Transatlantic trade deal: a tipping point?

An outbreak of transparency by the European Commission has given the legal profession the opportunity to ensure that the negotiation of the Transatlantic Trade and Investment Partnership (TTIP) between the US and EU supports access to justice and safeguards parliament’s and the government’s flexibility to make rules in public policy without fear of sanction.

An EU consultation on TTIP had already generated a remarkable 150,000 responses. And, after initially suggesting that they needed to be secret, the EU last month declassified its 2013 directives for negotiation. We can now all discuss the safeguards for national decision-making, and rise to the challenge of the negotiating directives, in particular that: ‘The agreement should recognise that sustainable development is an overarching objective of the parties’ (paragraph 8).

When it comes to trade, all countries stand to benefit from the stability and confidence that a rules-based global treaty can provide. So what TTIP says and how it is negotiated matters for us all. As the EU trade commissioner described it: ‘This deal will set the standard – not only for our future bilateral trade and investment but also for the development of global rules.’

Developing countries will be affected by these standards, so it is legitimate to consider the impact on them, although currently they have no say in the negotiations. In the UK, TTIP challenges us to choose how and by whom we want rules to be decided on issues ranging from cigarette packaging and minimum unit prices for alcohol, to fracking and biofuel subsidies, and from banking and insurance to the price of medicines.

Two key legal principles are involved: who has the authority to make legislation; and who has the authority to resolve disputes. A third concern is that free trade agreements may restrict access to medicines by imposing stricter levels of patent protection than have been agreed in the World Trade Organisation Agreement on Trade-Related Aspects of Intellectual Property Rights.

The International Institute for Sustainable Development and others have raised concerns that Canada is being sued under investor-state arbitration for €500m under the North Atlantic Free Trade Agreement (NAFTA) for rejecting the patents on two drugs, notwithstanding two appellate court rulings in Canada’s favour.

On legislation, TTIP envisages harmonisation of regulations, including standards ranging from environmental protection to safety. The challenge in any such harmonisation is that governments may lose the space to decide on key public policy issues. We need a debate on the principles on which law-making should be taken outside national competence. This applies equally in the UK, the EU and internationally. The UN Conference on Trade and Development’s recent Trade and Development Report 2014 suggests that developing countries should consider carefully the loss of policy space when engaging in bilateral and multilateral trade negotiations. The report also suggests that so far ‘results do not support the hypothesis that bilateral investment treaties foster bilateral foreign direct investment’.

The EU’s consultation, the results of which are awaited, confirm that: ‘The key issue on which we are consulting is whether the EU’s proposed approach for TTIP achieves the right balance between protecting investors and safeguarding the EU’s right and ability to regulate in the public interest.’ The interests of developing countries should be added as well, given the global influence TTIP would have. The concern, both in the EU and in developing countries, is of a regulatory chill, in which governments are reluctant to pass laws because they fear legal challenge under the treaty.

On dispute resolution, TTIP suggests it should be outside the competence of the courts of the host state, and that it be assigned to investor-state arbitration. This means that the UK’s courts would not be able to adjudicate if US investors object in an arbitral forum to public policy decisions taken by the UK government. The draft negotiating text contains safeguards for public policy.

But past experience has shown that these will be keenly litigated (or in this case arbitrated). For example, under NAFTA, US company Lone Pine Resources Inc is suing Quebec following that province’s introduction of a moratorium on fracking. El Salvador is being sued in the International Council of Societies of Industrial Design tribunal by an Australian company for not granting it a mining permit, as the country debates the environmental and human rights impacts of mining.

Philip Morris used investor-state arbitration under the Australia-Hong Kong free trade agreement to protest Australia’s domestic legislation on plain packaging for cigarette packets. Interestingly, the TTIP proposals do not appear to envisage that states can challenge investors in arbitral procedures.

The UK’s legal dispute resolution community needs to discuss whether our courts should be displaced in favour of arbitration on these issues. This is part of a wider global discussion.  When and under what circumstances are private dispute resolution systems preferred for claims against states? The jury (or panel?) is out.

As the Economist explained in an 11 October article, Brazil’s refusal to accept arbitration does not seem to have harmed trade, and countries such as South Africa, India and Indonesia are considering following suit. The article pointed out that the intention of investor-state arbitration was to encourage foreign investment by protecting investors from discrimination or expropriation, but went on to say ‘the implementation of this laudable idea has been disastrous’.  

Ironically, this most controversial aspect of TTIP is also the most unnecessary. The US-Australian bilateral Free Trade Agreement has no investor-state arbitration, and countries such as Brazil do not consider it necessary either. The EU’s directives for negotiation have laudable aims of job creation; we should ensure that unintended adverse consequences are avoided.

Joss Saunders, general counsel, Oxfam