TTIP trouble: Critics could derail deal over secret courts system

Ever since the English economist David Ricardo laid out the law of Comparative Advantage in 1817, the idea that removing barriers to trade inevitably reduces prices has milled the wheels of globalisation.

The social and democratic costs of imposing it have always been more contentious.

The Transatlantic Trade and Investment Partnership - or TTIP - is a case in point. Three million Europeans have now signed a petition to block the deal, and a new poll reveals only 18% of Americans support it. Yet opposition is rarely framed in terms of trade.

The economic gains are palpable. Removing tariffs on European goods sold to the US would add an estimated 0.3% to overall EU GDP. While harmonising - or as some worry, simply removing - technical regulations such as health and safety standards and green taxes, could improve EU growth by as much as 4%.

Instead the future of TTIP is threatened by an insistence on a system of independent courts - the so-called Investor-State Dispute Settlement (ISDS) - which enables private companies to sue nation-states for ‘unfair treatment.’

The arguments rest on what constitutes ‘unfair.’ Critics claim US health companies can use these courts to threaten the UK with costly litigation, or actually sue, if they are unable to bid for our public services. Others worry that companies would be entitled to compensation if changes in public policy lessen their projected profits.

If the UK electorate voted to increase the minimum wage or extend parental leave, could a US company in Britain sue the Government for damages to its profit margin? Could multinationals use these courts to force their way into the NHS?

Many seem to think so, but as the deal is forged behind closed doors, we have no way of knowing.

When the SNPs Margaret Ferrier asked the Prime Minister whether the NHS would be excluded from TTIP, he dismissed the suggestion as ‘the reddest of red herrings:’

“The health service is completely protected under this agreement as it is under other agreements,” said David Cameron.

A cross-party contingent of MPs weren’t so sure, and so only days later Mr Cameron acceded to amend the Queen’s Speech  - the first time a PM has done so since 1924 - explicitly protecting the NHS from the deal.

Paula Sherriff, the Labour MP who tabled the amendment, told PoliticsHome that excluding the NHS still leaves other services exposed to ISDS.

“We cannot let those same corporations get a permanent grip on our services, with a secret courts system designed to defend their interests rather than the public interest. So it's not good enough for the government to accept our amendment, they must also accept our argument,” she said.

“It's time for ministers to make clear that the UK will reject any trade deal that includes the so-called Investor-State Dispute System and does not have iron-clad guarantees that protect public services.”

Horror stories fuel this position. In 2012 a French energy company, Veolia, sued the Egyptian government for introducing a minimum wage, under the terms of a ‘cost-plus’ trade deal. The case is still in litigation, but may result in compensated losses for Veolia.

In another case, under the terms of separate trade deal, the US tobacco giant, Philip Morris recently tried to sue the Australian government for introducing plain packaging on cigarettes. This case failed, but far from offering assurances, many, including former Tory Trade Secretary Peter Lilley, argue that if such costly cases are even considered, the system is clearly open to abuse.

“It’s a very odd system,” said the MP, “You might ask why such courts exist.”

ISDS courts are usually included in trade deals with countries with unstable governance or corrupt courts, so that investor disputes can be settled independently, making investment safer and more appealing.

“I’ve seen no case for such courts in the UK,” Lilley added. “We attract more investment for American companies than any other country in the world, because they trust British governance.”

The NHS is acutely at risk, he explained, because of the number of American health companies already operating in the UK. Under TTIP they may have cause to sue the state, if they felt they were being discriminated in their bids to run public services. He also felt this could extend to educational companies ‘in due course.’

“The danger is ISDS can be used to threaten the government effectively,” he said. “A company could say: ‘Look, if you don’t change something we’ll take a legal case and you’ll be tied up in court for ages and cost you millions of pounds.’”

“I’m talking as if I know the details of the treaty,” he added. “All we know is that it’s being negotiated in secret, which is rather odd, because clearly the Americans and the European Commission know each other’s position. So the only people they’re keeping it a secret from are those to whom they’re accountable: the parliaments of the member states.”

So why include such courts if they have the potential to scupper the whole deal, and why the secrecy?

The Department for Business claims that ISDS aims to protect international investors from ‘discriminatory or unfair treatment.’

“Many UK companies investing overseas rely on such provisions to protect their business interests,” it said.

“Investor-state dispute settlement tribunals provide a de-politicised route for investors to achieve financial compensation – but they cannot overturn laws or force governments to open markets. As such, they pose absolutely no threat to public services.”

BIS also stated there has not been ‘a single successful ISDS case’ brought against the UK, nor has the threat of potential claims affected the Government’s legislative programme.

Economist Peter Holmes, who has carried out studies on trade policy for both BIS and DfID, felt that fears about TTIP ‘might be exaggerated,’ but equally the assurances from BIS were overblown.

Firstly he felt the case for supporting UK companies abroad is fragile. As ISDS legal fees alone cost an average of $8m, the court is likely to benefit only the largest multinationals.

“The European Commission argues that small firms could benefit from ISDS. My view is that this is unlikely,” he said.

Secondly, that the UK hasn’t been successfully sued in the past, is no guarantee it won’t be under TTIP.

Violations of obligations under European Free Trade Agreements and the World Trade Organisation, have mostly been settled government-to-government. Where EU member states have signed ISDS agreements, litigations have been brought. Holmes cites the Swedish energy company Vattenfall which has twice demanded compensation from Germany for changes to environmental policy. 

“There are two problems with ISDS: First, what the agreements explicitly cover, and second, how a tribunal would interpret them,” he said.

The Treaty has not yet been written. The recent trade deal between Canada and the EU - CETA - is currently the closest model we have to TTIP, which stipulates that only under strictly defined circumstances can litigation be brought.

Yet as Holmes points out, there is no telling whether independent arbitrators “answerable to noone” who “may have a vested interest in facilitating this kind of action,” will interpret the phrasing of clauses in favour of multinationals.

“Critics in the US argue that ISDS tribunals have frequently given judgements for firms that are more favourable than domestic courts,” he added, although “it seems unlikely that a rise in minimum wages would be covered by ISDS, in a TTIP based on the CETA rules.”

“There is a case for using TTIP to forge a new approach,” he concluded. “But whilst the fears about TTIP might be exaggerated, its impact cannot be predicted and the gains, in terms of facilitation of FDI, seem so small that a very strong case can be made for leaving the domestic courts to deal with genuine contractual disputes between multinational companies and governments.”

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