Even though some reservations about the EU-US free trade deal are misguided, issues they raise are important.
The Transatlantic Trade and Investment Partnership (TTIP) is the most ambitious trade and investment agreement ever attempted. This is due both to its scale – the EU and US together account for nearly half of world GDP – and because, in tackling non-tariff barriers to trade, a deal could set the template for a new generation of 21st-century trade and investment agreements. The net and long-term effect of an agreement would be to boost employment and prosperity among EU member states and in the US. Its value to the EU in trade terms has been estimated to be greater than all other EU trade agreements combined.
TTIP aims at including all the characteristics of a free trade agreement and an investment protection agreement. But those features by themselves would not transform transatlantic business, as transatlantic trade – particularly in goods – is already very open. TTIP is therefore designed to go further, tackling a maximalist range of non-tariff and regulatory barriers to trade and investment in both goods and services.
TheCityUK believes strongly that TTIP’s proposed arrangements for regulatory coherence should include a process for identifying, tackling, managing and preferably removing obstacles and preventing them from occurring in ways satisfactory to both sides. This is its key strength, but also the reason why it has provoked controversy from a range of interest and lobby groups, some of which even suggest that it is somehow a plot by governments and business against citizens and consumers. Why?
Much, but not all, of the answer lies in TTIP’s proposed investment protection provisions – or in one particular feature, investor-state dispute settlement (ISDS). This is a process which would allow investors an avenue to pursue host states if their investments were illegally expropriated, either directly or through other less direct means. Critics claim such provisions lack transparency, restrict the right of governments to regulate and pose a threat to education, the environment, labour standards, the developing world, food standards, democracy and, in the case of the UK, the NHS.
This has become the central focus for the many myth-busting documents produced by governments and organisations dealing with TTIP. The myth-busting is needed because TTIP’s opponents are so convinced of these dangers that, when challenged, their response tends to be simply: ‘I don’t trust you’.
For example, when the outgoing EU trade commissioner was in London in June he explained why there was no threat to the NHS, elaborating on the point in a Q&A session with the audience. He was met with a wall of disbelief. This helps to explain why, five months later, the commission is still sending letters stating that nothing in TTIP will lead to privatisation of the NHS. The same message was delivered by the UK foreign secretary at TheCityUK’s recent annual dinner.
However wrong and misguided these lobby groups are, the issues they raise cannot just be ignored. So what is the reality of ISDS?
TheCityUK is clear that investment protection agreements must include protections against direct expropriation. Recent nationalisations in Argentina or Venezuela are a reminder of the importance of these basic protections. A foreign investor’s greatest risk is to be deprived of an investment, in other words to be expropriated without compensation. Sadly, recourse to local courts does not always lead to protection or compensation.
One of the fundamental protections provided by ISDS is therefore an impartial forum to hear cases of expropriation and provide fair, prompt and effective compensation. Taking ISDS out of TTIP or other agreements would simply set in train a two-tier system of states – the trustworthy and the untrustworthy. Political risk is a growing feature of business decision-making and this scenario would not favour investment in some of the poorest markets or the fastest-growing.
Critics have suggested that investors should be required to exhaust all domestic remedies by seeking redress through the judicial system of the host country before resorting to ISDS. But this would undermine the very reason why ISDS is included in most investment agreements. It depoliticises a dispute by providing for a neutral panel to examine whether a host government has breached its treaty obligations.
ISDS may also be needed if investors find that a specific dispute related to their investment cannot be tackled through the host state’s domestic legal system. As for transparency, TheCityUK rejects allegations that ISDS is all about a secretive panel of corporate lawyers. It is not, but we favour making the investment dispute resolution system more open to third parties to better understand the process and what it is and what it is not.
The debate over ISDS in TTIP must not divert attention from the real prize. Achieving an ambitious and comprehensive TTIP remains a key objective for TheCityUK. TTIP is strongly supported by the prime minister and also has business backing in the UK, across the EU and in the US.
It continues to hold huge potential for financial and related professional services, as well as for the wider economy that the industry serves. Job creation and economic growth that Europe and the US both need are the heart of TTIP. These are the realities that should be at the forefront of negotiators’ minds as they seek to secure a positive conclusion to the negotiations.
Gary Campkin, director, international strategy, TheCityUK
TheCityUK is a lobby group promoting the financial and professional services industries