European Union and US: Transatlantic Trade and Investment Partnership Deal at Risk?
Early 2013, when the US and the EU agreed to launch negotiations for a Transatlantic Trade and Investment Partnership, the “investment” dimension did not attract much attention. Those who do not like transatlantic deals chose first to try to mobilize European public opinion around the traditional stumbling blocks in the EU – US agenda: the so called “exception culturelle”, the use of GMOs, the use of chlorine to clean chicken and other more or less tasty issues.
But TTIP was launched at the highest level on both sides of the Atlantic and the negotiators intended to keep it at a high level – so the understanding was that these difficult topics would be quietly set aside and the deal concluded, from the top, hopefully before the departure of Commissioner De Gucht at the end of 2014.
In fact it took more time than expected to discuss what would be in TTIP and what was not really needed to make it “ambitious” enough: were financial services to be included? data protection? energy? After two years – and the replacement of the EU Commissioner – this discussion is not yet finished.
In the meantime, civil society has become ever more critical of the transatlantic deal. In the euphoria of the first months, TTIP negotiators seemed to have forgotten that those in civil society who do not like international trade agreements are capable of making a lot of noise, as happened at the famous meeting in Seattle that was intended to launch the Doha Round in 1999.
When it appeared that the traditional EU – US disputes might not be able to break the momentum, they discovered a new argument for challenging the deal: the so called “investor-to-state dispute settlement” – or ISDS.
ISDS is a mechanism that has long been included in most bilateral investment treaties with third countries, with the aim of ensuring that companies investing abroad are treated fairly and equitably as compared with local companies – if not they can get a compensation through an arbitration procedure, usually in the hands of ICSID, the “International Center for the Settlement of Investment Disputes”, at the World Bank in Washington.
Since the fifties, EU Member States have signed around 1400 bilateral trade agreements – among which 9 have been with the US. So ISDS is nothing new and indeed, when it discussed the mandate to be given to the EU Commission for the negotiation of TTIP, the EU Council unanimously included the dispute settlement mechanism.
Still, a wave of protest against ISDS started to grow at the end of 2013 and quickly moved to center-stage in the internal EU debate about TTIP. The argument was that the mechanism allowed major multinational companies to escape the national legislation of the country where they invested, to pressure governments into doing their bidding and instead of national judges to use arbitrators who would usually lean their way.
Reacting to this unexpected move, Commissioner De Gucht thought that a rational and transparent explanation process would diffuse the “misunderstanding”. Using a classical tool of the Commission in dealing with interest groups, he launched in March 2014 an “online consultation” on ISDS. The questions addressed twelve technical elements of the ISDS process; responses were due by mid-July.
The timing of this consultation was not ideal: In the meantime, TTIP had lost steam. After the European Parliament election of May 2014 and the ensuing negotiation for the appointment of a new Commission, De Gucht had become a lame duck. At the same time, the perspective of a fast track vote in the US Senate if the Republicans won a majority in the November election had the almost immediate effect of encouraging a pause in the TTIP negotiation until the new Senate was installed.
Interest groups opposed to TTIP used this double pause to mobilize more than before public opinion in the EU Member States against ISDS. The issue became a major political issue in some of them, notably Germany, where sensitive arbitration procedures were underway notably in the energy sector. The Free Trade agreement with Canada, CETA, which had already been concluded, did not escape the fury, and its ratification also became a hostage of the ISDS debate.
When the Swede commissioner Cecilia Malmström succeeded De Gucht in November 2014, she tried to improve the atmosphere on the EU side with a typically Swedish tool: she announced that for the sake of “transparency” the mandate and some documents would be made public – a strong request of the European Parliament; she also promised that the next round in February 2015 would give “a fresh start” to the negotiation.
But it was clear that in order to give the necessary impetus to the talks after the long break due to the change of EU Commissioner, the fate of the ISDS clause in the investment part of the agreement needed to be addressed.
Those in the Commission who hoped that the outcome of the consultation would help settle the dispute were terrified when they analyzed the results at the end of 2014: among the 150,000 replies, 145,000 (97%) expressed negative views on ISDS. Looking closer, they noted that most of them had been submitted collectively through various online platforms containing predefined answers which respondents could adhere to, but that was not enough of an argument to nullify the procedure.
DG Trade decided to refrain from publicizing these dubious results until mid-January 2015, hoping that the Christmas break would make all this fade away. It did not. When the report was made public on 13 January, it became clear that a serious effort had to be made to “improve” the mechanism, or ISDS would have to be excluded from TTIP altogether.
It might even be excluded from CETA, which has already been concluded but still needs to be approved by the Council and the European Parliament. Indeed, France and Germany in a common declaration on 21 January asked “to examine all the options for modifying” the ISDS clause in the agreement, seeming to forget that their governments had approved the CETA version of the clause, which had been “refined” during the negotiation with Canada, and was considered as the best formula to date for the mechanism.
What can be done to make this formula more acceptable to opponents?
The EU Commission suggests 4 areas in which “further improvements could be explored”:
the protection of the right to regulate
the supervision and functioning of arbitral tribunals
the relationship between ISDS arbitration and domestic remedies
the review of ISDS decisions for legal correctness through an appellate mechanism.
To make changes, it does not seem necessary to modify the mandate given by the Member States at the beginning of the negotiation: according to this mandate, ISDS should be in TTIP, but provided a number of conditions which can still be defined.
The eighth round of negotiations – and hopefully the “fresh start” promised by Cecilia Malmström – will take place during the first week of February in Brussels. It is supposed to be “comprehensive” and “address almost all the topics on the table” – but not ISDS. The Commission will continue until spring to consult all possible stakeholders in the EU about the way to improve the mechanism, before making proposals to the US side.
Juncker insisted that a final decision on including it – or not – in TTIP will only be made at the end of the negotiation. But this “reassurance” given to the opponents is not without risk: at the end of the negotiation, if the EU insists in taking it out, the US side might ask as a quid pro quo a last minute concession on another US offensive interest…