Transatlantic Trade and Investment Partnership Q&A
02 December 2014
Latest information on the Transatlantic Trade and Investment Partnership (TTIP)
What is TTIP?
TTIP stands for "Transatlantic Trade and Investment Partnership". It is a project for a comprehensive trade deal between the EU and the US.
Currently, trade relations between the EU and the US are subject to the rules of the World Trade Organisation (WTO), which date back to 1994. The WTO relies on a set of multilateral agreements, which apply to most countries in the world (currently 160). An ambitious reform of the WTO known as the Doha Round was attempted from 2001, but negotiations collapsed in 2008 and the process has been at a standstill since.
Countries that have wanted to develop trade further had therefore to bypass the WTO and resort to bilateral or plurilateral trade deals. The EU has in recent years done trade deals with countries such as Korea, Colombia, Peru and Canada. Negotiations are on-going with many others, such as India or ASEAN countries. TTIP takes place in this context.
If negotiations with the US are successful, the resulting agreement would be the largest ever bilateral trade deal as the EU and the US account together for over half of all global production, and a quarter of all global trade (24% of world export and 27% of world import).
Who's responsible for it?
Any trade deal has to be ratified by elected representatives. In the EU, trade is an exclusive competence of the European level. The European Parliament and the European Council are therefore responsible for endorsing or rejecting any trade deal. In addition, the vote of all national Parliaments of the 28 EU member states may be required for certain types of agreements, when they contained measures of shared competence between the Union level and the National level. Due to its scope, it is extremely likely that TTIP will be qualified by the European Council as such a 'mixed agreement'. Therefore the UK Parliament will most probably also have to vote on it.
In the EU, officials from the Trade Directorate General (DG TRADE) of the European Commission are responsible for all trade negotiations. They answer to the Trade Commissioner, who is politically responsible before the European Parliament and member States' Trade Ministers, including Lord Livingston for the UK.
The EU trade negotiators operate on the basis of a binding mandate they have received from the Head of States and Government of the European Union. For TTIP, the mandate was adopted on 17 June 2013, and published on 9 October 2014.
What's in TTIP?
There is nothing in TTIP yet, as nothing has been agreed to date. Substantial negotiations only just started, in October 2014, after 6 rounds of preliminary talks. Proposals have been made by both the EU and the US on some elements such as tariffs reduction. But for some other important elements, such as labour rights and environmental standards, no proposal texts have yet been exchanged.
The way these negotiations are conducted is that nothing is agreed until everything is agreed. So we will not know for sure what is in TTIP until the moment the negotiations are concluded.
The Commission's mandate provides the only definite indication to date regarding the scope of the agreement. The mandate instructs the Commission to negotiate an "ambitious, comprehensive [and] balanced" agreement on trade and trade-related areas. The mandate further specifies that the agreement shall contain measures on trade in goods and services (but not including currently publicly-funded public services), investor protection (including an Investor-State Dispute Settlement, or ISDS), public procurement, intellectual property rights and so-called 'regulatory issues and non-tariff barriers', which are the obstacles to trade resulting from unnecessary and incompatible rules and standards. The mandate further specifies that TTIP should safeguard all necessary rules and standards with respect to health, safety, consumer, labour and environmental protection and cultural diversity.
In addition, we can also derive information that can be relevant for TTIP from similar trade deals. In particular the recently concluded agreement with Canada (the 'Comprehensive Economic and Trade Agreement' or CETA) has been presented as a blueprint for TTIP and as such can provide some insight on the Commission's stance on certain issues, such as investor protection or public services.
When will the negotiations be concluded?
Negotiations officially started in June 2013, with the objective to conclude by mid-2014. Negotiators missed this deadline as preliminary talks could not lead to substantial negotiations in such a short timeframe. They are now looking at concluding by the end of 2015, but this is very optimistic. In fact, it is quite likely that TTIP will take much longer. It might not even be concluded in the life of the current European parliament (2014-2019).
Why are the negotiation secret and how can we improve transparency?
Trade negotiations are usually conducted in secrecy as each side s negotiating power partly depends on its ability to keep some information away from the other side. This confidentiality imperative has been to date implemented in a very rigid way by the European Commission although greater disclosure was achieved on TTIP compared to other trade negotiations, as a result of pressure from MEPs and civil society. For instance, the Commission negotiating mandate was eventually disclosed a little over a year after it was adopted. The Commission had requested the document to be declassified earlier, but it was ultimately the call of heads of states and governments.
Labour MEPs have repeatedly pressed the European Commission for greater disclosure of documents to the public, as well as unlimited access by MEPs. We asked for the publication of the proposals ('offers') that were made by the EU to the US, in particular on services, as there are no tactical reasons to continue keeping them away from the public.
The new EU Trade Commissioner committed at her confirmation hearing in the European Parliament to increase overall transparency, and announced a set of specific measures in this respect on 25 November 2014 which addresses all of our requests.
Could TTIP affect public services?
The EU always secures the exclusion of publicly funded public services in all its trade deals, and this is explicitly requested in the Commission's TTIP mandate (paragraph 20). This means that TTIP will not impose any new commitments to these public services in the EU. Crucially, TTIP cannot force the privatisation of any public service.
This general exemption does not however exclude public services that have already been put out to tender and are therefore not publicly funded anymore. And it does not fully guarantee that EU national governments would retain the right to nationalise or renationalise services, because of the inclusion of ISDS (see below).
How can we guarantee that TTIP fully excludes public services?
The chapter on services of TTIP will most likely take the form of a negative list (at the request of the US), in which everything not excluded is automatically in.
Labour MEPs are extremely critical of this approach, as it is much more ambiguous than the traditional positive listing approach that the EU has been using thus far. Negative listing imposes to anticipate and plan for all scenarios, such as a possible repeal of the 2012 Health and Social Care Act by a future Labour government.
Labour MEPs have therefore been actively seeking to secure comprehensive exemptions to ensure that all public services, including public services that were privatised under the Health and Social Care Act, are excluded from TTIP. The exemption must in particular cover health, social services and education in both annex I (exclusion for currently publicly funded public services) and annex II (exclusions that can be maintained or introduced in the future). Only the UK government can ask for UK-specific exemptions.
Once the agreement is finalised, we will analyse very carefully the exemptions obtained and take our decision on whether or not to support TTIP on this basis.
ISDS stands for Investor-State Dispute Settlement. It has been part of the EU and US approach to investor protection in investment treaties with developing economies in recent years, and have become a standard clause in trade agreements worldwide. Prior to investment becoming an exclusive EU competence in 2007 EU member states, including the UK, have routinely included ISDS clauses in their own Bilateral Investment Treaties with developing countries.
The EU first negotiated such investor provisions in CETA. This agreement is the first concluded between developed countries containing an ISDS. Another recent trade deal with Singapore also contains an ISDS. The Singapore and Canada agreements, which both await ratification, provide an indication on the European Commission's stance with respect to TTIP. The Commission has furthermore carried out a public consultation on ISDS over the summer of 2014. It is expected to respond to the consultation by the end of the November.
The rationale for investment protection provisions in trade deals is that foreign investors are at risk of being treated unfairly as international law does not offer sufficient guarantees in this respect. ISDS is therefore seen by the European Commission as an instrument to protect EU investors abroad and create an incentive to foster foreign investment in Europe. Investment chapters in recent EU trade deals set out specific rights for foreign investors, such as protection against expropriation and discrimination. They also create a litigation mechanism, ISDS, to resolve conflicts when they arise and enforce the investment protection provisions contained in the agreement. ISDS is a private arbitral tribunal which is fully independent from the governments and the legal systems of both parties to the agreement. Typical ISDS tribunals are made up of three judges: one appointed by the claimant, one by the defendant, and one by both. ISDS judgements are binding, and they can lead to fines.
What are the risks with ISDS?
ISDS raises a number of concerns, which have also been illustrated by a number of recent cases, such as the claim made by Philip Morris against Australia for introducing plain cigarette packaging or that of Veolia against Egypt for increasing the minimum wage.
It grants different rights and create a different jurisdiction for foreign investors compared to domestic investors, which can result in unfair competition. It is also more open to abusive claims and disproportionate judgements than a mature legal system, as the rules laid out in investment chapters of trade deals can never be as comprehensive as domestic law and related jurisprudence. Such abusive claims could hinder public authorities' ability to implement policy change and to regulate the economy, either directly through ISDS rulings or indirectly through procedural threats.
ISDS furthermore lacks transparency, as it is not subject to normal judicial proceedings rules. It is at risk of conflict of interest and corruption, due to the number of judges, the narrow pool of international layers from which they are selected, and the total absence of democratic scrutiny of the process.
Can ISDS be fixed, or should it be scrapped altogether?
The Commission has been attempting to fix ISDS in the CETA negotiations, in response to analysis carried out by progressive MEPs, civil society organisations and Trade Unions. ISDS clauses in old bilateral investment treaties negotiated by EU Member States are typically contained in just one paragraph stating general principles. They therefore leave huge loopholes, and have been used for abusive claims. In contrast, the most recent investment chapters in CETA and the Singapore agreements are over 40 pages long and attempt to close some widely used loopholes.
For instance, a Canadian investor would have to have 'substantial business activities' in Europe in order to have access to ISDS. This clause would therefore make it impossible for shell companies to abuse the system. Rules governing the treatment of expropriation have also been tightened. A government in the EU would be allowed to take a policy measure that would result in expropriating a foreign investor's property if it is for a public purpose, under due process of law, in a non-discriminatory manner and against payment of "prompt, adequate and effective compensation", which could be no greater than the value of the investment. New regulations to protect legitimate public welfare objectives, such as health, safety and the environment could not be attacked under ISDS. Transparency would also be vastly improved.
But ultimately ISDS remains a system based on private justice, intended as a substitute for democratic jurisdictions. The legal safeguards introduced in the agreement with Canada and Singapore, such as the concept of "legitimate public welfare objectives" would remain subject to the interpretation of judges lacking any legitimacy and accountability. The reformed ISDS would also create new loopholes, such as granting legal value to investors' "legitimate expectations" about investment prospects.
ISDS would effectively create a two tier legal system, in which different sets of rules would apply to multinationals on the one hand and small firms on the other, as access to arbitration is dependent on resources. And ISDS could still be used as an instrument to coerce the EU or national governments, politically if not legally.
Labour MEPs recognise these flaws and see no reasonable justification to include ISDS in a future TTIP agreement, or other EU trade agreements with advanced economies. It is unnecessary in such cases, as foreign investors can rely on the investor protection already provided for in every mature legal system. The Chair of the International Trade Committee of the European Parliament clearly stated that the Socialists and Democrats Group, of which the Labour Party is a member, would not support TTIP if it contains ISDS.
Would TTIP lower our standards?
The Commission's mandate states that TTIP should aim at removing unnecessary barriers to trade through establishing regulatory compatibility between the EU and the US. This would be achieved through greater mutual recognition of regulations, harmonisation and enhanced cooperation between US and EU regulators. It is also stated that regulatory compatibility should not be detrimental to the EU and Member States' right to regulate "in accordance with the level of health, safety, consumer, labour and environmental protection and cultural diversity that each side deems appropriate".
Harmonisation and mutual recognition does not necessarily imply a weakening of standards. Major gains can be obtained in aligning or mutually recognising high quality technical procedures, such as car safety or drug tests specifications. The Commission has a very clear mandate in this respect and it is not allowed to agree on any lowering of our environmental, labour, occupational health and safety legislation and standards. As far as labour standards are concerned, Labour MEPs are deeply concerned about the fact that the US has not ratified ILO conventions. The European Parliament is monitoring closely developments on these matters, and Labour MEPs will judge the final text on its merits.
The Commission mandate is fairly vague on the issue of on-going regulatory cooperation, although it has presented this issue as a major objective for the EU. The risk here is that TTIP enables built-in mechanisms that could create new regulations or weaken existing ones without appropriate democratic vetting. We are opposing any such clause and will carefully analyse the EU and US offers as soon as they are tabled.
Would TTIP make any controversial foodstuff available in Europe?
Upholding the highest standards in food safety in accordance with the precautionary principle has been a constant stance of the European Union, both in domestic regulations and in international trade agreements. But there are regular challenges to the precautionary principle in the EU. Labour MEPs are committed to defending this fundamental principle of customers and environmental protection.
EU law provides for stringent authorisation procedures for Genetically Modified Organisms (GM), and leaves EU member States the possibility to impose a partial or a complete ban on GM cultivation. The Commission has made it very clear that these rules are not up for discussion in the frame of TTIP, and Labour MEPs will pay close attention that no extra quotas are granted to the US for GM products.
As for foodstuff coming from clones and their offspring, the Commission has just tabled a draft law banning the import of such products in the EU. Any deal on TTIP will have to be fully consistent with this approach.
Regarding other controversial production methods, such as hormone-treated beef or chlorine-washed chicken, the EU's stance has always been extremely clear. These methods have been banned in the EU, and the European Commission has been holding its ground at the WTO in numerous dispute settlement cases over the years. During his confirmation hearing in the European Parliament, the new Health and Food Safety Commissioner said that he would never compromise on this issue. All of these matters are absolute redlines for Labour MEPs.
What would the impact of TTIP on jobs and the economy be?
Trade deals can have distributional effects in which some sectors benefit while others lose out. But overall balanced trade deals have had a positive economic impact on the European economy in general, and on the UK in particular.
For instance the EU-Korea agreement, which has been in force since July 2011, resulted in an increase in EU exports to Korea by over one third. As a result, while Korean imports in the EU used to outweigh EU exports to Korea by £6 billion before the agreement came into force, the EU recorded a £2.9 billion trade surplus with Korea in the year up to July 2014. Sectors such as machinery and appliances, transport equipment and chemical products have all gained significantly from the Korea agreement. The EU exports of cars to Korea have increased by 90% in three years. In geographical terms, the UK has been the biggest winner from this trade deal within the EU, its exports to Korea having increased by 125% in that period. All of this new trade translates into new economic activity and ultimately new jobs.
The impact of CETA is also expected to be positive for the European economy if it is ratified, in particular in the agriculture sector. The EU obtained major concessions from Canada such as the protection of 145 European geographic indications, and only conceded limited market access improvements to Canada in return. CETA will also open unprecedented access to public procurement in Canada to EU companies.
It is still too early to tell what the impact of TTIP would be, as it largely depends on the specific content of the future agreement. The Commission argues that a comprehensive agreement could increase EU exports to the US by up to a third, with sectors such as motor vehicles,metal products, processed foods, chemicals and manufactured goods all making large gains and no sectors recording loses. But economic estimates are often made on the basis of theoretical models that assume full employment, and are to be taken with caution.
The outcome might therefore not be as positive, and the Commission's favoured figures have been contradicted in many independent studies. Regardless how large TTIP's contribution to the economy is, it has to be welcomed provided that the benefit to growth and jobs is not outweighed by negative consequences. This is why we insist on maintaining our standards, tackling ISDS and excluding public services.
Ensuring a level playing field in relation to labour standards is just as crucial to prevent social dumping and unfair competition, which could in turn have a negative impact on job creation, wage levels and the quality of employment in Europe. Labour rights are much weaker in the US than the EU and the Commission must ensure that TTIP fully addresses this situation.
We are also concerned about potential distributional effect of TTIP. They have to be carefully anticipated in order to be mitigated, but it is still too early to tell whether such distributional effects could occur and if yes in which sector. In the event that some sectors are negatively affected by the deal, the EU has financial tools to support workers affected such as the European Globalisation Adjustment Fund. Labour MEPs defend deploying and developing these instruments further where needed.
Would TTIP benefit SMES, or just big transnational companies?
The Commission has recognised that globalisation can only benefit those able to engage in it, and this is why it insists in the negotiations to open new American markets for SMEs as well as larger companies. The promotion of European SMEs is a key offensive element of the European Commission's negotiating mandate. The mandate, which binds the Commission, insists in particular on the access by SMEs to US public procurement (paragraph 24) and calls on the Commission to negotiate a chapter dedicated to trade-related aspects of SMEs. We will only be able to judge the Commission's achievements in this respect once a text has been agreed. The extent to which TTIP is favourable to SMEs will also largely depend on whether ISDS is included or not.
What would the impact of TTIP on developing countries be?
Because TTIP would be the largest bilateral trade deal ever, the standards it would set are very likely to influence subsequent trade deals between the EU or the US and third parties, as well as inspire domestic policy changes in countries across the world. This is why TTIP standards matter not just for the EU and the US but also have a much wider significance, not least with respect to labour rights and human rights.
The Commission is yet to assess the economic impact of TTIP on developing countries. It committed in 2013 to carry out a sustainability impact assessment, but has not done so to date. Labour MEPs will keep pushing the Commission to follow up on this commitment.
Some studies have shown that TTIP would have a negative impact on developing countries' volume of exports to the EU, as trade would be diverted away from them. The impact of TTIP would nonetheless entirely depend on its specific content, and is likely to be small due to the different composition of existing trade between the EU and the US on the one hand, and the EU and the US with developing countries on the other.
The conditions to which developing countries can export to the EU will not change as a result of TTIP. All Least Developed Countries (LDC) in the world benefit from duty-free quota-free access to the EU under the 'Everything But Arms' programme (49 countries in total). A further 10 'vulnerable economies' that are not considered to be LDCs benefit from quota-free duty-free access for about 2 thirds of all tariff lines under the 'Generalised Scheme of Preference +' arrangement. 25 more are eligible to the scheme. The EU is furthermore engaged in negotiating trade agreements with a number of developing countries.