The Game Changer

A landmark EU-US trade megadeal is being negotiated with a great deal of controversy surrounding it. WBJ Observer gives the ins and outs of the ongoing process By Wojciech Rylukowski Since 2013, the US and the EU have been negotiating a deal that would create a transatlantic market of 800 million people, encompassing one-third of global trade. Supporters of the Transatlantic Trade and Investment Partnership (TTIP) argue that it will bring economic benefits by cutting red tape and bureaucratic procedures, as well as by opening both markets to services and public procurement. Reducing trade barriers is supposed to increase exports and create jobs. From the standpoint of its opponents, the free trade accord is crafted to strengthen and protect corporate interests, it poses a threat to democratic procedures and would result in watered-down quality standards. Over the last two years, the debate on the agreement has become so polarized that the likely consequences of implementing it may seem muddled. Economic benefits Proponents of the deal argue that TTIP will give a growth impulse to the stagnating European economy. Yet, if we take a closer look at the numbers, it turns out that they are not jaw-dropping. According to the report assessing the economic impact of the partnership compiled for the European Commission in 2013, the agreement could bring €119 billion for the EU as a whole per year, which translates into €10 per person a month, starting in 2027. What seems to be pocket money, will only materialize in an optimistic scenario, in the aftermath of removing 50 percent of the so called non-tariff barriers (NTBs) caused by regulations or a regulatory approach. As the EU-US trade is already virtually open with an average tariff rate below three percent, benefits are to come from eliminating discrepancies in areas like consumer safety and health matters, accounting standards or environmental management, among others. In a slightly less optimistic variant, with only 25 percent of NTBs removed, the profits diminish by half, bringing €5 a month for an average Pole. And this would only be true if the income was spread equally across Europe, which is unlikely. In fact, the appendix to the report says that by embracing TTIP,  the Polish economy is expected to grow merely by an additional 0.2 percent, compared with 0.5 percent for the EU and 0.31 percent for the US. When asked by WBJ Observer about the disappointingly modest benefits from the partnership, Wojtek Talko, a policy coordinator at the European Commission, replied that the agreement would push Polish exports, as many commodities manufactured in the country go to Germany from where they are re-exported outside the EU. Currently, this export route creates some 200,000-300,000 workplaces in Poland. But what’s really at stake, he assured, is improved regulatory cooperation that would elaborate,  for instance, which certificates or licenses would be recognized by both parties. “Consider the embargo on apples introduced by Russia last year. If Poland was on the lookout for new export destinations and eyed the American market, there would be no chance to sell them from day to day as the US doesn’t recognize European phytosanitary tests,” Talko explained. “What we are trying to do is to sit down and see which standards could be accepted by both sides,” he added. Thus, the expansion of the free trade zone with the US would create opportunities for European and Polish companies by making procedures smoother and exports easier. Nonetheless, it is up to them whether they will be able to reap benefits from the partnership. [caption id="attachment_77419" align="alignleft" width="150"] Image: shutterstock[/caption] Andrzej Dycha, a deputy minister of the economy, added that the TTIP will bolster Poland’s position in terms of attractiveness for investors. As the agreement encompasses service market liberalization, Polish companies would be allowed to win contracts in the US, in the same manner as it is happening right now within the European common market. Since every free trade agreement creates winners and losers, the Ministry of the Economy expects that the electrical and machinery sectors will be amongst the deal beneficiaries. The chemical sector, however, may face problems due to the US’ fracking revolution which has resulted in lowering energy prices on the other side of the Atlantic, giving American companies a competitive advantage. To protect Polish firms, the government is requesting an opening of the energy market, hoping that Europe will be able to buy cheaper gas and oil. Apart from that, it is advocating a 6 percent tariff for fertilizers for the next 10 years to fight against a flood of cheaper, American products. Transparency Optimism regarding the deal is not equally shared throughout Europe. The European Citizens’ Initiative (ECI), an alliance of 480 European organizations, have already raised more than two million signatures in an online petition against the TTIP. One of the reasons for discontentment is a lack of transparency, as the agreement is negotiated behind closed doors. Following civil society action and pressures from the European Ombudsman, the new European Commissioner for Trade, Cecilia Malmström, reviewed the transparency policy and decided to publish some documents, including extensive reports on the outcome of  the negotiating rounds. The US’ stance remains much stricter, though, as only a few officials, who are barred from divulging information, have access to the classified documents. Although Juncker’s Commission made a turnaround in terms of transparency, it hasn’t fully satisfied the activists. “TTIP will completely change our reality, and if something with such an impact is being negotiated, we should know much more and the scope of consultations should be much broader,” says Roland Zarzycki from Instytut Globalnej Odpowiedzialności (Institute for Global Responsibility), an NGO that operates under the umbrella of the ECI. He is referring to the fact that, albeit documents are published and the meetings of high officials have been made public, the names of those with whom they meet are lacking and information on the sittings of the lower orders is missing. Given that an estimated 3,000 lobbying entities target European institutions, it fuels concerns that big business will find the right way to get its way. “With 88 percent of lobbyists being corporate lobbyists, TTIP is not an agreement between European and American societies. It’s a deal between corporations,” Zarzycki said. But advocates tone down fears, convincing that it would not be reasonable to show your hands during negotiations. Once they are finished, the full text will be announced and put to a vote in the EU parliament and in member state parliaments. Investor-State Arbitration The list of contentious matters is longer. Perhaps the most controversial issue is the inclusion of an Investor-State Dispute Settlement (ISDS) clause, a legal mechanism that allows a foreign investor to bypass national courts and bring the matter before an international tribunal made up of corporate lawyers, if the company deems that its interests were compromised by new laws or changes in policy. Such a tribunal first appeared in a deal between Germany and Pakistan in 1959, with an intention to protect investors from expropriation. Currently, there are nearly 3,000 bilateral investment treaties (BITs) all over the world with the arbitration clause. ISDS opponents voice their doubts whether this legal mechanism is needed at all, since TTIP is a partnership of two highly-developed regions with stable institutions and judiciaries, where risks of expropriation are virtually non-existent. In fact, they argue, the arbitration clause has no impact on the level of investments in a country, with Brazil serving as a prime example of a state that withdrew from ISDS clauses, but still retained large volumes of FDIs. “It is the size of the market and its competitiveness that attracts investors and not the fact that a host country has or doesn’t have the ISDS,” Zarzycki said. Opponents go on arguing that the arbitration serves purely as a protection for corporate interests, since a country can only defend itself and has nothing to win. According to them, the soaring number of new ISDS cases (from around 10 a year in 2000 to around 50 last year) proves that large multinationals have tapped the opportunity and are abusing the mechanism in order to increase their profits. But what worries skeptics the most is a threat that the implementation of the arbitration in TTIP would force governments, afraid of getting sued for huge compensations to “censor” themselves and back out of introducing new regulations. They cite the Vattenfall versus Hamburg case, in which the Swedish utility launched proceedings at the World Bank’s tribunal (ICSID) in 2009, demanding €1.4 billion in compensation. The city’s government had wanted to impose several restrictions on water usage by Vattenfall’s power plant due to environmentalist fears that the facility had a negative impact on the Elbe river. Two years later, Vatenfall dropped the case in the tribunal and settled with the country pushing the Germans to withdraw from the planned regulations. The dispute created distrust in arbitration among Germans, with Hamburg city senior officials admitting that “the tribunal increased pressure on them to settle.” Since then, Vattenfall has filed yet another claim against Germany seeking €4.7 billion compensation for phasing out nuclear power. The case is still in arbitration. “If Vattenfall had sued Germany in a local court, would we say that German courts are not fair?” Talko asked. He admitted that the country ought to be in a stronger position in a dispute than a company, but cannot position itself above the law.  He assured that TTIP will bring more transparency and will resolve unclear matters that were in the ISDS clauses incorporated in agreements signed earlier. In the case of Poland, it will replace the country’s unfavorable arbitration agreement with a more modern one. In fact, Poland incorporated the ISDS mechanism with the US in a deal signed in 1990. ”That agreement made us look as a safe place in the eyes of investors. American investments have created up to 200,000 workplaces in the last 25 years,” Dycha said. But as Poland’s negotiating position was poor back then, the arbitration rules were not beneficial for Poland. To date, Poland is the eight most sued country by American corporations in the world. Due to this, the Ministry of the Economy doesn’t oppose the ISDS in TTIP, as it would impose time limits for investors’ claims and will introduce many exemptions in areas over which the country can be sued. In short, it should reduce the risk of aggressive claims by US companies. “Poland would not be liable for regulations legislated by the European Commission. From the point of view of the Polish taxpayer, this a good solution,” Dycha added. Opponents, however, keep on advocating withdrawal from the arbitration completely. If the ISDS has no impact on the level of foreign investments, why should we choose “the lesser evil?” they ask not without reason. Their discontentment is starting to bear fruits. Recently, the European Parliament has adopted an amendment to the ISDS clause calling for an introduction of a mechanism where cases would be dealt with by “publicly appointed, independent, professional judges [in] public hearings.” [negative] To date, Poland is the eight most sued country by US corporations in the world[/negative] Race to the bottom? As the benefits from the partnership are to come mainly from removing regulatory differences, further concerns are voiced that the process will launch a race to the bottom, a kind of deregulatory spree. The US is believed to have much looser regulations in the food sector for instance, where even as much as 80 percent of processed food may contain an ingredient from a genetically engineered crop. In turn, EU has the most stringent regulations on GMO in the world, which may lead to the conclusion that both parties would have to compromise. In this case, Europe would be expected to partially give up its firm restrictions. “It has little to do with reality,” Talko assured. “The truth is very simple: Anything that is forbidden on the European market will not instantly become available after the deal is signed. Every food product will have to be attested by the European Food Safety Authority and meet the same requirements which are in place now. And we are not even negotiating the ways we regulate GMOs or other food standards, as the member states haven’t given us a mandate to do so,” Talko added. Dycha chimed in with this opinion, “GMO and food safety issues are excluded. The EC has no mandate to negotiate on that.” He added that in many areas, a compromise would not be possible. In such cases, these matters will be left unchanged. “We are trying to remove bureaucratic barriers where it is beneficial for both parties, not to lower standards,” Dycha assured. Naysayers remain unconvinced, though. “If there’s no risk of deregulation, it is puzzling why the Commission is avoiding an open discussion and broad consultations on the subject? In fact, I presume that the process will occur gradually, through ISDS, inter alia,” Zarzycki said. Geopolitical partnership Although the debate is focused mainly on economic and legal matters, TTIP should warrant closer attention in another field – geopolitics. Deal supporters claim that a trade alliance of two major world powers who share similar transatlantic values would strengthen the position of the West in the world. Considering that the Americans are simultaneously negotiating the Trans-Pacific Partnership (TPP), TTIP’s counterpart with 11 Pacific states, it is in our interest to pull US companies away from Asia and entice them to stay in Europe. What’s more, the standards negotiated in the deal would serve as a model for future trade agreements. When looking at it in this respect, it becomes more understandable why both parties are trying to incorporate the controversial ISDS clause in the deal. As negotiations with China lurk in the future, Europe wants to have a bargaining chip to force the Asian giant to introduce such investor protections. Central and Eastern Europe is expected to gain on strengthened transatlantic ties in the face of rising Russian imperialism. But the most crucial and important geopolitical issue for Poland is energy security. For now, US gas exports are subject to cumbersome licensing procedures and oil exports are banned. TTIP is likely to contain a clause which will remove these limits decreasing Poland’s and Europe’s dependence on natural resources imported from Russia. Although, it’s dubious that gas and oil imported from the US would be cheaper than Russian supplies, it would increase the country’s security. Diversification of energy sources may turn out to be the biggest strategic benefit coming from the deal for Poland. The fate of the deal When can we expect TTIP to come into force? In an optimistic scenario, the partnership would be adopted in 5-7 years. Amid mounting tensions, public support for the deal is falling, standing at as low as 40 percent in Germany and Austria. Unity seems to be crumbling among European leaders as well, with Hungarian PM Viktor Orbán admitting that he will not back an agreement that impairs domestic courts. When it comes to Poland, the government is supportive for now. “We are endorsing the negotiations. Once they are finished and we receive the full text, the government will decide whether it is beneficial for the country,” Dycha said. With pressures from civil society, the final shape of the treaty is still a riddle, but it will certainly differ from original proposals. Since adversaries of the pact seem to have their momentum, further negotiations are going to be an uphill struggle. The ball is in the EC’s court and the success of the project relies on its ability to incorporate the opponents’ demands and cushion their resistance.