minimum wages and environmental protection.

That sounds good, but when you analyse the detailed wording of CETA's ISDS provisions, as the Canadian Centre for Policy Alternatives has done in its excellent, in-depth exploration of the final text, "Making Sense of CETA", this is what you find is actually the case as regards that supposedly strengthened "right to regulate":

The ‘right to regulate’ is mentioned three times in the agreement. In the preamble, the parties simply ‘recognize’ that the Ceta protects the right to regulate (“recognizing that the provisions of this Agreement preserve the right to regulate...”), yet the text fails to clearly and unequivocally confirm this right, especially in the investment chapter. The other mentions are to be found in the labour and environment chapters, so that, in effect, the Ceta shields the right to regulate from any international obligations to protect labour or the environment but not from all the detailed obligations in the investment chapter. Also in the environment chapter, the right to regulate is limited by formulations which require environmental policies to be implemented “in a manner consistent with the multilateral environmental agreements to which they are a party and with this Agreement,” meaning that environmental policies have to be consistent with the Ceta - not the other way round.

As that makes clear, far from protecting the EU's "freedom to decide" in the environmental sphere, as  Malmström claims, CETA actually imposes new constraints on governments.  The Canadian Centre for Policy Alternatives also points out that CETA is worse than earlier agreements in the way that the so-called "fair and equitable treatment" clause is framed.  This does not inspire confidence for TTIP, since we know from the consultation that the ISDS chapter will be modelled on the earlier agreement.

Even if it weren't, CETA's ISDS will be a disaster for Europe if it is ratified - something that is fortunately still a long way off.  That's because of the following:

The Ceta definition of ‘investment’ and ‘investor’ are overly broad and far beyond what would be advisable from a regulatory or public interest perspective. The Ceta defines an ‘investment’ as, “Every kind of asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment.” It defines an ‘investor’ as: “a Party, a natural person or an enterprise of a Party, other than a branch or a representative office, that seeks to make, is making or has made an investment in the territory of the other Party. For the purposes of this definition an ‘enterprise of a Party’ is: (a) an enter prise that is constituted or organised under the laws of that Party and has substantial business activities in the territory of that Party”). The reference to ‘substantial business activities’ is not enough to pre vent ‘treaty shopping.’ For example, U.S. investors in Canada would be able to use the C eta investment provisions and ISDS to challenge European state measures.

There's another trade agreement that the EU has recently finalised (but not ratified) that has exactly the same problem.  It's with Singapore, and the dangers of its ISDS chapter are analysed in an important post from the FFII.  If, like me, you don't know much about the EUSFTA, as it is know, this is a good place to start.  Here are a couple of the key issues:

1. The agreement creates a lock-in. Unlike most investment agreements ratified by European countries, it is not a stand-alone investment treaty, from which parties can withdraw. The investment chapter is part of a trade agreement, from which it is near impossible to withdraw.

2. The text lacks basic institutional safeguards for independence, creates perverse incentives and does not observe the separation of powers.

Expanding on the last point:

No institutional safeguards for independence

The text lacks basic institutional safeguards for independence: tenure, prohibitions on outside remuneration by the arbitrator and neutral appointment of arbitrators.

Perverse incentives

Arbitrators are paid for their task at least 3000 US dollar a day. This creates perverse incentives: accepting frivolous cases, letting cases drag on, letting the only party that can initiate cases (foreign investors) win to stimulate more cases, pleasing the officials who can appoint arbitrators.

No separation of powers

Both the claimants and the executive have a 50% influence on the make-up of [ISDS] tribunals. In a [national] court neither the claimant nor the executive has an influence on appointments, as both parties are not neutral.

A government may dislike a law by the former legislative and appoint an arbitrator accordingly. Only independent courts should decide on constitutional matters and questions of law.

It's that last point that remains the central problem with ISDS in TTIP: it effectively allows corporations to attack any legislation that affects their future profits, even if it has been passed by governments with an explicit mandate from the public.  Signing up to any treaty - be it CETA, EUSFTA or TTIP - that contains ISDS is thus nothing less than a fundamental betrayal of European democracy.

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TTIP Update XLIII

On Monday, I attended an interesting meeting at the Heinrich Böll Stiftung, in Berlin, with the intriguing title of "re:negotiate (ttip)".  This was valuable for two reasons.  First, because I had a chance to hear the arguments advanced by senior figures in the pro-TTIP world (surprisingly weak, even after all this time), and secondly, because I was asked to talk about "TTIP and global data transfer".  That's not something I've written much about here, so this gives me an opportunity to set down what I learned as I prepared for my session in Berlin.

The official negotiating mandate from the European Commission [.pdf], released recently (but very belatedly), does not mention words like "e-commerce, electronic services, telecommunications providers, cloud computing, data protection" at all, which is pretty extraordinary given their importance.  However, the section covering Trade in Services states:

The aim of negotiations on trade in services will be to bind the existing autonomous level of liberalisation of both Parties at the highest level of liberalisatio n captured in existing FTAs, in line with Article V of GATS, covering substantially all sectors and all modes of supply, while achieving new market access by tackling remaining long - standing market access barriers, recognising the sensitive nature of certa in sectors.

"GATS" is the overarching General Agreement on Trade in Services   The above paragraph would therefore seem to require that all kinds of e-commerce and online services should be covered by TTIP.  The Commission's mandate makes another reference to GATS here:

The [TTIP] Agreement will not preclude the enforcement of excep tions on the supply of services justifiable under the relevant WTO rules (Articles XIV and XIVbis GATS).

That's crucially important, because Article XIV includes the following exception:

nothing in this Agreement shall be construed to prevent the adoption or enforcement by any Member of measures:

(c)      necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement including those relating to:

(ii)     the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual records and accounts;

That seems to provide the basis for the following statement in the European Commission's TTIP FAQ:

Will TTIP mean US data privacy standards prevailing over or undermining EU standards on the same?

No.  The EU and US have long since recognised that we each regulate data privacy in a different way.  The TTIP negotiations are not the right place to address these differences though.  We have already developed suitable ways of handling transatlantic data flows - for example, the Safe Harbour Agreement.  In addition, we are currently in talks with the US on access to data by enforcement authorities.  The aim is to get an 'Umbrella Agreement' on data protection to strengthen our joint efforts to combat terrorism and serious crime.  These talks will not be affected by the TTIP.

Of course, the Safe Harbour Agreement is a joke.  It basically lets US companies take personal data out of the EU, and do what they like with it by "self-certifying" that they are jolly nice people, and that they wouldn't dream of doing anything nasty with all our data, oh no, sir.  But thanks to Edward Snowden, we now know that once the data is out of the EU and across in the US, the NSA can and do access it freely - which is why the European Parliament's LIBE committee called for Safe Harbour to be suspended.

Leaving that big issue aside, there remains a central question: how exactly will data flows be handled in TTIP?  Despite the soothing words from the European Commission, it is by no means clear that European privacy will be preserved.  That's evident thanks to a US Bill that was proposed last year.  It has the significant title "Digital Trade Act of 2013", and it would have required the US negotiators in all future trade agreements to insist on a number of key demands:

It shall be a negotiating principle of the United States in negotiations for a bilateral, plurilateral, or multilateral agreement, and in multi-stakeholder fora, to seek the inclusion of binding and enforceable provisions that promote and enhance Internet-enabled commerce and digital trade, including provisions--

(1) preventing or eliminating barriers to the movement of electronic information across borders, including by encouraging interoperability of data protection regimes and eliminating barriers to accessing, processing, transferring, or storing information;

(2) ensuring transparency in measures affecting the free flow of information within and across borders;

...

(4) prohibiting measures that condition market access or other commercial benefits on localization of data, infrastructure, or investment;

(5) prohibiting any country from imposing measures that require an entity to use computing infrastructure or services in that country or otherwise require an entity to access, process, transfer, or store data in the territory of that country;

Those last two are absolutely key, since they would forbid any country that has a trade agreement with the US from passing laws that require local storage or processing of data. Even though the Bill was not passed, all the indications are that the US negotiators will demand precisely these provisions in TTIP.  That's a problem, because one way to improve the privacy of EU citizens would be to require that their personal data is stored and processed in the EU, and to forbid it being sent abroad. 

Despite what companies like Google and Facebook would have us believe, that wouldn't stop them providing their services here in the EU.  It would simply mean that all EU personal data would be held and processed in the EU, with other data necessary for the services being brought in from the US, say, rather than the other way around.  The Internet's symmetry makes that trivially simple, so to claim that it is impossible to work under this conditions is absurd.

In cases where personal information like physical addresses needs to be sent outside the EU so as to allow the delivery of goods, say, such information could be provided by using Vendor Relationship Management (VRM) systems, that allow users to retain full control of their personal data, while granting highly specific access to parts of it.  Indeed, developing VRM is a huge opportunity for the EU, and should be actively promoted irrespective of its usefulness in the context of TTIP.

Another meeting on TTIP took place yesterday, organised by the S&D group in the European Parliament.  That party's position is absolutely crucial for TTIP: without its support, TTIP will probably not be passed.  So it was no surprise that the new Commissioner for Trade, Cecilia Malmström, appeared here and gave her first official statement on the trade agreement.

Actually, it's stretching it to call it a "statement", because that would imply it had any content.  Instead, it was an extended set of comforting platitudes that boiled down to the same kind of self-certification used in the Safe Harbour agreement.  In other words, it was little more than empty promises that everything would be OK, just don't worry your pretty little heads about it.

One of the most worrisome parts came in the brief and superficial questions and answers that followed her words.  In it,  Malmström tried to allay growing fears about ISDS - which the French government has said it will not accept in TTIP - by pointing to the recently-concluded CETA agreement with Canada.  She claimed that the new and improved ISDS chapter there shows, once more, that there was nothing to worry about, etc. etc.

Of course, ISDS is such a technical area that is hard for most of us to evaluate that claim.  Fortunately, the indispensable Corporate Europe Observatory has carried out a detailed analysis of ISDS in CETA, and found that far from addressing the problems, it actually makes them worse:

In response to these widespread concerns the European Commission and the Canadian government have become increasingly defensive, and have begun a misleading propaganda drive. Their strategy: to appease the public by downplaying the risks of investment arbitration and to divert attention from the fundamental problems of the system by focusing on cosmetic reforms.

But a closer look at these “reforms” in the final CETA text (see Annex 2) shows that they will not “prevent any abuse of the investment protection rules and investor-state dispute settlement systems,” as the European Commission claims. On the contrary, CETA’s investor rights are arguably even more expansive than those in agreements such as NAFTA – most notably by protecting investors’ “legitimate expectations” under the so-called “fair and equitable treatment” clause and on investor-state disputes with regard to financial services (see Annexes 1 and 2). This is not surprising: the “reforms” are an echo chamber of what the business community has proposed to re-legitimise investor-state arbitration while leaving its problematic core intact.

The Annexes referred to provide detailed rebuttals in non-technical language of claims that ISDS has been improved in CETA.  Here's a sample. First, what the European Commissions claims:

Final award: A tribunal can award “only” monetary damages or restitution of property (Chapter 10, Article X.36). According to the EU this means that an order of a tribunal “cannot lead to the repeal of a measure adopted by Parliaments in the Union, a Member State or Canada.”

And here's what that actually means in practice:

This won’t stop governments from “voluntarily” repealing measures when a major lawsuit has been filed or threatened by a deep-pocketed company. Examples of such regulatory chill include the watering down of environmental controls for a coal-fired power plant when Germany settled a claim by Swedish energy company Vattenfall (see Box 2 on page 6) and New Zealand’s announcement that it will delay its plain-tobacco-packaging legislation until after Philip Morris’ claim against Australia’s anti-smoking rules has been resolved. This chilling effect on government regulation is arguably the main function of the global investment regime.

This latest report from Corporate Europe Observatory is an important contribution in the fight against the misleading comments being made by pro-TTIP politicians, both at the European and national levels.  They know that ISDS is in trouble as the public find out more about it, and are trying to fob people off with the promise that things will be better in TTIP, building on the claimed improvements present in CETA.

But there are no real improvements, just some textual fig leaves to give the appearance that concerns have been addressed.  If the European Commission and pro-TTIP politicians like David Cameron really want to save TTIP from massive rejection by the European public - the Stop TTIP petition has now reached 912,000 signatures - the only way to do that is to remove ISDS from TTIP, CETA and the new EU-Singapore free trade agreement completely.  Nothing else will do.

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TTIP Update XLII

The problems of TTIP are so many - total lack of meaningful transparency, the unnecessary inclusion of an ISDS chapter, the threat to Europe's high standards governing health, safety, the environment, labour etc. - that the agreement's supporters have been forced to fight back with the only thing they claim to offer: money.  TTIP, they argue in multiple ways, will take us to the land of milk and honey, boost the GDP massively, and lead to lots of extra dosh for every family in the EU.

But as I've explained, none of this is true.  Even the European Commission's own research shows that the most ambitious outcome - that is, one that is already totally unrealistic given the resistance that TTIP is meeting - would produce a boost to Europe's GDP of 0.5% - just 119 billion euros.  However, as I and many others have pointed out, this is after ten years, and therefore represents a *cumulative* boost to GDP, which therefore works out at around 0.05% GDP boost per year on average.  Here's someone else joining that chorus:

at the end of the simulation period in 2027, GDP would be 0.5 percent higher in a TTIP scenario than the baseline, non-TTIP scenario, implying negligible effects on annual GDP growth rates.

That comes from an important new study by Jeronim Capaldo from the Global Development and Environment Institute at Tufts University in the US.  It also points out the obvious fallacy with the European Commission's claim that EU households would gain 545 euros more every year:

these estimates are misleading since the studies provide no indication of the distribution of income gains: they are simply averages. With EU wages falling as a share of GDP since the mid-nineties, it is far from certain that any aggregate gains will translate into income increases for households living on income from wages (as opposed to capital).

Or, to put it more bluntly, claiming that any benefit from TTIP would be shared out equally among all families in the EU is only going to happen if communism sweeps across the continent - and about as likely.

Capaldo's study begins by pointing out the glaring flaws in the Computable General Equilibrium (CGE) model used by the studies invoked by the European Commission.  This CGE approach includes the astonishing assumption that employment will not change as a result of TTIP, because somehow the inevitable job losses in some industries will be magically balanced by job creation in others.  Morever, as I have discussed before, another huge flaw in the CGE approach is that it ignores the costs it brings.  As Capaldo puts it:

the strategy chosen to simulate a “TTIP future” has a strong impact on the results. Ecorys assumes that so-called "Non-Trade Barriers" impose a given cost on trade and that TTIP can remove up to one half of them. CEPR and CEPII borrow this approach, but assume a lower share. These barriers can include what other stakeholders refer to as consumer and environmental regulations. Phasing them out may be difficult and could impose important adjustment costs not captured by the models.

In an effort to avoid these and other problems, Capaldo uses a different model: 

To obtain a more realistic TTIP scenario, we need to move beyond CGE models. A convenient alternative is provided by the United Nations Global Policy Model (GPM), which informs influential publications such as the Trade and Development Report. The GPM is a demand-driven, global econometric model that relies on a dataset of consistent macroeconomic data for every country.

You can read the detailed results in his paper, but his title sums it up pretty well: "The Trans-Atlantic Trade and Investment Partnership: European Disintegration, Unemployment and Instability".  Using a more advanced model, that does not bake in ridiculous assumptions like no job losses, TTIP is predicted to produce the following chilling consequences for the EU and its citizens:

TTIP would lead to losses in terms of net exports after a decade, compared to the baseline “no-TTIP” scenario. Northern European Economies would suffer the largest losses (2.07% of GDP) followed by France (1.9%), Germany (1.14%) and United Kingdom (0.95%).

TTIP would lead to net losses in terms of GDP. Consistent with figures for net exports, Northern European Economies would suffer the largest GDP reduction (-0.50%) followed by France (-0.48%) and Germany (-0.29%).

Thus, even the paltry 0.5% GDP gains of the European Commission's study prove hopelessly inflated.

TTIP would lead to a loss of labor income. France would be the worst hit with a loss of 5,500 Euros per worker, followed by Northern European Countries (-4,800 Euros per worker), United Kingdom (-4,200 Euros per worker) and Germany (-3,400 Euros per worker).

This contrasts with that illusory 545 euros per household, as claimed by the European Commission.  Instead, a typical UK working family would lose thousands of pounds per year as a result of TTIP, according to this analysis.

TTIP would lead to job losses. We calculate that approximately 600,000 jobs would be lost in the EU. Northern European countries would be the most affected (-223,000 jobs), followed by Germany (-134,000 jobs), France (- 130,000 jobs) and Southern European countries (-90,000).

TTIP would lead to a loss of government revenue. The surplus of indirect taxes (such as sales taxes or value-added taxes) over subsidies will decrease in all EU countries, with France suffering the largest loss (0.64% of GDP). Government deficits would also increase as a percentage of GDP in every EU country, pushing public finances closer or beyond the Maastricht limits.

TTIP would lead to higher financial instability and accumulation of imbalances. With export revenues, wage shares and government revenues decreasing, demand would have to be sustained by profits and investment. But with flagging consumption growth, profits cannot be expected to come from growing sales. A more realistic assumption is that profits and investment (mostly in financial assets) will be sustained by growing asset prices. The potential for macroeconomic instability of this growth strategy is well known after the recent financial crisis.

Even if the UK escapes relatively unscathed on the employment front, losing "just" 3,000 jobs according to the new model, it is hit badly in terms of falling Government tax revenues (down 0.39% of GDP) at a time when the country's national debt is big and getting bigger.  In other words, far from being a panacea, a "once in a generation prize", as David Cameron called it, TTIP would probably fatally wound the European project, not least because it will lead to the economic hollowing-out of the EU - something already predicted in previous models.  Capaldo explains:

increases in trans-Atlantic trade are achieved at the expense of intra-EU trade. Implicitly, this means that imports from the US and imports from non- TTIP countries through the US will replace a large portion of current trade among EU countries.

Capaldo's conclusions make for grim reading:

First, as suggested in recent literature, existing assessments of TTIP do not offer a suitable basis for important trade reforms. Indeed, when a more realistic model is used, results change dramatically. Second, seeking a higher trade volume is not a sustainable growth strategy for the EU. In the current context of austerity, high unemployment and low growth, increasing the pressure on labor incomes would further harm economic activity.

Some will doubtless say this is just one model, and might be wrong.  But exactly the same argument can be applied to the widely-cited CEPR study, and yet the Commission is happy to accept its predictions uncritically, as if its figures were certainties. 

Whether or not you believe that Capaldo's model is superior - and that's a matter for economists to argue about - it would clearly be reckless to pursue the TTIP negotiations without commissioning much more detailed research to explore the agreement's likely impact, and to get a better idea of its real benefits - if any.

To give up national sovereignty because of ISDS's supranational powers, and weaken Europe's high standards in order to remove "non-tariff" barriers, is bad enough.  But to bargain them away in return for a flawed agreement that will harm every economy in the EU, and leave families thousands of pounds worse off, is just beyond stupid.

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