Environmental risks of the Trans-Altantic Trade & Investment Partnership - Environmental Audit Contents

Environmental risks of the Trans-Atlantic Trade & Investment Partnership

Our inquiry

1. In November 2011 the European Union and the United States tasked the Transatlantic Economic Council to establish a High-Level Working Group on Jobs and Growth, led by the then EU Trade Commissioner and the US Trade Representative, to "identify policies and measures to increase EU-US trade and investment to support mutually beneficial job creation, economic growth, and international competitiveness." The Group published its report in February 2013, concluding that:

    a comprehensive agreement that addresses a broad range of bilateral trade and investment issues, including regulatory issues, and which contributes to the development of global rules, would provide the most significant mutual benefit.[1]

As a result, the European Commission and US Government agreed to initiate negotiations on a Transatlantic Trade & Investment Partnership (TTIP).[2]

2. In June 2013 the Prime Minister said that TTIP represented a "once-in-a-generation prize" by allowing the EU and US to boost their economies through the removal of regulatory barriers to trade and through setting global standards.[3] In January 2015, he told the House that "TTIP has the potential to inject an extra £100 billion into the European economy every year".[4] In our inquiry, the Government identified its strategic interests in TTIP, as follows:

·  Securing a boost of up to £10 billion p.a. to the UK economy from an ambitious and comprehensive deal.

·  Potential benefits to the UK and worldwide from the EU and US working together on developing rules and standards which can shape the global business environment.

·  Providing impetus and opportunity to press forward on economic reform within the EU.[5]

3. In the EU, the Director-General for External Policies has recently reviewed a range of studies on the potential impact of TTIP on GDP.[6] These included work by the Centre for Economic Policy Research, whivh calculated in 2013 that the EU economy would expand by 0.5% of GDP, or €120 billion a year, once a TTIP deal was fully implemented. Most of the economic benefit (80%) would flow from deeper regulatory integration rather than from lifting customs duties.[7] One study calculated that average EU real per capita income would rise by 0.27%.[8] Another Centre for Economic Policy Research study in 2013, for the UK Government, concluded that the economic impact of TTIP would be similar for the UK and US economies—0.15%-0.37% of GDP, or £4b-£10b, a year depending on the extent to which non-tariff barriers are reduced.[9] The DG External Policies review concluded overall that:

    Peripheral northern and western countries (the UK, followed by Sweden, Ireland and Spain) are expected to reap greater gains than others (with Luxembourg, France, Belgium and Poland among those countries benefitting least). The relative advantage of different countries most likely depends either on their location and infrastructure (which provides them 'a foot up' for trade in goods) or on their service orientation (which proves advantageous in case of a service liberalisation with the US).[10]

4. While the focus of some of the debate on TTIP has been on its potential economic and trade impacts, there has also been growing concern about its possible consequences for social and environmental protections.[11] The Government has acknowledged the existence of such concerns:

    There is widespread support for TTIP across the EU, not just from traditional supporters of free trade such as Sweden and the UK, but also from countries as diverse as Spain, Italy and Poland. However, we recognise that people have expressed concerns that TTIP will lower environmental standards and we should be clear that this will not be the case.[12]

War On Want saw the threat in stark terms: "The deregulation agenda" of TTIP was an "explicit desire to remove regulations insofar as they are seen to act as barriers to trade and investment, … [which] threatens instantly to subordinate social and environmental standards to the profit motive of increased trade and investment".[13]

5. There have now been eight rounds of TTIP negotiations; the most recent in February 2015. The Government noted that "US and EU negotiators need to take advantage of a window of opportunity in 2015, before US Presidential elections in 2016, to reach an ambitious agreement."[14] Lord Livingston, the Minister for Trade and Investment, told the European Scrutiny Committee that there would be a further two rounds by this summer which will be "critical in deciding the pace of progress" of TTIP.[15] Other parliamentary committees have been examining TTIP, including the Business Innovation and Skills Committee. Last year, the Lords European Union Committee published a report on TTIP.[16] In our own inquiry we have avoided duplicating other committees' examination of the economic considerations for the UK and the EU, and have focused on potential environmental risks, including from the proposed investment protection measures, as well as the potential impact on developing countries.

6. As we discuss below, many aspects of a prospective TTIP agreement are yet to be settled and as a result there remains much uncertainty about the potential impacts on environmental regulation. Our brief inquiry is therefore intended to identify the issues which will have to be addressed later this year. We took evidence from the Institute for European Environmental Policy, War on Want, Friends of the Earth and British American Business, as well as from officials from BIS, DECC and DfID.

Impacts on environmental regulations

7. At the heart of the concerns that have been expressed about the possible impact of TTIP on environmental regulation is a perception that standards in Europe would be reduced because they currently differ from those in the US and are derived from different regulatory approaches. The stated ambition for TTIP is to "significantly reduce the cost of differences in regulations and standards by promoting greater compatibility, transparency, and cooperation, while maintaining our high levels of health, safety, and environmental protection".[17] Elisabeth Roderburg of British American Business did not foresee TTIP lowering environmental standards,[18] and highlighted areas where US regulation was, she told us, more stringent, including nitrous oxides from car engines and a "zero tolerance for listeria" in cheese.[19] John Hilary of War On Want, on the other hand, believed that EU standards were "infinitely higher",[20] and saw TTIP as "about removing regulations insofar as they are seen as barriers to trade, not raising standards in any way".[21] David Baldock from the Institute for European Environmental Policy considered that "on the whole I would say EU standards are more demanding … than US ones. Not in every respect … It is not absolutely black and white".[22]

8. The regulatory culture in the EU has been described as being led by the 'precautionary principle', while the US takes a 'cost-benefit' approach. The EU follows a precautionary principle if a scientific "evaluation does not allow the risk to be determined with sufficient certainty", and puts the burden of proof on the manufacturer of the product to show there is no danger. We have examined the importance of the precautionary approach in previous inquiries, including on pesticides and pollinators.[23] The US cost-benefit approach, on the other hand, is said to focus on economic efficiency and quantifiable costs and benefits. Tom Burke of E3G described in more detail those "very different" regulatory cultures of the US and EU:

    The European and American environmental regulatory systems are products of very different cultures. Public policy on the environment is developed very differently, reflecting fundamental differences in the way public policy is translated into law. The role regulators play in implementation of the law also differs significantly not the least because of the different role of, and access to, the courts.

    European environmental regulations are developed over a long period, typically a decade or more, with widespread consultation with member state governments, the European Parliament and a large array of business and civil society stakeholders throughout the process. The resulting political agreement is thus founded on a carefully constructed consensus that is resistant to late alteration. There is little scope, or call for, a role for the courts and actions before them are rare. Access of individuals or non-state actors to the courts is very restricted.

    American practise is very different. Federal legislation may originate in either House of the Congress and can be initiated by any individual member, at any time. There is no equivalent of the EU consultation processes and legislation passes whenever enough votes have been accumulated for it to succeed. Significant late interventions are frequently successful as part of the bargaining to accumulate sufficient votes.

    In the EU, regulatory culture grants the regulators considerable discretion over how the regulatory intent is to be applied in particular circumstances subject to the requirement to observe due process. The American regulatory culture severely constrains the discretion of regulators. The appropriate agency is required to develop specific rules for the application of the legislation in each of the contexts to which it applies. These rules must be developed through widespread public consultation with interested parties. There are even rules as to how the agency must reason in its response to submissions. Any of the interested parties who feel that their interests have not been appropriately considered may, and often do, seek redress in the courts. Access to the courts for individuals, businesses and civil society is commonplace.

    These considerations generate two problems for the achievement of regulatory coherence that need further examination prior to agreement. First, how is 'early consultation' to be achieved between two regimes in which public consultation in one is pre-legislative and in the other is post-legislative? Second, in the EU the key decisions on the implementation of a regulation is made by the regulators in the US it is made in the courts. How will coherence on the role of the courts in environmental regulation be achieved? If it difficult to see either the EU extending access to the courts or the US restricting such access.[24]

David Baldock from the Institute for European Environmental Policy explained that:

    In the European Union … the precautionary principle … does not necessarily determine [environment regulation], but it certainly informs it, whereas the American approach is similarly, in principle, informed by sound science principle. These two could be precisely the same but in practice they tend not to be and so some European standards are more demanding because they include more of a precautionary element in them.[25]

9. The US Trade Representative has previously challenged such a generalisation:

    Historical difference about the appropriate approach to regulation, sometimes characterized as a so-called gap between Europe's preference for the precautionary principle and the United States' focus on cost-benefit analysis. I believe that that concern is largely anachronistic.

    It is a caricature to suggest that when Europe only takes regulatory action based on the precautionary principle … Similarly, it is a caricature to suggest that the U.S. bases its regulations solely on cost-benefit analysis, and that it does not take qualitative factors into consideration, such as dignity, fairness and equity.

    And so, while it might be premature to declare an end to the debate over the precautionary principle and cost-benefit analysis, that distinction is decreasingly important, at least in terms of the work we have before us in TTIP.[26]

Elisabeth Roderburg from British American Business told us that "the EU side does focus on the production and the US side does focus on the end product",[27] but believed that it was not possible to make wider generalisations about the US and EU regulatory systems.[28] This was echoed by our BIS witnesses, who highlighted a 2014 comparative study which found that "on balance, the picture that the EU is more precautionary and the US is more science-based is a generalisation that does not particularly hold".[29]

10. Ultimately TTIP aims to make US and EU regulations coherent with one another, and any differences in regulatory processes will make that coherence more challenging. The British Standards Institution wanted new common standards to be agreed:

    Mutual recognition of EU and US standards would not reduce [non-tariff barriers]. Recognising US standards as equivalent to the single European Standard would undermine the principles on which the European single market is based and increase the number of standards available. This would put greater, rather than fewer, burdens on industry. Instead, the negotiations should move towards the mutual agreement of standards: the alignment of the results of standard development processes. The adoption of identical standards in the EU and US would bring the greatest benefit in terms of removing [non-tariff barriers].[30]

Tom Burke of E3G believed, however, that "as a consequence [of different regulatory cultures], simply aligning regulatory texts will not necessarily achieve the goal of regulatory coherence."[31]

11. David Baldock raised a concern about the impact of efforts to harmonise standards if that was implemented instead through 'mutual recognition' rather than revising existing standards:

    We would not rule out some things getting better under TTIP. That could happen, because we could get mutual recognition in a beneficial way. … The concern is where US standards are less demanding, if you go through a mutual recognition route and if the US product is more competitive, then there is a danger of undermining the EU product in the market.[32]

Sam Lowe of Friends of the Earth believed, similarly, that "mutual recognition … gives a competitive advantage to the bloc that has the least expensive regulation, that often is the least effective".[33] David Baldock worried that "mutual recognition … would not necessarily require new primary legislation and has all sorts of secondary and tertiary effects that are far less clear and not subject to the same scrutiny".[34]

12. Such concerns about mutual recognition have prompted fears about a potential lowering of EU standards—a "race to the bottom"[35]—in a number of specific areas. These included GM crops and the importation and sale of meat treated with growth hormones and chicken washed with chlorine—areas more closely regulated in the EU[36]—although our BIS witnesses noted that the European Commission had recently "specifically excluded" these areas from the negotiations.[37]

13. The gulf between standards appears to be particularly wide on chemicals regulations. In the US only 11 chemicals are restricted for use in cosmetics compared with over 1,300 in the EU. The Centre for International Environmental Law have concluded that "only a deep, structural reform of US chemicals legislation can be the basis of regulatory trans-Atlantic cooperation".[38] Breast Cancer UK had "serious concerns" that "TTIP threatens to undermine current EU chemicals regulation, delay or weaken proposed regulation of [endocrine disrupting chemicals], prevent unilateral action on the part of member states and thwart innovation especially for greener chemistry."[39] Elisabeth Roderburg told us, however, that "there is no possibility at all that any agreement on regulatory coherence will be reached on chemicals";[40] a view repeated by our BIS witnesses.[41]

14. Some have highlighted concerns about the possible impact of TTIP on climate change. Against a background of concerns about energy security of supply arising from the conflict in Ukraine, the EU was reported to be pushing for an energy chapter in TTIP which would include provisions to overturn a 40 year US ban on oil exports.[42] Friends of the Earth argued that "an energy chapter within TTIP and the removal of US bans on exporting crude oil … would lock-in a high carbon infrastructure for the next 20, 30 years".[43] The European Commission calculated that the impact "on global emissions is expected to be small (11m tonnes CO2; 0.07% of the current annual rate compared to the baseline)".[44] Our DECC witnesses told us that that European Commission assessment had sought to identify the impact on emissions from greater trade once TTIP is implemented, and took no account of existing policy levers to constrain emissions.[45] The Government explained further that:

    The Commission envisages inclusion in TTIP of a Trade and Sustainable Development chapter. This would reaffirm both sides' adherence to existing obligations under multilateral environmental agreements, including those of the [UN Framework Convention on Climate Change]. The increase in trade related emissions can be more than offset by both national and regional low carbon initiatives and legislation and, especially by effective internationally agreed measures to combat climate change, in particular if—as we hope will be the case—a legally binding global climate agreement is reached in Paris in December [2015].[46]

15. BIS officials told us that they did not believe that TTIP was pushing forward a deregulatory agenda.[47] They highlighted that a recently EU-published TTIP negotiation position paper on regulatory coherence "was clear that there would be no lowering of standards".[48] They emphasised that "in each of the sectors … [the negotiators] are not looking at making changes to standards. What they are looking at is where there are areas where there appears to be a rough equivalence between EU and US standards" (or "an equal level of safety"), such as vehicles and food, in a similar way to the previous mutual recognition of organic food regulations.[49] Indeed, they raised the prospect that standards could be increased through "a gradual levelling-up" through "the California effect".[50]

16. The EU and US have some environmental standards which deliver similar safeguards, but there are others which differ—a result in part of different approaches to standard-setting. The EU's stronger focus on applying the precautionary principle in setting regulations should not be weakened as a result of efforts under TTIP to align regulatory standards.

17. Where 'mutual recognition' of environmental standards is used to smooth trade between the EU and US, it will be important that this is applied only in cases where the 'safety equivalence' test is genuinely satisfied. Where it is not, such as for chemicals, existing regulation should be maintained. Failing to keep to such a course risks an unacceptable 'race to the bottom'.

Future regulation

18. BIS officials described the current ad hoc arrangements for transatlantic discussion and co-operation on regulations, where it exists, as "haphazard".[51] The TTIP negotiators are seeking to create an overarching body of EU and US regulators to coordinate law-making by both trading blocs—a 'Regulatory Co-operation Council'—which under current proposals will have to produce an annual report on its work.[52] BIS wanted the intended arrangements for "much more routine regulatory co-operation" to involve businesses, NGOs and trade unions, with the Regulatory Co-operation Council "very much a body driven by [such] stakeholder input". They wanted to see, as a result, the Council having to address "how they are maintaining standards as well as facilitating trade, … [so] you can get a balance between both encouraging trade, while maintaining and, indeed, encouraging high standards of protection.[53] They saw "no reason … why there would be a regulatory chill as a result of ensuring that regulatory co-operation took place".[54] Elisabeth Roderburg of British American Business envisaged TTIP raising standards in future:

    What TTIP may do over time is to increase the level of standards by promoting a dialogue between regulators. ... Yes, there are high standards on the US side and on the EU side. Often they are not formulated in the same way. They have the same functionality; they function the same way in the end but the processes by which they function are different. The question in TTIP is: Can you build bridges? Can you, where you have standards that are at the same level, reduce red tape, reduce unnecessary barriers? No one on the US side or the European side is interested in reducing standards.[55]

19. Others, however, highlighted the potential chilling effect of TTIP on future initiatives to strengthen environmental regulation, even if existing regulations can be harmonised. David Baldock from the Institute for European Environmental Policy described a "fear that potential hassles with TTIP will inhibit the [European] Commission from proposing stringent measures in the first place, [which] … had occurred already with the fuel quality directive".[56] The European Environmental Bureau (comprising European environmental organisations) suggested that:

    It would become a lot harder for European countries to not authorize GM crops, or to continue refusing to import chlorinated chickens, pork from pigs fed with ractopamine growth drug or fruits with higher pesticide residues than currently allowed in the EU. A particular threat comes to EU food labelling and in particular organic food labelling, where the planned revision of the EU organic food regulation could be used to undermine standards directly or again indirectly through mutual recognition rules.[57]

There were reports in January 2015 that the Commission were seeking a new approach on pesticide residues in the TTIP negotiations, by proposing that residue limits set by the UN's Codex Alimentarius Commission should be the default for the EU and US.[58] Compassion in World Farming believed that a TTIP agreement could make it difficult to legislate on animal welfare standards in the future.[59] While David Baldock did not anticipate the EU allowing its climate change goals to be diluted by less ambitious US policies, he raised an uncertainty about how far future action might be allowed to go.[60]

20. There is a range of views about whether the proposed EU/US Regulatory Co-operation Council will help or hinder environmental protections in future; a result of a lack of detailed information and transparency on the proposals. The Government should work with other EU states to push for environmental groups and agencies to be represented on the Council, to bolster its ability to fully weigh environmental issues alongside the economic and trade considerations that might otherwise take precedence.

Dispute resolution

21. The TTIP negotiations are addressing rules on investment protection—Investor-State Dispute Settlement (ISDS)—to allow foreign investors to seek redress for violations of their rights before an independent arbitration tribunal. ISDS is one of the most contentious issues of the TTIP negotiations because of concerns that it might constrain governments' policy-making. Our BIS witnesses acknowledged that:

    ISDS is a complex problem. It is never going to be easily explained politically. It is never going to be easily understood and there are some legitimate concerns about it and about the way it has been operated in the past. … Some of the public concerns are quite understandable. Some of them are also, we think, based on a misapprehension of what effects ISDS in the TTIP context would have. [61]

22. The European Commission's negotiating mandate, published in November 2013, stressed "as a standing principle, the … right to regulate and to pursue legitimate public policy objectives such as social, environmental, security, public health and safety, and the promotion and protection of cultural diversity".[62] The Government, similarly, emphasised in July 2014 that its 'right to regulate' will not be affected:

    Since 1975 the UK has signed over 90 Bilateral Investment Treaties, the majority of which include ISDS provisions. These agreements have not undermined the UK's ability to regulate in the public interest. To date, there has not been a single successful case brought against the UK under these treaties.

    The impact of both investment and ISDS provisions in TTIP will depend on their particular wording. We are clear that investment provisions in TTIP must strike the right balance between protecting investors against unfair treatment and protecting the host nation's right to regulate and determine policy in the public interest. We are working closely with the EU to help get this balance right.[63]

Lord Livingston, the Minister for Trade and Investment, told the BIS Committee that "ISDS is about compensation. You cannot use ISDS to change Government policy."[64] In our inquiry, Elisabeth Roderburg told us that:

    the rhetoric surrounding [ISDS] is not in any way commensurate to what it is. It is a disputes settlement mechanism. It is not a mechanism for someone complaining about environmental regulations or not getting profit. It is about upholding the rule of law when you have a dispute about discrimination or expropriation or removing funds from one investment site to home or out of the country. These are provisions in UK domestic law. It is a question of not altering regulations but getting compensated if you have a contract.[65]

23. While the ISDS might technically not impinge on the right of governments to regulate, there is a separate issue about whether the prospect of litigation nevertheless produces a chilling effect on policy-making. BIS witnesses believed that existing investment treaties had not had a chilling effect on developing environmental regulation:

    The UK has had over 90 [bilateral investment treaties] in force with countries worldwide for a long time … Other EU countries have had a total of something like 1,400 [bilateral investment treaties] in place with other countries, and during all this time, these EU countries have introduced, between them, some very tough environmental regulations; certainly environmental regulations as tough as anywhere else in the world. It does not seem that [bilateral investment treaties] as a whole across the EU have had much of a chilling effect that we have been able to ascertain.[66]

24. The International Institute for Environment & Development believed that "the UK would be exposed to significant risk of liabilities" under ISDS.[67] The Ecologic Institute concluded in December 2013 that:

    The results of ISDS proceedings are unpredictable. Some arbitration tribunals have taken a restrictive approach to governments' regulatory freedom; others have deemed government regulation not to violate investment law. These uncertainties result in considerable risks for environmental regulation which are exacerbated by the fact that investment-related provisions tend to be interpreted broadly in ISDS proceedings.[68]

Gabriel Siles-Brugge of the University of Manchester believed that an ISDS agreement could "constrain regulatory autonomy".[69] In October 2013 the European Parliament's Environment Committee concluded that "if TTIP contains broadly worded investment protection clauses, [ISDS] could hamper the EU and Member States in efforts to establish regulations seeking to protect their citizens or the environment".[70] In 2014 the European Commission undertook a public consultation on ISDS from which it concluded:

    The collective submissions reflect a wide-spread opposition to investor-State dispute settlement (ISDS) in TTIP or in general. There is also quite a majority of replies opposing TTIP in general.

    In these submissions, the ISDS mechanism is perceived as a threat to democracy and public finance or to public policies. It is also considered as unnecessary between the EU and the US, in view of the perceived strength of the respective judicial systems. Such views are largely echoed by most of the trade unions, a large majority of NGOs, Government institutions and many respondents in the "other organisations" category, including consumer organisations. Many among the collective submissions express specific concerns about governments being sued by corporations for high amounts of money which in their view create a "chilling effect" on the right to regulate. In addition, certain replies from trade unions express a generic mistrust with regard to the independence and impartiality of the arbitrators or are concerned that ISDS may create a possibility for investors to circumvent domestic courts, laws or regulations.

    By contrast, a large majority of business associations and the majority of large companies strongly support investment protection and ISDS in TTIP, while small companies are more critical. A considerable number of replies stress the positive role that foreign direct investment can play in relation to economic growth and jobs. They indicate that investment protection rules can support investment through the setting up of a level playing field between the EU and the US. Some indicate that EU investors may not always receive adequate protection in US courts. There is, consequently, an important call for caution not to lower the level of protection to which the European investors are accustomed.[71]

25. In our inquiry, David Baldock told us "I do not think it is necessary to have an ISDS system in TTIP … and I do not think it is an entirely hypothetical hazard to environmental regulations having an ISDS, but you could strengthen the provisions if you wanted to."[72] The International Institute for Environment & Development also disputed the need for an ISDS: "The overwhelming majority of the substantial US-EU investment flows has occurred without a comprehensive investment treaty. We are not aware of empirical evidence unequivocally indicating that lack of an investment treaty or investor-state arbitration is holding back prospective investors". They highlighted that the UK's existing investor-state agreements are not with the US or other large inward-investing countries but with developing countries, with the agreements designed to protect UK investments abroad rather than the other way round.[73]

26. BIS said that it was "legally" possible to have TTIP without an ISDS, but "politically … it would lead to a less ambitious and perhaps less effective deal overall".[74] Lord Livingston, the Trade and Investment Minister, told the BIS Committee in January 2015 that "with the right—and I must stress the word 'right—ISDS clause, it will be a much better [TTIP] agreement".[75] Our BIS witnesses saw ISDS as complementing a TTIP undertaking to treat investors fairly, by providing them with remedies if governments breached those undertakings, and thereby giving "meaning" to those investment protections.[76]

27. Dr Jan Kleinheisterkamp of LSE and Dr Lauge Poulsen of UCL noted that a recent EU trade agreements with Canada had included "several modifications to the 'traditional' investment provisions found in the bilateral investment treaties of European … countries, so as to address some of the shortcomings of the traditional ISDS system".[77] BIS envisaged an ISDS in TTIP replacing those existing bilateral investment treaties and introducing greater safeguards for governments as a result.[78] There was a distinction to be made, BIS witnesses told us, between claims that have been made under existing investment treaties and cases that have actually succeeded.[79] BIS told us that the ISDS provisions had yet to be determined, but if they reflected those in the recently concluded EU/Canadian trade agreement "we think it is very unlikely that a successful challenge could be brought to an environmental regulation of the kind that the EU would enact, or which the UK would want".[80] Such "up to date" investment protection provisions would not allow governments "to expropriate investments", "submit investors to unfair or inequitable treatment" or "act in a manifestly arbitrary way or target discrimination on a company".[81]

28. Part of the controversy around ISDS is concerned with the role of international arbitration courts. John Hilary from War On Want saw "no need to introduce a parallel judicial system between the US and the EU that are functioning judicial courts".[82] The International Institute for Environment & Development made a similar point, and highlighted differences in the legal approach taken by some international tribunals and UK courts and the risks from "a tradition for litigation" in the US.[83] The Chartered Institute of Arbitrators, on the other hand, raised concerns around the public portrayal of ISDS as using "secret courts" biased against the State. They emphasised the role of ISDS in enabling global trade and underpinning investor confidence, and that no ISDS challenge has succeeded against the UK under its existing 94 Bilateral Investment Treaties.[84] Remarkably, Lord Livingston saw a need for ISDS because some states had less respected legal rights than others, in the EU and US as well as elsewhere:

    The US has 50 states and the EU has 28 nation states. Not all of them have consistently high legal standards. I think you can see that it is not beyond the bounds of possibility that in one of these countries, or indeed one of these states within the US, foreign company rights are not as well respected as local company rights. I do not necessarily throw that completely out as being an issue. Secondly, I think, by creating the right sort of agreements, you can then apply that in other countries. It should be a precedent. I do not particularly fancy the idea of having an agreement with some other countries where we say, "The US legal system was fine. We trusted that, but yours we do not trust". I think that is another reason: to not have a two-tier environment. Finally, there already are a lot of ISDS agreements between European countries and the US and some of them are possibly not the best. There are 20-year-old agreements that need to be updated.[85]

29. EU states must retain their 'right to regulate', but a TTIP treaty text that enshrines such a safeguard will be meaningless if the prospect of ISDS litigation produces a chilling effect on future regulation-setting. A compelling case for the inclusion of an ISDS in TTIP has not yet been made, and there are unresolved doubts about how well international arbitration courts would operate. If there is to be an ISDS, the parties will need to agree a robustly framed one which prevents unwarranted litigation, adopting the lessons from the recently negotiated ISDS provisions in the EU/Canada trade treaty, to circumscribe the terms on which litigation could be initiated against policies to improve environmental or health protections.

Impacts on other countries

30. The DG External Policies review of the potential economic impacts of TTIP for the EU (paragraph 3) identified possible implications for developing countries. It concluded that:

    TTIP is likely to produce a negative impact on a number of third countries. … The increase in trade between the two partners will be mirrored by substantial trade diversion. Many of the EU's and the US's principal trade partners will have their market shares in the EU and the US challenged by greater competition—from European goods and services in the US, and from US goods and services in the EU. The countries that risk becoming the 'biggest losers' [are] Mexico, Canada and Australia in the US market, and Turkey, Norway and sub-Saharan countries in the EU market ….[86]

Similarly, the Lords EU Committee concluded that "for a lot of developing countries, particularly low-income countries, the tariffs that might be removed in transatlantic trade by a TTIP agreement are not trivial for the products in which they are competitive".[87] The Trade Justice Movement[88] highlighted a 2013 German study by Professor Gabriel Felbermayr which calculated potential reductions in per capita incomes in particular low-income African countries.[89]

31. In 2013, the Department for International Development sponsored a University of Sussex research project examining the potential effects of TTIP on selected developing countries. It found that the impact depended in part on the type of products being exported by those countries:

    A transatlantic agreement carries potential threats for [Low Income Countries] in some sectors. The reciprocal removal of [most-favoured nation] tariffs in transatlantic trade could entail [Low Income Countries] losing market share to the TTIP partners as a result of the fall in tariffs and other barriers. … At risk here are Bangladesh, Pakistan and Cambodia—the largest [Low Income Country] traders in non-oil goods. They specialise in textiles, clothing and footwear, which dominate their top 20 exports to the EU and US. However, the EU and US show no indication of being competitive suppliers of these products in each other's markets. Nor do they look capable of imposing large losses in market share on [Low Income Country] exporters of non-fuel goods after a TTIP.[90]

The review concluded that "the launch of TTIP could accelerate progress" on work already underway in some sectors to harmonise regulations. DfID officials highlighted the review's findings that because developing countries could still compete "it was not expected that there would be large trade diversion", and that:

    The other channels that could offset the potential small trade diversion are obviously the boost to global growth of a deal and the indirect impact that could have on demands for imports from developing countries. … There may be potential for a reduction in compliance costs if they only have to satisfy one of those [EU/US] sets of regulations. … The US and the EU have very different procedures for their preferential arrangements for developing countries. Again, we are at the beginning of thinking about this, but I think it creates a real opportunity for us to simplify and for us to be talking to the US about how we can offer a better package of support for [Low Income Countries]. … Taken within the whole, there are a number of offsetting positive developments that are also associated with this [TTIP] negotiation.[91]

    We have a real opportunity to set the standard for the rest of the world. I think there are opportunities to bring up regulatory standards in the developing world and across the world.[92]

32. Dr Aife O'Donoghue and Konstantina Tzouvala from Durham University highlighted a different potential problem—developing countries' inability to monitor and contribute to the TTIP negotiations while they are underway:

    Global trade negotiations which take place outside of WTO structure make it more difficult for developing states with limited capacity to remain abreast of multiple trade negotiations that impact upon their economies. … The non-publication of the full terms of negotiation makes it difficult for developing states and LDCs to voice their objections to changes to the global economic trading system or to make changes in anticipation of a new trading regime.[93]

33. DfID officials explained how that department was "right at the heart of the Trade Policy Unit" which allowed its perspective to be part of the Government's work on trade.[94] The Government told us that it was confident that any effects on developing countries could be "mitigated by development assistance".[95] DfID officials saw such 'mitigation' involving support for developing countries' industries rather than any direct financial compensation for any loss of income:

    There is no compensating ... This is about using DfID's current provision of aid for trade, which puts us among one of the best supporters of this type of aid in the world, and using that kind of support to make sure that countries take the opportunities that are presented to them.[96]

    The best thing we can do with aid is to make sure that any given country that is going to experience changes in their trading environment is able to respond to those challenges as best it can. It is having a strong focus on economic development, making sure that economies can take advantage of the opportunities that are presented, and any potential risks. It is a dynamic situation across a range of preferences. If we were to get into a situation where we were mechanically trying to compensate for one part of the picture, it might leave countries at a disadvantage because they are not able to flexibly respond to all of the challenges they face.[97]

34. The potential impact of TTIP on developing countries needs to be addressed as a central consideration of the TTIP negotiations. Developing countries should be invited to take part in the negotiations now, to allow their concerns to be fully addressed. The impact of TTIP should be assessed for each country affected. But financial compensation to those countries is not the solution: instead, UK and EU Aid should be targetted to help them to be able to continue to compete for their existing export markets.

Process and timing

35. With debate on the potential impact of TTIP on the environment continuing, the European Commission has initiated further work on a 'Sustainability Impact Assessment'. The Government told us that this analysis "will examine the major regulations likely to be affected by TTIP and their expected impact on environmental issues".[98] It has not assessed what impacts TTIP might have on specific environmental standards,[99] which the Government believed "in the absence of specific proposals at this stage, [would] not [be] a good idea".[100] BIS officials emphasised that the TTIP negotiations had not reached a stage at which member states could get involved in the detail:

    The Government does not take part directly in negotiations.[101]

    At the moment, there are no specific proposals as of yet within TTIP that say, "We are going to mutually recognise in these areas," or, "We are going to declare equivalence in these areas," or, "We are going to harmonise in these areas." At a point where there are specific proposals … it will be up to member states and, hopefully, though I am not sure how they will consult, other organisations to scrutinise those agreements in different sectors. There are no proposals at this stage.[102]

36. Nevertheless, the negotiations appear to be aimed at reaching some agreement before the end of 2015. The European Commission sponsored Sustainability Impact Assessment is similarly expected to be published "towards the end of this year",[103] to feed into "a skeletal [TTIP] agreement" which could be the basis for "political agreement" (if not detailed technical agreement) before the negotiations might be overtaken by the lead up to the next US Presidential election (paragraph 5).[104] Our BIS witnesses explained that:

    The danger in all of this is that we are playing a little bit of a game of speculation as to what might happen. How much progress are we able to make on some of the areas of regulatory coherence? How much will be left to a living agreement? What will be in this report? We will hopefully know more in the next three or six months about both the contents of the overall TTIP agreement and the contents of the sustainability impact assessment.[105]

previous page contents next page

© Parliamentary copyright 2015
Prepared 10 March 2015