A Full Frontal Assault on Democracy - The Transatlantic Trade and Investment Partnership (TTIP)

Karel De Gucht

No not by terrorists but as a result of a more sinister threat from within!

Under a secret EU mandate written by the EU trade commissioner Karel De Gucht and dated 17 June 2013, an agreement is currently being negotiated between the USA and the EU to remove both tariff and non-tariff barriers to transatlantic trade. 

Why is the EU Mandate Secret?

The EU Mandate has only ever been released in English and the document is marked “EU Restricted”.  Previous trade negotiations have failed when the terms of a potential agreement were leaked.  Releasing it only in English will make it more difficult to circulate among the EU member countries and more difficult to leak it to the public.  The document has, nevertheless, been leaked and is available to read here. 

The mandate includes various clauses which aim to protect the interests and traditions of the EU and its member states, but all of these can be overturned by the "Investor-State" protection mechanism described below.

Leaving aside, for the moment, any claims for economic benefits, and ignoring the clear cut advantages of the removal of import duties on both sides of the Atlantic, what will be the other effects of such a trade agreement? 

Removal of non-tariff barriers to trade

Non-tariff barriers to trade can be anything from product labelling regulations, to employment law, to state subsidies, to manufacturing standards - not forgetting Health and Safety requirements.  This Wikipedia article lists 28 different types.  

It would be virtually impossible to conduct multilateral negotiations in all of these areas and successfully remove the majority, or even a significant proportion, of such non-tariff barriers so the EU Mandate envisages a different approach.  It gives the power to private companies to identify non-tariff barriers, which adversely affect their ability to compete in a particular nation, and then to challenge the national government in an arbitration.  Clause 23 of the EU Mandate promotes the inclusion of "investor-state dispute resolution" clauses in the agreement which are intended to achieve this objective.

Investor-State Dispute Resolution Clauses

As the mandate currently stands any private company, which wishes to invest in another country in the TTIP trading bloc, will have the right to challenge national or local laws, regulations or standards if they consider that these put them at a disadvantage compared to the situation in their country of origin. This short video explains it well.

If you think that I’m exaggerating about the scope and power of this mechanism, it has already been demonstrated in the 20 year old North American Free Trade Agreement (NAFTA), and is about to happen under the Trans-Pacific Partnership. 

Examples of Arbitration Cases under the NAFTA

1. In Canada, the courts revoked two patents owned by the US drugs firm Eli Lilly, on the grounds that the company had not produced enough evidence that they had the beneficial effects it claimed. Eli Lilly is now suing the Canadian government for $500m under the NAFTA provisions, and demanding that Canada’s patent laws are changed.  
2. The American chemical company Ethyl prosecuted Canada for a 1997 law which outlawed a diesel additive containing manganese in the form of MMT, a neurotoxin. This compound is banned in all developed countries and 85% of all fuel sold in the USA is free of MMT.  Under the NAFTA provisions, Ethyl was awarded $13 million in compensation and Canada had to amend the law and make a statement to say that there were no known adverse health effects of Ethyl’s product. 
3. An ongoing case against Canada concerns a toll bridge owned by the Detroit International Bridge Company, which links the American and Canadian towns, both called Windsor, on either side of the river Detroit.  The original bridge, which carries 25% of the trade goods between the two countries, was saturated. Canada obtained an agreement with the State of Michigan to build another bridge with public funds.  The Detroit International Bridge Company is claiming $3,500 million in compensation because it considers that it has the sole rights to a bridge crossing in that location and any toll revenues that might be generated. 

Independent Arbitrators and their Role

If the TTIP agreement is passed, in a form which mirrors previous US trade agreements, the mechanism for ruling on such “investor-state dispute” claims will be by means of an arbitration by three international lawyers. Under agreements which the USA has already negotiated, such as NAFTA, there is no appeal process, the meetings are held in secret, judgements do not have to be published and are binding.  There are no checks and balances, there is no transparency and the arbitrators are lawyers who usually work for private companies. They are paid by the hour. There is no supra-national body overseeing the selection, standards of independence and conduct of arbitrators, nor the way in which they function. 

It’s also a one way process.  The litigants have all been private companies and the defendants have all been nations. Under such an agreement a litigant cannot sue the government in its country of origin.

During 20 years of the operation of the NAFTA agreement Canada has had 30 cases brought against it by private US companies and it has lost 30 times. Mexico has had 5 cases against it by US firms and has lost 5 times resulting in compensation payments of $204 million. Canada and Mexico have brought 22 cases against the US and the US has won 22 times.   All together it’s an outstanding record for so-called independent arbitrators.

Juan Fernandez-Ermesto

Here’s what one of the arbitrators, Juan Fernandez-Armesto, says about his role.

“When I wake up at night and think about arbitration, it never ceases to amaze me that sovereign states have agreed to investment arbitration at all … Three private individuals are entrusted with the power to review, without any restriction or appeal procedure, all actions of the government, all decisions of the courts, and all laws and regulations emanating from parliament.” 

The Effect on Policy Making

But there's another danger. To quote George Monbiot in his article in the Guardian - 

“Even if these suits don’t succeed, they can exert a powerful chilling effect on legislation. One Canadian government official, speaking about the rules introduced by the North American Free Trade Agreement, remarked, “I’ve seen the letters from the New York and DC law firms coming up to the Canadian government on virtually every new environmental regulation and proposition in the last five years. They involved dry-cleaning chemicals, pharmaceuticals, pesticides, patent law. Virtually all of the new initiatives were targeted and most of them never saw the light of day.” Democracy, as a meaningful proposition, is impossible under these circumstances.” 

What are the Consequences?

A Race to the Lowest Standards

So typically, between the USA and the EU who has the lowest standards?  Of course you already know! 

Genetically modified crops; chlorine rinsed chickens and hormone treated beef and pigs are normal in the USA but have all been rejected by the EU.

So you might say we’ll choose not to buy US goods, but be aware that in March 2014 the Americans proposed that all markings of geographical origin should be removed from all consumer goods, including wines.

The Imposition of Fracking

Fracking to produce gas from schist is well developed in the USA, but following public pressure permits have been refused here in France. 
Under clause 37 of the Mandate, however, free and lasting access to raw materials, including sources of energy, must be granted to private firms.  In France everything from 100 metres below your property downwards belongs to the state, so one wonders how France and the EU will deal with this contradiction.

A US company Lone Pine is already suing Canada under the NAFTA investor-state protection clauses for US$250 million over a moratorium on controversial shale gas extraction (fracking) in Quebec. 

Health Services

Many US citizens consider the concept of the UK National Health Service (or the French Securité Sociale) to be dangerously socialist.  Remember the bitter fight Obama had with the Republicans when introducing his healthcare legislation?  
Public services are included in the scope of the EU Mandate. Under clauses 15 and 24, a private US healthcare company wishing to set up a hospital in the UK could demand central government funding on the same basis as an NHS hospital trust.  If this was refused they could launch a case for arbitration.

Alternatively they could demand compensation for unfair (subsidized) competition and demand that the state run institution be privatized.  Since health provision under the nationalized NHS in the UK costs around 5% of GDP and in the USA the total spend is estimated at more than 17% of GDP, it's clear that private companies would have a financial incentive to dismantle the NHS and push up fees and costs.

Fundamental US/European Differences Concerning the Role of Government

The US and Europe have very different ideas concerning the role of government. Reducing "BIG Government" is a rallying cry for Republicans. In Europe it is considered that governments and the EU are mandated to act in order to regulate and protect their citizens and the environment.

Retrospective Class Actions

In the US it’s up to individuals, after they have been adversely affected by a private company’s actions, to get together and mount a class action against the company.  They have to prove cause and effect to a jury, but when they do damages are colossal and can include a punitive element, which acts as a disincentive to similar companies to risk the same results.  The law firm, of course, takes their 40%.

Goodbye to the Precautionary Principle

In Europe we expect national governments, or the EU, to vet the safety of food and consumer goods before anyone has suffered injury or loss through inadequate testing or insufficient monitoring. 

Under the “Investor-State dispute resolution” clauses of the TTIP any such precautionary approach can be challenged and compensation demanded on the grounds that the risk of adverse effects is not proven. If the government loses, not only must it pay the compensation but also amend or repeal its laws. 

So because of its very dissimilar history and traditions Europe works differently from the USA and makes itself a soft target for any multinational US company seeking compensation under the “Investment Protection” clauses included in any eventual agreement. 

The Economic Benefits - London Centre for Economic Studies Report

So why would any government, not to mention the whole of the EU, give up their sovereignty and freedom of action in such a way?  Surely they must be expecting enormous benefits in terms of growth and employment!

Less than a 0.5% increase in GDP by 2027

In their comprehensive study report, prepared at the request of the EU commission, entitled “Reducing Trans-Atlantic Barriers to Trade and Investment”, the London Centre for Economic Studies in table 16 on page 46 predicts a 0.48% increase in Gross Domestic Product averaged across the whole EU by 2027 (the end date for the extrapolation of their economic model).  This is for the most ambitious scenario that they examined involving the removal of all tariff barriers and 25% of the costs of non-tariff barriers to trade.

Interestingly the EU Commission press release of 14 June 2013  quotes from 0.5% up to 1% of increased GDP (which don’t forget is not expected to be achieved before 2027). They seem to have added another speculative 0.5%!

Neither the LCES study nor the EU’s explanatory document “Transatlantic Trade and Investment Partnership - The Economic Analysis Explained”,  issued in September 2013, attempt to quantify any overall employment benefits (see paragraph 2.2.3).  Although the LCES study does find that the disruption between employment sectors, i.e the transfer of employees from shrinking sectors to expanding sectors, will be well within the normal annual levels and not significant in a flexible labour market.

If you have the time listen to Karel De Gucht answer a few hard questions.

Conclusions

So the benefits from the EU’s own reputable economic study are minimal, representing less than 0.5% increase in GDP across the EU by 2027.  The risks to EU governments from arbitration claims and to European standards for the protection of its citizens and the environment are, on the other hand, high and these start from the moment the agreement is ratified.

Governments would hand over their rights to regulate and take decisions to private firms whose only concerns are profitability and which are only answerable to their shareholders.

If it succeeds in its present form, and the investor-state dispute resolution clauses are based on previous “Trade Agreements” involving the USA, it will be a charter for private companies to impose their narrow commercial viewpoint on national governments. At the same time they would profit by doing nothing except launching a case for arbitration.

So forget the centuries of measured and cautious development, under a democratic process, of European legislation concerning environmental protection, consumer protection, working conditions and public services.  Say hello to a Europe in which the standards in all those areas are driven downwards to the lowest level by private multinational companies in the name of free trade and fair competition.

I agree with George Monbiot that the negotiation of a treaty based on the current EU mandate is “A Full Frontal Assault on Democracy”. 

What Can You Do About This?

Firstly, spread the word to all your active friends and contacts.  The more people who know about this, the less likely it is that an agreement will be signed in its present form without significant changes to the Mandate.

Secondly, find out the contact details for your European Parliamentary Election candidates.  Write to them asking what they think about the secret negotiations for the TTIP and wait for their replies.  If they don’t answer, or you don’t think that their answer is well informed and shows awareness of the issues, you will know what to do on Election Day!

It’s not a Done Deal!

Under recently granted powers the European Parliament has to ratify any such agreement, and the agreement itself must be passed unanimously by all EU Member States.

The European elections are programmed for 25^th May 2014.

Raoul Marc Jennar
Thanks to Raoul Marc Jennar who is busy touring France to alert people to the risks of the TTIP using public meetings.  He calls it "Le Grand Marche Transatlantique - GMT".  He has published a short book on the GMT in French and he will make his Powerpoint presentation, which is also in French, available to anyone who asks for it here.  He speaks good English so if you don't speak French don't worry.