The transatlantic trade and investment partnership is a proposed free trade and investment agreement currently under negotiation between the US and the European Union.
The aim of the TTIP is to reduce barriers to trade in goods and services as well as foreign direct investment, allowing multinational corporations from both regions to enjoy access to larger markets. This means that they will be able both to sell their goods and to locate their operations in the other region’s territory without so many legal barriers such as tariffs, licences or other kinds of governmental screening. For ordinary people this should mean cheaper manufactured goods and services as well as increased employment opportunities. Products will cost less, so we are told, because enhanced competition pushes prices down. Jobs will be available because there will be new employers setting up factories and opening offices. Economists tell us that the TTIP is expected to boost gross domestic product figures in both the US and the EU by well over half a percentage point each year. Given that average yearly GDP growth tends to be around two or three percentage points if you are lucky, this is no small feat for one treaty, even if it has taken years to negotiate.
Critics contend that some of the alleged benefits of the TTIP are illusory. For example, rather than create employment, it is thought that the agreement will cause firms to move from a jurisdiction with higher labour costs to one with lower costs, effectively displacing workers. This kind of thing has happened before, such as when Canada, the US and Mexico signed the North American free trade agreement in the 1990s, causing several car companies to up sticks and move south where they could pay wages in pesos. Politicians once described this move as the ‘big sucking sound’ as manufacturing vanished overnight. Similar stories exist in Europe. But just as the British may lament the closing of a factory in Newcastle, the opening of a new facility in Poland or Germany is a cause for celebration there. In a mobile labour market such as the EU, this may mean that workers who had once made the journey to the UK for work may now find themselves going home. This is why the effects of international trade and investment agreements can be so complicated, requiring close scrutiny across a range of sectors and stakeholders.
In the UK in particular there has been much nervousness that the TTIP will open the door for foreign competition in public services such as the cherished NHS, lowering the overall quality of healthcare while increasing the costs of running hospitals and GP surgeries. This is precisely the kind of controversy that stirs the emotions of voters – the very idea that access to state-sponsored healthcare could be jeopardised is political suicide for anyone. Perhaps even more controversial, especially for those who are concerned with the integrity of democratic institutions such as independent courts, are the agreement’s proposed dispute settlement provisions. Like most investment treaties, the TTIP will provide for investor-state arbitration, a procedure that allows multinational firms to bring legal claims directly against host governments for excessive regulatory interference through international tribunals, by-passing local courts.
Some see these ‘secret hearings’ as an affront to sovereignty. In a sense, this characterisation is accurate – these procedures tend to occur in private, with citizens afforded very little opportunity to participate. The arbitrators are chosen by the parties to resolve the particular dispute at hand, they are not appointed to sit permanently like ordinary judges in the UK. Moreover, they tend to have backgrounds in commercial arbitration, rather than expertise in public international law. Accordingly, they may be less prone to consider the impact of their decisions on citizens. Others rightly point out that international arbitration has a well-established pedigree and is more efficient and ultimately less expensive for taxpayers than protracted domestic litigation where judges have a relatively limited understanding of the highly technical issues involved in the interpretation of these treaties.
One example of such technicalities is the guarantee against indirect expropriation, which is common to most investment treaties including the TTIP. This provision requires host states to compensate foreign firms whose assets they have taken, a process known as expropriation. But the concept of ‘taking’ by a host government is a complex one because it incorporates not just blatant seizing of ownership, but also severe regulatory interferences – such as imposing onerous licensing requirements on foreign firms. These so-called ‘measures tantamount to expropriation’ can encompass a wide range of what might be considered normal laws. If host countries have to pay cash to firms for simple regulatory oversight, this can grossly impair their capacity to govern. It is often very difficult to know where to draw the line between regulatory expropriation and the ordinary passing of laws that affect businesses.
While the full text of the agreement has yet to be finalised, some assurances have been made by government officials on both sides of the Atlantic that there are procedures in place to ensure that public services such as healthcare will not be exposed to international competition. It remains unclear whether the agreement will contain carve-outs for certain sectors or if it will incorporate provisions that expressly allow governments to enact laws to protect the environment or public health, for example by banning certain chemicals in food. This topic remains very emotive, embracing debates on such issues as genetically modified foods (which Europeans do not appear to mind but Americans dislike), hormone-treated beef (which Americans are okay with but Europeans loathe), as well as plain packaging of cigarettes, a policy that has already stirred up controversy in Australia. The TTIP also drew the scorn of observers last year when its impact on privacy and data protection came under scrutiny. The US phone-tapping scandal showed that US President Barack Obama is ready and willing to spy on citizens (as well as world leaders such as Angela Merkel) in the name of national security.
Much of the anxiety about the effects of the TTIP are the result of exaggeration about not only what the agreement will cover, but also what the effects of increased competition will be as well as misunderstandings about the rights that it would confer on multinational corporations. As with any pulling back from entrenched protectionism, some inefficient producers will lose out, but on balance the agreement will result in major opportunities for economic growth in both regions at a time when growth is badly needed. The UK alone stands to gain upwards of £100bn over the next decade thanks to the TTIP. Perhaps most importantly, there is widespread support in both the US and the EU for deeper economic integration – so it seems as though the democratic deficit that is feared by some is also more imagined than real.
David Collins is Professor of International Economic Law at City University, London
Key points
Transatlantic trade and investment partnership is a proposed free trade and investment agreement currently under negotiation between the US and the European Union
The aim of the TTIP is to reduce barriers to trade in goods and services as well as foreign direct investment
The UK alone stands to gain upwards of £100bn over the next decade
