TTIP Update XLVII

As long-suffering readers of this column wil have noticed, the dominant theme of the discussions around TTIP so far has been the investor-state dispute settlement provisions (ISDS).  We are still waiting for the European Commission's analysis of the massive response to its consultation on the subject - it will be fascinating to see how it tries to put a positive spin on the overwhelming public refusal of ISDS in TTIP. 

The issue that crops up most often after ISDS is probably transparency - or rather the complete lack of it.  Yes, it's true that there have been some token releases of documents: initial position papers in 2013, and some more in 2014; but these don't really tell us much that we didn't already know, or could guess.  The main obstacle to greater openness was Karel De Gucht, the European Commissioner for Trade when TTIP was launched.  As he showed time and again during the ACTA fiasco, he had little but contempt for the European public and its unconscionable desire to know what the politicians whose salaries it pays are up to in Brussels.  That made his retirement at the end of last year an important moment and opportunity.

His successor, Cecilia Malmström, is cut from a very different cloth, as was apparent from this announcement right at the start of her tenure of De Gucht's post:

'TTIP is an immensely important agreement,' said Commissioner Malmström, 'with huge potential to create jobs and growth and to set standards. Yet, even though the TTIP talks are the most transparent and open the Commission has ever conducted, there are still a lot of doubts around what is being negotiated.'

'That's why we want to consult even more extensively on TTIP, and go even further in terms of transparency. Increased transparency will enable us to show, more clearly, what the negotiations are about and to de-mystify them. We will use this as a basis to engage further with a broad range of stakeholders and the public,' said Malmström.

The Commissioner outlined two main proposals for boosting transparency.

First, to extend access to TTIP texts to all Members of the European Parliament, beyond the currently limited group of Members of the European Parliament’s International Trade Committee.

Second, to publish texts setting out the EU's specific negotiating proposals on TTIP.

As I've discussed many times, TTIP does not have "huge potential to create jobs and growth", even under the most optimistic assumptions, but it's certainly important, so Malmström's promise of consulting "even more extensively" is extremely welcome.  Indeed, I was pleasantly surprised last month to experience first-hand just how extensively she means to consult:

Whether that meeting actually happens, remains to be seen.  But Malmström's two main proposals for "boosting transparency" have now been implemented.  The first of them - providing access to MEPs - happened immediately.  The second, publishing actual negotiating texts - happened earlier this week:

The European Commission today published a raft of texts setting out EU proposals for legal text in the Transatlantic Trade and Investment Partnership (TTIP) it is negotiating with the US. This is the first time the Commission has made public such proposals in bilateral trade talks and reflects its commitment to greater transparency in the negotiations.

Specifically, here's what is being made available:

The so-called 'textual proposals' published today set out the EU’s specific proposals for legal text that has been tabled in the proposed TTIP. They set out actual language and binding commitments which the EU would like to see in the parts of the agreement covering regulatory and rules issues. The eight EU textual proposals cover competition, food safety and animal and plant health, customs issues, technical barriers to trade, small and medium-sized enterprises (SMEs), and government-to-government dispute settlement (GGDS, not to be confused with ISDS). Today, the Commission has also published TTIP position papers explaining the EU's approach on engineering, vehicles, and sustainable development, bringing the total number of position papers it has made public up to 15.

To make the online documents more accessible to the non-expert, the Commission is also publishing a 'Reader's Guide', explaining what each text means. It is also issuing a glossary of terms and acronyms, and a series of factsheets setting out in plain language what is at stake in each chapter of TTIP and what the EU's aims are in each area.

That's certainly a big step forward for transparency, as is to be welcomed.  However, not everything is available yet.  For example, in two areas that are likely to be of particular interesting to readers of this column - "Information and communication technology" and "Intellectual property rights" - we only have some rather thin factsheets.  The first of these [.pdf] is particularly slight - just one page.  Perhaps the only element of interest is the following:

In ICT, we want to:

set common principles for certifying ICT products, especially for encoding and decoding information ('cryptography' in the jargon).

But the European Commission is quick to assure us that:

The EU won’t accept lower security levels. We want common principles for assessing how products comply with regulations.

Presumably that means the EU and US will agree to use the same set of backdoors in crypto tools...

On the copyright and patent front [.pdf], it's striking that the Commission is still assuring us that TTIP is not ACTA 2.0 - evidence once more of how deep the fears run of another defeat at the hands of the European Parliament - for example:

The EU and US have detailed enforcement provisions already, whereas some other countries that planned to join ACTA didn't. So we won’t negotiate rules on things like:

penal enforcement

internet service provider liability.

The idea that criminal penalties and ISP liability were only in ACTA because "some countries" did have strong enforcement is ridiculous: they were there because powerful copyright lobbyies in the EU and US wanted them there.  But it is nonetheless welcome to have set down here that neither will be present in TTIP.

The most recent release of TTIP documents shows two things.  First, that we have started the journey towards real transparency, but by no means arrived there yet.  And secondly - and perhaps most importantly - that public advocacy does work.  Although it is true that the present move owes a lot to  Malmström - and kudos to her for taking this step - it is also true that it would never have happened had not thousands of people demanded more openness.  It demonstrates what can be done simply by asking in a polite but persistent manner, and encourages us to keep doing so.

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TTIP Update XLVI

Not much has been happening on the TTIP front during the holiday break, but there's one extremely important report that came out a little earlier that I'd like to explore in this update.  It's called "The hidden cost of EU trade deals: Investor-state dispute settlement cases taken against EU member states", and has been put together by Friends of the Earth Europe.  As that title makes clear, it's about an aspect of the ISDS mechanism that has so far been overlooked: the fact that the EU has *already* suffered as a result of the inclusion of ISDS in other agreements.  As such, they give a foretaste of what's likely to happen if ISDS is included in TTIP (and CETA):

One of the European Commission’s arguments supporting the inclusion of the mechanism in those trade deals is that EU member states have already signed thousands of trade and investment agreements, which include such investor-state dispute arbitration. Investor-state arbitration has become a consistent feature bilateral investment treaties (BITs), with EU member states being party to some 1,400 BITs including ISDS since the late 1960s. So the European Commission says it should be part of the agreements now under negotiation.

What the European Commission rarely mentions is how often this mechanism has been used against EU member states, and how much this mechanism has cost EU taxpayers. The ongoing negotiations of trade and investment agreements – including the Transatlantic Trade and Investment Partnership, the Transpacific Partnership, and negotiations between the EU and the US respectively with China – are unprecedented in size and scope, and would drastically expand the extent of foreign direct investments covered by investor-state arbitration. Such an expansion would risk seriously undermining governments’ ability to regulate for the protection of people and the environment.

Here are the report's key findings:

127 known ISDS cases have been brought against 20 EU member states since 1994. Details of the compensation sought by foreign investors was publicly available for only 62 out of the 127 cases (48%). The compensation sought for in these 62 cases amounts to almost €30 billion.

The total amount awarded to foreign investors – inclusive of known interest, arbitration fees, and other expenses and fees, as well as the only known settlement payment made by an EU member state – was publicly available for 14 out of the 127 cases (11%) and amounts to €3.5 billion.

The largest known amount to be awarded by a tribunal against an EU member state was €553 million in the Ceskoslovenska Obchodni Banka vs. Slovak Republic case (1997).

The report is valuable not just for bringing all these figures together for the first time, but for providing details of several of the most significant cases.  They're all well-worth reading, since they flesh out the otherwise rather dry ISDS concept.  I'd like to focus on one, which raises some particularly important issues.  Here's the report's summary of the case:

The Micula brothers invested in the North West region of Romania – setting up multiple food processing, milling and manufacturing businesses. In 2005, the claimants initiated a dispute against Romania seeking compensation to the tune of €450 million. The case emerged following a series of decisions taken by Romania, which altered or withdrew a number of investment incentives (ie: exemptions from custom duties and certain taxes) that had previously been offered to the Micula brothers in support of their investment in a disadvantaged region of Romania. Romania argued that the regulatory changes they made were warranted, as they were implemented as part of the lead up to accession to the EU in 2007. In December 2013 the tribunal found Romania in breach of the Sweden-Romania BIT and obliged to pay more than $250 million (€183,311,335) in damages.

Clearly, $250 million is a lot of money for a government like Romania to find, money that will have to be taken from other areas of the country's budget - perhaps things like health provision and education.  That's bad enough, but what's really problematic here is that Romania withdrew the investment incentives involved in the case because the European Commission required it as a condition of Romania's accession to the European Union:

The Micula vs. Romania case has incited a great deal of interest, particularly in relation to the sovereignty of EU law. The European Commission (EC) intervened and attempted to convince the tribunal that the actions implemented by Romania were taken in an effort to comply with EU law obligations to eliminate state aid (ie: subsidies and incentives). The Commission argued that if the tribunal ordered Romania to pay compensation it would be considered state aid under a different pretense. The arbitrators were not swayed by the EC’s interventions and, in relation to the enforceability of the final award, drew "attention to Romania’s obligations under the ICSID Convention to comply with the final ICSID awards."

Put simply, what that means is that the tribunal ruled that when it came to protecting investments, EU law should be ignored - a real slap in the face for the European Commission, which had made a direct intervention to avoid just such an outcome. 

This is the key problem with ISDS: it places the rights of corporations above the rights of nations - indeed, in this case, above the rights of the EU to determine law within its borders.  ISDS cannot be "fixed", as the European Commission would have us believe, because it was designed with exactly this purpose in mind: it was introduced as a way of protecting investments in countries where the local rule of law could not be depended upon.  Since that is manifestly not the case in the EU or US, it serves no purpose other than to undermine the strong legal systems there.  The only solution is therefore to drop ISDS from TTIP, CETA and all future agreements.

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TTIP Update XLV

The TTIP negotiations are in trouble.  After 18 months of talks, the EU and US have precious little to show.  And external factors such as the imminent Presidential race in the US means that time is running out to get the deal signed and sealed.  Against that background, there is signs of a (rather feeble) attempt to put “rocket boosters” under the negotiations, as David Cameron likes to phrase it - although he forgets that rocket boosters can also explode on take-off, destroying their cargo completely.

For example, earlier this week the UK government published a Web page entitled "Transatlantic Trade and Investment Partnership (TTIP): benefits and concerns".  Rather surprisingly, it consists entirely of re-heated numbers that I've debunked in earlier TTIP Updates.  Is that really the best they can do? Curiously, TTIP proponents are calling for a political debate based on "facts" and "hard evidence".  I say: bring it on, because the facts are actually pretty damning for most of the hyperbolic claims made by the European Commission as pro-TTIP governments like the UK's.

Always in search of facts about transatlantic trade, I was delighted to come across a publication [.pdf] from the American Chamber of Commerce to the European Union among others, detailing the transatlantic economy 2013. These are figures from a strongly pro-trade group, and surely represent precisely the kind of "facts" and "hard evidence" that supporters of TTIP are calling for.  So let's take a look at some of the key areas.

US-EU merchandise trade totaled an estimated $650 billion in 2012, up 68% from $387 billion in 2000.

In other words, transatlantic trade is already huge, and growing.  So the idea that we desperately need TTIP to make that happen seems curious to say the least.  What about US investments in Europe?  Some figures from the report:

The US and Europe are each other’s primary source and destination for foreign direct investment.

Europe has attracted 56% of US global foreign direct investment (FDI) since 2000.

On a historic cost basis, the US investment position in Europe was 14 times larger than the BRICs and nearly 4 times larger than in all of Asia at the end of 2011.

Here's European investment in the US:

European investment in the US, on historic cost basis, was $1.8 trillion in 2011, 71% of total FDI in the US.

even in bad year 2011 Europe’s investment flows to the US were 7 times larger than to China.

In 2011 total assets of European affiliates in the US were an estimated $8.6 trillion. UK firms held $2.2 trillion; German firms $1.5 trillion; Swiss and French $1.3 trillion each; and Dutch firms $959 billion.

So, the "facts" and "hard evidence" suggest that transatlantic trade is booming; in particular, transatlantic investment is at dizzyingly-high levels - and all of that has taken place in the absence of ISDS.  The argument that TTIP "must have" ISDS in order to keep the investment flowing is not just wrong, but an insult to our intelligence.

Another area where I would like to see some facts and hard evidence involves claims about the alleged boost that TTIP will give to the EU and US economies.  I've debunked the 119bn euros figures regularly trotted out by the European Commission - but without explaining that this is a best-case result in 2027 - on a number of occasions.  I've also noted that there is criticism of the basic modelling technique used in the CEPR study paid for by the European Commission, something known as "Computable General Equilibrium" (CGE).  But I have recently come across a fascinating document from the European Court of Auditors, which describes itself as "Guardians of the EU's finances".  Here are a couple of things that august body has to say about the use of CGE models [.pdf]:

Both the Commission and the external consultants have also highlighted the inherent limitations of the CGE model:

(a) the CGE model can only be used for simulation purposes and not for forecasting and its simulation of long‑run effects is tenuous ;

(b) its somewhat tautological construction, i.e. all results are implicitly linked to the assumptions and calibra tion made

In other words, not only is it impossible to make forecasts with CGE models - let alone ones out to 2027 as the CEPR model does for TTIP - but the results are more or less built in to the assumptions of the model anyway.  That 119bn euros GDP boost cited endlessly by the European Commission is looking shakier than ever.  But there's actually an even more profound problem with the quantification of the claimed benefits of TTIP.  These are explored in a brilliant blog post by Martin Whitlock, whose analysis of TTIP I have cited before. 

The post is entitled 'The E.U. needs to learn the true meaning of "wealth" ', and Whitlock begins by referring to recent moves by the new European Commission:

Reports emerging from the European Commission last Thursday suggest that two key environmental proposals may be dropped from its programme. The object is to reduce the number of regulations with which businesses must comply.

If true, the associated losses could be considerable. The Clean Air package could deliver “monetised air quality benefits” of up to €151 billion per year by 2025, according to the E.U.s impact assessment. The Circular Economy package, which is focused on recycling, offers net savings to businesses of a staggering €604 billion through “resource efficiency”. To put that in context, the controversial Transatlantic Trade and Investment Partnership (TTIP) promises a boost to E.U. GDP of €120 billion by 2027 in the best case scenario.

Why would the Commission want to drop widely-supported proposals for clean air and recycling worth a potential €755 billion between them, while pursuing a controversial trade deal worth €120 billion at best? The answer lies in the provenance of those numbers, all of which are measuring different things.

His post then goes on to analyse this situation, and shows how much of the problem is that the debate around TTIP tends to focus selectively on a few misleading numbers - like 119bn euros.  Doing so ignores the broader context - and the availability of other, rather different, solutions:

A clean environment ... provides direct social benefits for everybody. The additional costs incurred by business will be repaid in spades by improvements in quality of life and human wellbeing. In this scenario, corporate profits may grow less quickly, but the totality of human wealth has greater potential for sustained increase in the longer term.

Whitlock concludes:

If the E.U. is keen to assert leadership on these issues, it could do worse than reflect upon what “wealth” really means for its 500 million citizens. Higher corporate profits extracted from an increasingly “flexible” labour market is probably not the answer to this question. Among possible alternatives: clean air to breathe; an affordable place to live; a fair share in the wealth that society produces and the time to enjoy it. All things that GDP can’t measure and which form no part of what  "economic growth" currently means.

That's a truly profound reflection that the European Commission should really take to its heart - but won't.

Full list of previous TTIP Updates.

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