October 7th, 2014
in Op Ed
This week has witnessed the seventh round of talks between EU and US negotiators seeking to hammer out a Transatlantic Trade and Investment Partnership (TTIP). These have been mired in controversy over the supposed impact that the agreement will have on the ability of countries to regulate in the public interest. These fears have been labelled as unfounded by advocates of the deal, who emphasise that the TTIP will sufficiently protect countries' “right to regulate” and not lead to a downgrading of standards.
Who is right? It is impossible to arrive at a definitive answer, both because the negotiations are ongoing and because we only have access to some of the relevant negotiating texts (the process has largely been conducted behind closed doors). All the same, it is possible to offer some preliminary thoughts. The two most controversial areas in the UK are investor-state dispute settlement (ISDS) and public services (especially healthcare), so I’ll concentrate on them.
The ISDS provisions would potentially allow foreign investors to challenge perceived violations of their investor rights in an independent arbitration tribunal, bypassing domestic courts. One prominent example of this under similar existing provisions within Europe includes the action taken in 2012 by Swedish energy company Vattenfall against the German government over the latter’s phasing out of nuclear energy. The prospect of a new transatlantic version of this power has been heavily criticised in the UK press as a “full-frontal assault on democracy” and “hand[ing] British sovereignty to multinationals.”
The idea that ISDS provisions will allow for the “striking down” of laws, as has been reported by some, is not technically correct. Tribunals are only able to award compensation. Yet they can in some cases lead to a situation of “regulatory chill” – where governments fail to legislate for fear of being challenged (with potentially negative effects for social and environmental protections).
It should be said that the ISDS provisions (based on my reading of the European Commission’s consultation on the subject) do represent an improvement on those in previous bilateral investment treaties, which have been largely signed between developed and developing countries. Most notably, they provide more wiggle-room to governments to avoid litigation in cases where they clearly regulate in the public interest; and also improve the transparency of arbitration hearings.
That being said, the proposals are still problematic. As noted by a number of prominent scholars in the field, they still leave arbitration tribunals with substantial freedom to interpret investment-protection provisions in the TTIP and do not firmly enshrine the “right to regulate” within the text of the agreement (only mentioning it in the preamble). They do not sufficiently address the broader conflicts of interest that exist within investment arbitration, which depends on repeat custom from investors. Most importantly, they enshrine the broader principle of the pre-eminence of foreign investors over domestic regulatory autonomy.
One argument that is sometimes heard from advocates of including ISDS in the agreement is that it represents an opportunity to reform the flawed dispute settlement processes laid out in previous treaties. But even if the TTIP proposals represent an improvement, they will make possible “forum-shopping,” where foreign investors choose the investment regime with the most advantageous ISDS provisions. One estimate suggested that it would lead to an increase of US foreign direct investment covered by such provisions from 15-20% to 65-80%.
All in all, this suggests that the system is still flawed. A 2013 study conducted by researchers at the London School of Economics – and commissioned by the UK Department of Business, Innovation and Skills – found that, “an EU-US investment chapter [in the TTIP] is likely to provide the UK with few or no benefits.” It found little evidence to suggest there would be economic benefits from increased investment, suggesting there was: “some reason to expect an EU-US investment chapter to impose meaningful political costs on the UK.”
Healthcare and other public services
The second issue of great concern in the UK has been the issue of public services. The fear expressed by campaigners is that the TTIP would threaten the public delivery of such services as healthcare by including explicit commitments to liberalise them – and that these should therefore be excluded entirely from the negotiations (as has been done for audio-visual services).
The assurances from the government (most notably the trade and investment minister Lord Livingston) have been that the TTIP would not affect the NHS. A letter from the European Commission to a UK MP has also confirmed that the EU is not forcing states to make liberalisation commitments on publicly funded services and that specific safeguards would protect services supplied “in the exercise of governmental authority.”
The available evidence on this issue – a leaked draft services market-access offer made by the EU in June 2014 – suggests that these assurances are not telling the full story. The UK government has also made a number of commitments in the TTIP negotiations not to retreat on liberalisation on mainly privately funded but also some publicly funded health services. This is problematic for two reasons. First of all, the distinction between publicly and privately funded services is not always clear. Commitments on privately funded services may therefore also affect publicly funded services. Secondly, this approach relies on the government explicitly excluding certain policy measures from the scope of its liberalisation commitments – with any failure to do so implying that sectors must be open to foreign competition.
On both of these points, the UK has not unambiguously protected public services in the draft market-access schedule to the agreement. Meanwhile the specific safeguards alluded to by the Commission in its letter are often seen as having a rather limited scope –- covering principally the “core sovereign functions” of states, such as defence, policing or the judiciary.
It should be stressed that the practical consequences of this are not new privatisations of public services, but rather the “locking-in” of the existing marketisation of public services, such as that undertaken under the 2012 Health and Social Care Act, which greatly increased the opportunities for private companies to compete in healthcare tenders. So while it would be wrong to say that the TTIP will lead to the wholesale privatisation of public services, it would potentially constrain governments’ ability to reverse past policy decisions to open up public services to competition as this would become a treaty-based commitment.
In sum, the likely impact of the TTIP has been exaggerated to some extent. But my tentative view is that there are some grounds for concern. Ultimately a lot depends on the politics that have engulfed the negotiations and which may limit the extent to which certain proposals are carried out. But the intended direction of travel (so far) is certainly to further entrench competitive disciplines and constrain the regulatory autonomy of states.
Gabriel has consulted for the World Development Movement and has also advised other NGOs campaigning against TTIP. This entry draws on research commissioned and funded by the Elcano Royal Institute.