The Transatlantic Trade and Investment Partnership (TTIP) treaty is a proposed trade agreement between the US and the EU. The University of Warwick recently held a public event with experts in the field of international investment to discuss the details of the investor protection chapter of the treaty. Sentinel News sent Richard Grimes to report.
The TTIP treaty covers many issues in an attempt to promote trade. Tariffs and regulations are the two biggest topics, but investor protection has turned out to be the most controversial issue – in particular, the arbitration process called the Investor State Dispute Settlement (ISDS).
Critics fear that it will lead to the deterioration of workers’ rights and environmental conditions, and the privatisation of public services. The secrecy surrounding the TTIP negotiations only serves to feed this criticism.
What is investor protection?
Investor protection provides a set of rules governing how governments and local authorities treat foreign investors. If these rules are broken, the investor can seek arbitration and compensation.
Lorenzo Cotula, from the Institute for Environment and Development, said that previous such treaties contained stricter rules, which the EU Commission felt led to more disputes. Cotula said the Commission’s view is that TTIP’s “more nuanced language” would make disputes less likely, but warned that there is no evidence of this.
The most controversial aspect of TTIP is its arbitration system, ISDS, an extrajudicial process using an arbitration board made up of corporate lawyers. Investors would be able to sue national governments for breaches of the treaty, with governments potentially forced to pay damages. Governments, however, cannot sue investors in this way, because only a state that can sign the treaty and thus be in breach of it. Governments can only use existing judicial systems to sue corporations.
There is a chance that ISDS will encourage claims that would not have been brought under the domestic court system. The litigation costs alone are concerning – according to the OECD each case costs $8m, and if a government loses it may have to compensate corporations for the lost of expected profits. These damages could run into hundreds of millions of dollars.
Ruth Bergan, the coordinator of the Trade Justice Movement UK, described this as “effectively an insurance policy for foreign investors” while “we demand almost nothing from those investors for the benefit of these sweeping protections: they are not asked to meet any environmental or human rights, or even economic criteria”. She added: “Should the UK government essentially insure the business risks of an American company investing here?“
Is investor protection necessary?
Investor protection is sometimes included in trade agreements to reduce risk and thereby encourage investors to invest. However, Bergan pointed out that even the World Bank says there is no evidence to support this claim. She said that 80 percent of global investment falls outside these bilateral agreements, with investors prioritising the condition of the country’s infrastructure, workforce skills, and the accessibility of raw materials and energy.
The EU and the US are both stable investment environments. The UK government commissioned a report from the LSE which found that UK investors are already the most significant investors in the US, and that the US is the most important destination for UK investors.
Similarly, the UK is the most important destination for US investment, with a quarter of all inward development in the UK coming from the US. There is currently no investor protection agreement between the US and the UK, and the LSE report concluded: “There is no convincing evidence that past US treaties with investment protection clauses have had a tangible impact on US outward investment – even in far more risky jurisdictions than the UK.”
The report added: “It is doubtful that UK investors will find additional protections from an EU-US investment protection treaty beyond those currently provided, and enforced, under US law.”
Therefore, there seems to be no reason to protect investors via the TTIP.
Trans Pacific Partnership
Wong Chen, an MP and chief economic advisor for the centre-left Parti Keadilan Rakyat (PKR) in Malaysia, gave his experience of the negotiations for the recently signed Pacific trade treaty, the Trans Pacific Partnership (TPP). He pointed out that American negotiators claimed TPP would bring Malaysia an extra $40bn of trade over a decade. As an opponent of TPP he questioned this figure: “What revenue will the government get from this trade? If you do the simple maths, the actual earnings for the government is about $400m over ten years”. Wong Chen added that one single ISDS lawsuit could cost the government billions, dwarfing the $400m benefit.
Wong Chen said that in his first press conference as the PKR’s economic advisor, he “debunked the whole agreement with the maths”. In response, the Malaysian government commissioned two reports, one from PwC and the other from the Institute of Strategic and International Studies (ISIS).
The PwC report had a cost benefit breakdown of the economic case and concluded there was nothing to be gained from TPP. The ISIS study examined the agreement from a strategic and geopolitical point of view and said that the Chinese government was making moves into the South China Sea, and concluded from a strategic point of view that China’s “non-participation [in TPP] places the country’s policy of close and friendly relations with countries at risk”, in particular with the US.
Wong Chen said this was the main reason for these trade treaties: “TPP for developing countries is not about economics, it’s about the geopolitical issues we face between America and China.” He suggested that the same is true about TTIP and put forward that “the geopolitical issue with TTIP could be about Russia.”
Why does the British government support TTIP?
The government’s own LSE report on the investment chapter in TTIP said: “There is little reason to think that an EU-US investment chapter will provide the UK with significant economic benefits.” If there is no benefit to this country, why is the government so keen on this part of treaty?
Wong Chen’s opinion was “money politics”, saying that when negotiating investment chapters in treaties like TTIP and TPP, governments are negotiating on behalf of the shareholders of corporations. “We know that US politicians are heavily involved in ‘money politics’, we know that corporations fund most of the US elections, so we know the corporations are fully behind TTIP and TPP”.
Manuel Montes, from the South Centre, an intergovernmental think tank focused on developing countries, outlined the danger to the rest of the world if TTIP is agreed. He said it would be seen as the “gold standard” for trade agreements and used as a model for future agreements, possibly with China. Governments could argue that since the Europeans had agreed to these rules, “why don’t we import the investor provisions like ISDS into the WTO?” Then all countries would be subject to them.
Will TTIP go ahead?
TTIP is being negotiated between the US and the 28 states of the EU. Cotula pointed out that in the texts made public so far, it is unclear whether the treaty would be signed and ratified by the EU as a single entity or whether all member states would have to do this individually. If the latter, it would be a tortuous path to bring the treaty into force. Cotula referred to the recent referendum in the Netherlands that rejected the EU-Ukraine trade treaty, essentially sinking the entire deal.
Wong Chen backed this up with his experience of the TPP treaty in Malaysia. The Americans required certification within six months that Malaysian laws complied with the treaty. This was not a simple process. In the case of TPP the Malaysian Parliament modified the appropriate laws, but the likelihood of all 28 EU member states making the required changes is small. At the moment France appears to be against the treaty.
Conversely, if the treaty is ratified, the diverse membership of the EU also becomes a problem because future attempts to change or repeal it would require the agreement of all 28 members. Cotula also pointed out that often bilateral treaties have clauses that set the minimum duration of the treaty. Further, such treaties also have so-called ‘survival clauses’ that protect corporations under the treaty for a period after the treaty is revoked. Manuel Montes said that Britain has the longest survival clauses of any country besides the US – 20 years of protection.
Is the NHS at risk?
There has been a lot of publicity over whether the NHS will be affected by TTIP. The EU Commission claims that public services are protected, saying there are “solid guarantees” that TTIP will not force governments to privatise services, and that it will protect public monopolies and allow governments to renationalise privatised services.
Meanwhile John Healey, the Shadow Minister for Housing and former Shadow Health Secretary, has taken upon himself the job of convincing the public that the NHS is ‘safe’ under TTIP, a role that clearly should have been fulfilled by Lord Livingston, the trade minister. Healey secured a letter from the EU trade commissioner from the EU Trade Commissioner, Cecilia Malmström, outlining these guarantees.
When asked about these “guarantees”, Bergan said: “In Malmström’s letter she will have very carefully worded the kinds of services she was talking about. She’ll say something like ‘services provided on a non-commercial basis will not be touched’. The problem is that most of our NHS services are provided on a commercial basis, so all of those are ‘in’ and the more this or any other government privatises, the more services will become within the scope of the treaty.”
In fact, the British government recently implemented EU regulations that open up more public services to competition. Under the EU Public Contracts Directive, originally drawn up by Brussels in 2014, services including education and health must be opened to full competitive tendering.
Bergan pointed out that while Labour have made a commitment to ‘renationalise’ NHS services, under TTIP they will not be able to do this without facing a huge lawsuit: “TTIP will not prevent the UK renationalising NHS services, as long as you have money in the coffers to pay for compensation.
“Malmström is being disingenuous and it is a shame that John Healey seems to have swallowed that argument”.
It was clear that the panel were critical of the investment chapter of TTIP. There was no compelling evidence that investor protection is needed between the EU and the US. The EU and US are each other’s most important investors without such a treaty, and there is no evidence that investment would increase with one. There was evidence that such investor protection could lead to disputes that would cost governments more than any claimed benefits of the treaty.
The treaty is unpopular – currently, some three million people in the EU have signed a petition calling for it to be scrapped. But the UK government seems very keen on it, and even the official opposition have been taken in by the Eurocrats’ arguments. When asked about the most effective way to campaign against TTIP, Wong Chen pointed to the hostility of the Republican presidential candidate to Obama’s trade deals: “What can you do to stop TTIP? You pray for Trump to win!”