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]
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