Trans Kafka

Written by Nicholas Barrett on . Posted in Current features, Features

Franz_Kafka_1910The Transatlantic Trade and Investment Partnership, often referred to as TTIP is, according to Colin Crouch, former chair of SPS at the EUI, “post-democracy in its purest form.” This sounds quite alarming but it is, in a strange way, almost impossible to have any kind of opinion regarding TTIP whatsoever. It is yet to be finalised. Due to its confidentiality the negotiating positions of each side are almost unknown and there is no single person, government or organisation currently in control of its direction. There are only bargaining positions and a collection of national demands for industry exemptions across the continent. So what is TTIP and what can its stuttering progress tell us about the state of today’s European Union?

At first glance, TTIP appears to be an attempt to boost trade between the EU and the USA by standardising regulatory norms across the North Atlantic, that’s the main aim. But critics have charicterised it as an undemocratic giveaway to multinational companies buried under mountains of legal bureaucracy. There are two prominent concerns.

Firstly, there is the claim that TTIP’s aim of synchronised standards will create a regulatory race to the bottom. Crouch is worried about an “overall decline” in protections involving Labour rights, banking, food and drugs etc. “This is partly” he writes “because any compromise between a higher set of standards and a lower one necessarily implies loss for those starting at the higher level. But partly it is also because, in the present business-dominated climate, we know that the most powerful interests will be pushing to use this negotiation to aim for a new, generally lower level of regulation and protection of standards.”

“I don’t see that happening” retorts Professor Bernard Hoekman, a research area director at the Robert Schuman Center for Advanced Studies who has written articles in defence of TTIP. “I could see a race to the bottom if we were negotiating with Congo,” he suggests, “where they have lower standards. But with the US and EU, we have the same objectives. The average American cares as much about their health as the average European.”

Hoekman’s view is shared by Petros Mavroidis, Professor of Global and Regional Economic Law at the EUI, who is keen to lampoon the notion of disingenuous regulatory practice.  “You cannot expect the US to have relaxed aviation regulation” he remarks, “and run the risk of 10 planes falling from the sky, it’s unrealistic. It’s in the interest of the US investor to take care of those externalities.” Aviation may be a rather extreme example, but these statements are indisputable, and yet to apply either of them universally will strike TTIP’s detractors as politically naive. After all, nobody wants to live in a corrupt country and yet it is hard to find a government or industry on earth devoid of any conflicts of interest. In a perfect world it would be insane not to have standardised international regulation, perhaps our opinions on this matter come down to a question of optimism.

Bernard Hoekman

Bernard Hoekman

The second overarching concern regarding TTIP is a lot more controversial, this regards the Investor State Dispute Settlements (ISDS). They are the main reason why over 1.5 million people have already signed an international petition against TTIP without even being able to read the final agreement. An ISDS is a clause in a contract between a state and major investor that allows the investor to sue the state in the event of lost earnings, potentially for those that resulted from a change of government policy. The hearings to decide these cases usually take place in the murky world of international arbitration courts far from the public eye. Examples, of this include Vattenfall, a Swedish energy company currently seeking €4.7 billion in compensation from the German government following their decision to abandon nuclear power in the wake of the Fukushima disaster in Japan. Hoekman seems relaxed about this, “I think if you have a company who has invested, just hypothetically, a billion dollars in a plant that is halfway there and the government changes its mind, it’s fair.” And if the electorate changes its mind? What then? “Then the electorate should compensate the firm” replies Hoekman, “you can’t just expropriate companies. That would have all kinds of consequences for investment.”

But some cases are much more extreme. The tobacco giant, Philip Morris, is currently suing the government of Uruguay for $25 million in compensation in response to a new law regulating packaging of cigarettes. “In these cases,” writes Colin Crouch “the matters at hand are a far cry from expropriation; indeed, they seek to extend the concept to include any actions by governments that might reduce the profits of foreign investors.”

Hoekman thinks that cases like that of Philip Morris are absurd and will be deservedly laughed out of court and he’s ready to admit that there are people out there giving ISDSs a bad name.  “There have been some really crazy examples” he says “with developing countries where a firm has said that because the government has introduced a minimum wage, it’s regulatory taking and therefore the government owes us money…. they’re completely ridiculous and the provisions of those treaties don’t allow firms to do that.”

But the idea of international courts judging the legislation of sovereign states behind closed doors has rattled activists, journalists and NGOs. If ethics are what you do when nobody is looking then the question becomes one of whether we can expect these faceless judges to rule in favour of citizens or merely to protect private interests. But for Mavroidis the big question is simpler. “Do I have one agreement for what is happening in all EU states so American investors can go to one court when they have an issue? What’s wrong with that? I don’t understand why it’s such a big issue. The EU has signed treaty after treaty giving the right to Europeans to sue foreign governments.” It can sound fairly innocent but with so much being made of low voter turn outs and the so called “democratic deficit in Europe” it may be worth asking whether the EU really has the mandate required to legitimately sign such important deals on behalf of 500 million people.

Petros C. Mavroidis

Petros C. Mavroidis

Mavroidis thinks that TTIP, or something very similar is an inevitability in today’s world.  “We should be excited and we should be sceptical” he says before adding that “I cannot see how you can have deep integration across the world on a multilateral basis, it is unrealistic.  So TTIP or TTIP-like agreements are the next step towards integration in this area.”

Hoekman isn’t quite as optimistic. He thinks the political landscape is too messy “I don’t think it’s all that likely to happen” he remarks “It was always a risky endeavour.”  There are it seems, simply too many necessary compromises. “The EU doesn’t want the deal to include entertainment, so that’s off the table. The EU really wants the US to commit to regulatory cooperation in the financial services sector, that’s not going to happen. If there are lots of sectors that are off the table and no longer part of the deal. At the end of the day there’s not much else left… The Americans will be asking themselves, what they’re actually getting out of this.” With so many stakeholders potentially affected, pushing though something as big as TTIP was always going to be a mammoth task. The alternative would be to have two autocratic agencies on each side of the Atlantic, each negotiating on behalf of hundreds of millions of people in secrecy. This is already a widely held perception among TTIP’s many critics.

The whole idea, Hoekman suggests, was a panicked reaction to Obama’s so called ‘pivot to Asia’ and the Trans-Pacific Partnership, (TPP) another secret negotiation currently fighting to escape the notorious gridlock in Washington. Meanwhile, TTIP is being held up by a myriad of parochial interests and he’s worried that it’s failure is about to become a huge source of European embarrassment which could undermine our efforts to trade with the rest of the world. “The US” he says “is very much focused on Asia and there was a sense in Brussels that they had to do something with America or the rules of the world economy are going to be written by the US and Japan in an Asian context. To me, that’s the potential downside of TTIP blowing up. Because if we can’t do it with America, we’re certainly not going to be able to have that kind of discussion with the emerging economies.”

TTIP it seems is now serving to highlight the maladjustment of Europe’s confusingly multifaceted political hierarchies and the inadequacy of its unspoken Washington-esque aspirations. (It’s worth remembering just how dysfunctional American politics is right now.) While the EU remains the largest economy on earth, it is now struggling to react as the emergence of China and India catapults billions of people into the world economy. Concerns regarding diminished voter turnouts, the Eurozone crisis and the ominous sound of Putin knocking on the cold Baltic door have all forced the EU to ask itself some very serious questions about its place in the world and how many hands there should be on Europe’s steering wheel.