TTIP: good, bad or ugly?

The Transatlantic Trade and Investment Partnership, a treaty being negotiated between the EU and the US has been heavily criticized for being undemocratic, non-transparent and is said to be eroding Europe’s relatively higher social, labor and environmental standards. However, the debate has not started in the Visegrad countries so we don’t really know where governments and political parties stand in the debate. Is it because they don’t care? Here are some of the reasons they should.

Photo: CreativeCommons/ Jakob Huber/ECI Stop TTIP!


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While former president of the European Commission, José Manuel Barroso argued 1 that it opens a “huge potential” for both sides, and the EC predicts it would boost the European economy by 0.5%, the treaty itself and the secrecy under which it has been negotiated spurred a number of criticisms from both politicians, trade-unionists and NGOs.

Although high-level experts from both sides of the Atlantic have been working on a far-reaching free-trade agreement since 2011, the interest of the wider public in TTIP was only awakened in March 2014 when a draft version of the secretly negotiated treaty was leaked. Immediately campaigns were launched against the project in the EU. For instance, in July 2014 activists applied to the EU for a registration of their European Citizens’ Initiative (ECI) called Stop TTIP. It was among the few ECIs that was rejected by the Commission, who said it fell outside the framework of the Commission’s powers. 2 In response, some 300 NGOs formed a coalition and launched a non-official ECI. 3 In six months they collected 1.3 million signatures demanding to stop TTIP negotiations – in an official ECI 1 million are required in one year’s time to oblige the EU to act. Obviously, it wasn’t a fortunate start for an open, transparent process.

Apart from civil society, TTIP has not received unanimous acclaim from politicians either. Several concerns were raised by German politicians against the threat TTIP may represent to regional products and geographical food names, and by the French regarding the assault on French “cultural exception”. The most important objections, however have come from very diverse sources, including governments, political parties, NGOs and trade unions, and have focused on the so-called investor-to-state dispute settlement mechanism (ISDS) that allows companies to sue countries hosting their investments if they see their profits being threatened by government policies. In November 2014 France officially announced that it would not sign TTIP if ISDS was included.

Apparently the sudden and fierce opposition came as a surprise to the European Commission (EC), which had to postpone the conclusion of the TTIP talks originally scheduled at the end of 2014. The EC felt compelled to launch a public consultation on TTIP, more exactly on its most controversial part, the ISDS. The EC published the results 4 of the consultation in January 2015 with some stunning results: 97% of those who responded were critical to TTIP in general or ISDS in particular. The American negotiators are opposed to omitting ISDS from the treaty and worry that any attempt to substantially curtail the text could clear the way for the removal of other chapters as well. A recent development is that Syriza, the left-wing party who won the Greek elections announced that they will not ratify TTIP. 5 The future of TTIP is more uncertain than ever.

What for?

TTIP would, first and foremost, create a huge free-trade area involving two economic superpowers that together represent approximately half of the world GDP. As a free-trade agreement TTIP aims at removing customs duties on goods as well as “unnecessary regulatory barriers to trade”. Being around 2%, tariff levels are generally low between the EU and the US, but as proponents of the agreement argue, this average figure hides a wide variety of tariffs on different goods. For instance the duty on imported cars in the EU is 10% and even higher tariffs are levied on some consumer goods, like clothes or shoes. Similarly, duty on train carriages in the US is 14%, on kitchenware its 25% and on raw tabacco imported from the EU its 350%. Removing tariffs, so the argument goes, will have a positive effect on trade, boosting production, which in turn, will create new jobs and raise salaries. The most optimistic scenario of the study 6 referred to by the EC predicts a 0.5% GDP growth for the EU and 0.4% for the US – a general impact that would of course vary according to sectors and industries.

Politicians focus on job creation when they talk about TTIP – no big surprise there. Trade Commissioner Cecilia Maltsröm argued that in Germany only, 15% of jobs depend on trade. 7

TTIP also aims to create more favorable conditions for trade in services and investments. Part of improving the conditions for investments would be the ISDS. But the treaty is also to set rules that would ensure that EU and US companies are not discriminated against when tendering for public contracts in each other’s market.

Proponents of TTIP also stress the political message it is supposed to convey – that is a literal endorsement and deep commitment between the two greatest liberal democracies in the world. This should not be undervalued in our times, when China, now considered the world’s first economic power, is actively building its economic and trade relations with numerous countries, among them Russia who is appearing more as a threat to the EU and the US, than China’s benign trading partner. Some vision TTIP as the “economic NATO” of our times, when economic security is just as much of a concern as military security. 8

In sum, proponents argue that TTIP would level the playing field for doing business and subsequently spur economic growth. At the same time it will deepen the bonds between American and European democracies. A decent proposal, isn’t it?

Some of the key problems with TTIP

However, as we have seen, TTIP faces a number of harsh criticisms coming from different sources. Let us quickly go through the major arguments against the treaty.

Transparency: The EU Commission negotiated the treaty in secrecy, and even members of the European Parliament were not granted access to the draft text. Critics including Corporate Europe Observatory (CEO), a research and campaign group acting as a watchdog on corporate lobbying in Europe, argue that the level of secrecy exercised by the commission violates the basic principle of democratic control.  CEO also fear that the final text may be difficult to change, because the EC can always argue that it was the result of long, painful negotiations and that changing it would break the delicate consensus behind it.

Democracy: The lack of transparency is not the sole issue that may put democracy in peril. TTIP may constrain the ability of countries to adopt policies they find useful or beneficial for their societies – the examples of other free-trade agreements, like the North American Free Trade Agreement (NAFTA) or the treaties under the auspices of World Trade Organization (WTO) illustrate the point. For instance, the dispute settlement body of the WTO ruled that the EU had no right to ban  American hormone-treated beef or GMO crops from its territory. Why? Because of a seemingly innocent article of a highly technical WTO agreement on the use of sanitary and phytosanitary measures in trade that defined how risk should be interpreted. This definition did not allow the EU to use its basic policy principle, the precautionary principle.

The ISDS mechanism, referred to above was already institutionalized by NAFTA 20 years ago and provides similar examples. 9 Although ISDS was originally designed to provide protection to investors against unfair state interventions or nationalization, it has been used by companies to sue governments when adopted policies (environmental, social, etc.) have had negative effects on profits. This runs contrary to the basic idea of governmental policy making that should address social problems and implement measures that hinder or make more costly some activities, while easing others. An environmental regulation, for instance, aims exactly at prohibiting or penalizing practices that pollute or harm the environment.

New jobs?: The EC does not hide that expected job increases will be differentiated and some sectors or regions may record net losses, even if these losses will be compensated by more jobs elsewhere. However, critics fear that even the overall job balance may be negative for Europe and that the increased competition may exert a strong downward pressure on wages. Trade expert, Clive George, argues 10that the benefits of free-trade arguments are notoriously overstated and TTIP will deliver only minimal economic benefit at best.

Regulation and social welfare: A study 11 of the EC identified around 600 specific measures, regulations, standards and subsidies that constitute non-tariff barriers to trade, part of which should be eliminated or the convergence assured between European and American policies. Some of these measures may indeed be considered unnecessary, unfair or inefficient, and their elimination could potentially increase the overall welfare, but determining which measures to cut is more difficult.

Critics of TTIP worry that environmental and social standards protecting the well being of Europeans may also become eroded in the negotiation process. The French fiercely defend their right to subsidize national cultural production. Germany has expressed concerns about the future of European GMO regulation. Environmentalists worry about chemical safety standards and subsidies given to renewables and other environmental measures that might come under threat. Concerns were also raised about financial regulations: while the global economic crisis of 2008 taught us that the financial sector needs better regulation, policies are only slowly evolving, especially in the US.

Some, including Malström argued that getting US hydrocarbons to the European market would decrease dependence on Russia for energy, referring to gas shortages in earlier years and the current instability of Russia in Europe. However, for this you don’t need TTIP and certainly not now: technically and financially it is still a thing of the future, so it won’t solve current insecurities. And even if and when it becomes a reality, it can still be regulated by a simple treaty or bilateral agreements.

One of the most recent criticisms is that TTIP would expand patent rights for big pharmaceutical companies, which would keep important medicines overpriced around the world. It would simply prevent other companies from bringing the medicine into the generic market, which generally lowers costs by 30-80%. This is certainly not a free-trade measure, in fact it prevents free competition on the market. To include such protectionist measures in order to allow companies to hold legal monopolies on sometimes life-saving medicines is highly questionable, as it is causes preventable suffering and deaths around the world. 12

Does all this – the secrecy, the assumption-based pro-arguments and the unfounded claims – mean that TTIP is bad for Europe? Non-state actors, mostly NGOs, trade unions and citizen’s associations especially in the fields of environment, consumer rights and personal freedoms indeed argue so and accuse the EC of biased and uncritical campaigning in favour of TTIP, without fairly presenting the possible risks and critical opinions. In fact, the EC website 13 that is supposed to inform European citizens about TTIP is undeniably more optimistic than critical about the treaty. The final judgement might be impossible to predict but it is fair to say that TTIP certainly has some ugly traits. And these features in the long run may indeed easily crowd out the benefits.

TTIP and V4

Although we can state that V4 countries are generally supportive of TTIP, there are no serious and in-depth debates in our countries about the benefits and risks of TTIP. Based on a survey conducted last summer by V4 Revue, 14  political parties in the region have only superficial knowledge about TTIP, if any at all. Opinions do not show a consistent direction along ideological lines because most parties only have impressions and assumptions, not evidence-based, informed opinions. This in itself confirms concerns about the transparency of the process.

Among the assumptions there is one that suggests that V4 countries will be advantaged in terms of lower costs of production as well. For instance, a forthcoming study by a group of economists commissioned by the Hungarian government (not made public yet) predicts a positive, although quite modest, economic effect for the Hungarian economy. Recently, in his speech 15 to Parliament, the Czech Prime Minister, Bohuslav Sobotka also referred to economic studies commissioned by the government and argued that the Czech economy is sufficiently competitive to make use of the opportunities provided by TTIP, namely investment growth and job creation.

V4 countries, especially Poland, tend to be sensitive to the signs of a reborn Russian imperialism and, together with other Central and Eastern European countries, have traditionally been Atlantic-oriented. That is, the geopolitical significance of TTIP is perhaps more appreciated here than in Western Europe where alliance with America is just business as usual.

However, Hungary seems to break the harmony of the pro-Atlantic V4 choir and diplomatic relations between Hungary and the US has been deteriorating dramatically since a 2014 incident when the US government banned six Hungarian citizens, including the president of the Tax Authority, from the US because of corruption charges. As a consequence, Prime Minister Viktor Orbán immediately took more distance from TTIP as well. If this was just a quick reaction to the diplomatic scandal or the signal of a more critical orientation of Hungarian politics toward the agreement remains to be seen. For sure, in the past years Orbán began a diplomatic double jeux between the West and Russia, in some cases clearly aligning Hungary to Russian interests. 16

Based on the aforementioned V4Revue survey, parties clearly had no sufficient information about TTIP, partly because the survey was conducted in June 2014, only three months after the leak. Some were straightforward enough to say they simply did not have enough information to analyze the pros and cons. Others, it seems, answered based on hopes and assumptions, or on suspicions and fears. But clearly, they were not in the position to form an evidence-based or even informed opinion.

We can now say that V4 countries are generally supportive in their attitudes to TTIP, but some specific concerns have been raised about it. For instance, the official position of Hungary is that ISDS should not be included into the treaty. This is, however not shared by other V4 countries. In October 2014, the Czech government expressed its support to including the ISDS chapter in TTIP. That seems quite strange, because the Czech Republic is the most sued 17 EU country in intra EU ISDS cases (based on treaties with the EU concluded in the pre-accession phase). The country paid EUR 840 million to investors up until 2012, and was also the state against which most cases were brought in 2013. Similarly, although Poland is the world’s eighth 18most often sued country under ISDS mechanisms of previous bilateral trade agreements, the Polish government is not opposed to ISDS’ inclusion into TTIP, because they think it may provide an opportunity to end existing treaties.

Both Czech 19 and Polish 20 politicians expressed concerns about food safety, labor and environmental standards. The difference is that Zaoralek still supported it his speech. On the other hand, a study 21, published in June 2013 by the Bertelsmann Foundation justifies the concerns raised by Polish agriculture minister Kalemba: it shows that TTIP would mainly benefit Washington. The experts of the Munich-based IFO institute, which did the study, found a deal would lead to a 13,4% long term per capita increase in income in the US, but only a 5% average income increase in the EU’s 27 member states.

It seems that in general, based on assumptions and hopes, it is easier to support TTIP but once specifics are carefully examined by experts, concerns are becoming more and more justifiable.

Recently the Hungarian Ombudsman for Future Generations warned that TTIP might endanger Hungary’s GMO regulation. Hungary wrote a GMO ban into their new constitution, and recently even declared that it is ready to veto TTIP if this principle was threatened. The parliament will even hold a debate day designated to the TTIP and government consulted NGOs. 22

But it is still unclear how important those problems are for other V4 governments and politicians and what they are willing to do to challenge the negotiations. It is too early to know.

The political stakes are not very high, given that powerful Western European countries have already raised a number of objections, largely in line with those expressed in our region. General public awareness is low in the V4 and very little public debate has been going on about TTIP, although small, special issue NGOs are well informed and well connected to their Western partners who are loudly protesting. In general, NGOs that are focused on specific issues like globalization and free-trade are highly aware, well trained and even sophisticated in their opinions, but their voices are barely heard outside of the urban subcultures; and politicians are certainly not famous for digging deep into such complex issues…

We can only hope that this will change. In any case, the mobilization of some critical NGOs against TTIP has indeed started 23 and sooner or later governments will have to respond to this challenge with evidence based, justifiable proposals.

Notes:

  1. José Manuel Barroso, speaking at a press conference at the G8 summit in Northern Ireland in 2013 
  2. European Commission, “Commission’s reply stating the reasons for refusal of registration, ” Brussels, 10 September 2014. 
  3. Stop TTIP: Self-organised European citizen´s initiative against TTIP and CETA  
  4. European Commision, Report, “Online public consultation on investment protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership (TTIP)“, Brussels, 13 January 2015.
  5. EurActiv.com, “Syriza-led Greek parliament ‘will never ratify TTIP’,“Brussels, 2 February 2015.  
  6. European Commission, “Transatlantic Trade and Investment Partnership: The Economic Analysis Explained,” September 2013. 
  7. European Commission, Speech, “Cecilia Malmström, Commissioner for Trade: Why TTIP is good for Germany,” Brussels, 30 January 2015. 
  8. Boyden Gray, “An Economic NATO: A New Alliance for a New Global Order,” Atlantic Council, 21 February 2013.  
  9. Scott Sinclair, “NAFTA Chapter 11 Investor-State Disputes to January 1, 2015,”  Canadian Centre for Policy Alternatives, 14 January 2015.  
  10. Clive George, “What’s really driving the EU-US trade deal?,” OurKingdom, 8 July 2013.  
  11. European Commission, “Non-Tariff Measures in EU-US Trade and Investment – An Economic Analysis,” Rotterdam, 11 December 2009.  
  12. Dean Baker, “TTIP: It’s Not About Trade,” Atlantic Community, 12 August 2014. 
  13. European Commission, “EU negotiating texts in TTIP, chapter by chapter,” Brussels, 10 February 2015. 
  14. V4Revue, “Survey on V4 countries’ parliamentary political parties’ positions on the Transatlantic Trade and Investment Partnership (TTIP),” Bratislava, 23 June 2014.
  15. Chamber of deputies, Parliament of the Czech Republic, “Transcript of meeting from 22 January 2015,” Prague, 22 January 2015.
  16. András Rácz, “From pragmatism to bear hug: Hungary´s Russia policy on the eve of the Ukraine crisis,” V4Revue, 29 December, 2014.
  17. Romain Pardo,”ISDS and TTIP – A miracle cure for a systemic challenge?,” European Policy Centre, 14 July 2014. 
  18. Instytut Globalnej Odpowiedzialności, “Strong concerns about EU-US trade deal raised in Poland, ” Warsaw, 28 September 2014. 
  19. Chamber of deputies, Parliament of the Czech Republic, “Transcript of meeting from 22 January 2015,” Prague, 22 January 2015. 
  20. Marek Kryda, “Polish Agriculture Minister questions benefits of TTIP,” 6 December 2013.  
  21. Bertelsmann Foundation, “US, EU benefit significantly from TTIP,” Washington DC, 17 June 2013.  
  22. Mandiner.hu, “Mikola: Figyelembe kell venni a civil szervezetek véleményét,” Budapest, 13 February 2015. 
  23. Stop TTIP, “National Contact Persons.
Zsolt Boda

Zsolt Boda

is senior research fellow and head of the Research Department of Government and Public Policy at the Institute for Political Science of the Hungarian Academy of Sciences. He is also working for Védegylet, a Hungarian green NGO.