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US-EU trade deal (TTIP): separating the baby from the bathwater

Posted on June 21, 2014 by Tom Healy

Tom Healy, Director NERI
Tom Healy, Director NERI

Trade and investment across regions and continents can be good for people. It can raise levels of productivity, create jobs and encourage global cooperation to the betterment of all. Better to make trade than war especially when it comes to food, energy, medicines and the many goods and services that were undreamt of in previous generations. But not all trade and investment is good. History is marked by examples of huge exploitation of people and natural resources coupled with a denial of fundamental human rights and dignity. In recent decades, a growing trend towards de-regulation, harmonisation of regulatory policies and removal of tariff and non-tariff barriers to trade and investment must be viewed with considerable caution based on evidence, openness and democratic deliberation.

‘Transatlantic Trade and Investment Partnership – Opportunities for Ireland’ was the title of a special seminar held by the Department of Jobs, Enterprise and Innovation in Dublin on 20th June and to which I was invited.  TTIP for short is not exactly the top of people’s tongues.  A study on the possible impacts of TTIP in the Republic of Ireland is expected in September of this year.  So what is it and why should people be concerned about it?

What is TTIP?

The Transatlantic Trade and Investment Partnership refers to talks or negotiations that have been taking place over the last year involving the United States of America and the European Union. The aim is agree on a ‘comprehensive trade and investment’ package covering a large part of the world’s population and economic activity – from Alaska to Romania (and of course the island of Ireland in between!). The Agreement is aimed at:

  • Reducing regulatory (rather than tariff) barriers to trade and investment
  • Harmonising rules in relation to trade in goods and services
  • Otherwise creating a common commercial environment

Why TTIP?

The momentum towards freer trade and movement of capital has been a feature of the last 60 years. The process has accelerated with the establishment of the European Union (or the European Coal and Steel Community in the wake of World War 2) the collapse of the Berlin Wall and the huge growth in trade and multi-national cross-border investment in recent decades. The theory is that free movement of productive and financial assets including labour and capital will help increase productivity, returns to investment and, ultimately, living standards for all or most inhabitants in those countries affected. (An important context for TTIP is the rise of economies such as China, India and Brazil which threaten the competitive position of the USA/EU).

Minister Richard Bruton summed up the position recently:

‘At a time of high unemployment, both in Ireland and across the EU, we must grab with both hands any opportunities for job-creation. Major stimulus spending is not an option, and so our focus must be on increased trade and exports. In particular, huge potential is offered by the EU US trade agreement currently in negotiation - – official studies show that a comprehensive trade and investment partnership could create 400,000 extra jobs in the EU.

If the politics of austerity and lack of an option for a significant Irish or European-wide stimulus is the order of the day then export-led growth within and without Europe is seen as the only and principal way forward.

When will TTIP be finalised?

The aim is to conclude the negotiations by ‘the end of 2015’. The next round of talks are due in Brussels on 14-18 July. Disagreements and politically related controversies within and across jurisdictions may stall or postpone final agreement not to mention uncertainties and distractions to the East and South-East of the European Union.

How is TTIP conducted?

At inter-governmental level. The degree of parliamentary over-sight and civil society engagement is limited or non-existent. There has been a marked lack of transparency and openness in the process to date with a lack of availability of key documents and briefing material. Recent controversies over data protection as well as surveillance have added to the impression that European and US citizens are in the dark when it comes to the details of what is being proposed and what is under discussion.

The conclusion of the North-American Free Trade Association (NAFTA) in 1994 was an important milestone in trade liberalisation. NAFTA, which encompasses the USA, Mexico and Canada, provides a significant benchmark for TTIP.  It should be noted that TTIP – if finalised and implemented will set an important benchmark for other trading blocks in terms of norms and standards. To the extent that TTIP raises trade within its area it is possible that exports from emerging and low-income countries will be displaced.

What is at stake for Ireland, Europe, the World?

The Centre for Economic Policy Research (CEPR) has been commissioned to undertake research involving an estimation of the output and employment gains from TTIP here. Some displacement of work in the European Union is acknowledged and the option of drawing on structural support funds, inter alia, is proposed. These estimates have been the subject of some controversy especially given the large uncertainties in any long-term economic forecast.  Recently, in a Dáil debate the Taoiseach stated:

“TTIP, has the potential to create 500,000 jobs in Europe and a similar number in the United States. Europe and the United States have a closely integrated economic relationship, but it is not one that has been fulfilled in terms of job potential.” (10 July 2014)

On the positive side it will be easier for enterprises on both sides of the Atlantic Trade to access markets on the other side including access for small and medium-sized enterprises in Ireland which need to export more. However, trade is only one element in a pan-European strategy that is urgently needed to create sustainable economic development that will generate full quality- employment and a fairer distribution of opportunities. More regulation – not less – is needed in area of financial services. Likewise, a coordinated policy to curtail or abolish ‘tax-dumping’ is needed. This, in association with progressive measures to raise investment and skill levels is the key to the future. Trade should be subordinate to a human and social agenda – not the other way around.

So what?

The promises of benefits as a result of free trade, more competition, removal of barriers and harmonisation are familiar. The success of the European Union has been evident in the creation of a single European market (or something approaching a single market) while maintaining some aspects of a ‘European social model’ which provides for employment, social, cultural and environmental rights and interest. However, it must be noted that recent court rulings (e.g. Viking and Laval) in the area of national and EU cross-border employment rights as well as the development of a strong neo-liberal agenda in Europe with an overwhelming emphasis on competition, privitisation (by default), fiscal rules to the detriment of social outcomes and ‘structural reform’ in the labour market have undermined the European Social model. The response by electorates across Europe in May of this year is a signal of a growing disconnect between governments, the institutions of the Union and large segments of European civil society. All of this is not without significance as context for the pursuit of TTIP at EU-USA level.

Now that NAFTA encompassing North America moves to meet up and join up more closely with the European Union economic trade and investment space can we expect a ‘levelling up’ more than a ‘levelling down’ of environmental and labour standards? Recent trends in both continents – quite apart from any specific detail in the negotiations – suggest the likelihood of a levelling down.  The experience of NAFTA suggests very mixed results with a growth in trade and in GDP in the countries involved but also large displacement of jobs and growth in precarious, low pay employment along the Mexican-US border and in Mexico. These trends were likely to happen anyway but it is possible that NAFTA facilitated the process. As in the development of a common free trade area in the EEC/EU there will be winners and losers with some sectors and occupations losing out (e.g. fisheries historically in the case of Ireland?) and others gaining. It is suggested in the presentation last week by Copenhagen Economics that Irish dairy and beef producers will lose out while Irish exporters of processed foods will gain. The claim is that, in the aggregate, the gains outweigh the losses and most workers, businesses and farms are better off in the long-run as economies and the benefits of free trade and investment trickle down and across to most people. While this has been the general (but by no means universal) experience in Ireland with regards to the EEC/European Union it is far from sure that a TTIP will deliver a long-term gain for consumers, workers, businesses and citizens here.

Of particular concern are the following areas:

  • Employment rights and standards where corporations could challenge collective bargaining rights as ‘barriers’ to trade and investment.
  • Environmental standards (e.g. in regards to such matters as Genetically Modified crops, extraction of shale gas) – although EU negotiators will be quick to claim that these are ‘red line issues’ not open to compromise.
  • De-regulation of the financial services sector
  • The Investor-state dispute mechanism (ISDS) by which investors can sue governments for compensation over national laws or rules that affect their activities.  An increasing number of ISDS type cases have already been taken by corporations in Europe and the USA in recent times. For example, Vattenfall, a  Swedish energy corporation has taken a lawsuit against Germany  for €3.7 billion in compensation for lost profits related to  nuclear power plants following the decision by the German Government to phase out nuclear energy after the Fukushima disaster. Under NAFTA rules the US energy company Lone Pine Resources is suing the Canadian government over its moratorium on fracking in Québec (NAFTA is entirely separate from TTIP but the former sets precedents).  Could similar cases be taken, in the future, in relation to equally sensitive environmental issues such as fracking? A study by LSE economists commissioned by the UK Government concluded that:

Moreover, existing evidence suggests that the presence of an EU-US investment chapter is highly unlikely to encourage investment above and beyond what would otherwise take place. US investors have generally not taken much notice of investment treaties in the past when deciding where, and how much, to invest abroad – even when dealing with far more questionable jurisdictions than the UK.

  • Public services where outsourcing, privitisation and competition is the order of the day already in Europe and TTIP could reinforce the ‘completion of the single market’ in public service areas such as health and education. Again, EU negotiators will claim that publicly funded health and education services are off the table as far as market liberalisation is concerned. That remains to be seen. Public service procurement contracts could be further opened to private providers from across the EU/USA. Concerns have been expressed, for example, by the University and College Union (UCU) in the UK here. Likewise the National Health Service – at least in England and Wales could be vulnerable to greater outsourcing and private tendering for specific service delivery. Public utilities already privitised may be difficult to bring back into public ownership (such as happened in the case of water services in some European cities) as a result of new agreements.

Dr Alan Matthews of TCD has discussed the issue of food safety in the context of TTIP in a recent blog here and in a well informed expert role in regards to the agricultural sector offers the following measured conclusions:

“In principle, it makes good sense to identify ways to reduce costs associated with regulatory differences by promoting greater compatibility between regulatory systems in the US and the EU. But, in the case of food, it seems likely that the cultural, political and institutional differences between the two jurisdictions will continue to result in different perceptions of risk, and thus different regulatory outcomes....If the negotiators do come to an agreement on a draft proposal, there must be sufficient time for all concerned to consider its implications. Trade is a legitimate interest to take into account in setting food safety standards, but it cannot be the determining factor.”

Most processed foods sold in US supermarkets contain genetically modified ingredients while little or no GMO food is on sale here in Europe. Concerns have also been expressed in relation to the use of bovine growth hormones in US beef. These seem to be linked to cancer in humans. Imports of such beef have been banned in Europe since the 1980s. Could TTIP see a change in this situation?  The US ambassador to the EU claims that these concerns are ungrounded. See here. Likewise the chief EU negotiator stated, in response to a direct question said that TTIP would not allow importation of US meet containing injected with hormones not allowed under EU regulation.

In conclusion ….

Why is TTIP being pursued with what appears to be indecent haste? What pressing priorities confront the world right now?  The environment, global poverty, health, education are among the pressing issues facing humanity not to mention war, terrorism and lack of democracy and respect for human rights. To what extent is a new trade agreement the priority right now in Europe and North America?  If any future agreements are concluded how will they improve or dis-improve well-being of people across the planet? The undoubted benefits of cross-boundary investment and trade over recent decades should not presage a complacency that ‘more is better’ and ‘trade is always good’.

As for Ireland – we need a more open, informed and inclusive debate about the matter.  We can’t just leave it to others be it EU, the US or those competent and well-meaning responsibles tasked with winning investment, jobs and access to markets.

TTIP is a large-scale and complex process. A lack of transparency coupled with a lack of widespread consultation and information is adding to a sense of unease in relation to areas such as social, environmental and regulatory rights. Would it be possible to throw the bath water out without the baby – i.e. keep the ‘good’ bits of TTIP in so far as it encourages higher growth and employment and ditch the ‘bad’ bits such as ISDS, mention of public services and those provisions that could undermine labour/environmental standards?  Right now it is hard to see any baby from the dirty water.

(Further information is available online from official sources - EU and US . The European Trade Union Confederation has recently outlined its position on TTIP here.)

 

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