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01/23/2014 01:54 PM

Corporation Carte Blanche

Will US-EU Trade Become Too Free?

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Opposition to the planned new trans-Atlantic free trade agreement is growing. So far, criticism has focused on the fact that the deal seems directed exclusively at economic interests. Now fears are growing that corporations will be given too much power.

Lori Wallach had but 10 minutes to speak when she stepped up to podium inside Room 405 at George Washington University, located not too far away from the White House. Her audience was made up of delegates currently negotiating the trans-Atlantic free trade agreement between the United States and the European Union.

They had already spent hours listening to presentations by every possible lobbying group -- duty bound to hear myriad opinions. But when Wallach, a trade expert for the consumer protection group Public Citizen, took the stage, people suddenly started paying attention. The 49-year-old Harvard lawyer, after all, is a key figure in international trade debates.

Wallach has commanded respect and indeed established herself as economic liberals' worst nightmare since she pulled off the feat of launching mass protests at global trade talks in Seattle in 1999. Even today, the revolt at the World Trade Organization talks in Seattle is considered to be the initial spark of the anti-globalization movement. People tend to listen when Wallach speaks. "The planned deal will transfer power from elected governments and civil society to private corporations," she said, warning that the project presents a threat of entirely new dimensions.

Her listeners, who are negotiating the Trans-Atlantic Trade and Investment Partnership (TTIP), view things differently, of course. Their task is a massive one. The pact is to go far beyond merely eliminating tariffs. In addition, standards are to be aligned and technical regulations, norms and approval procedures are to be harmonized in order to ensure that both goods and services can be transported across the Atlantic as free from bureaucracy and barriers as possible.

A Briarpatch of Issues

Some aspects to be negotiated make a lot of sense -- ways of coming up with universal charger plugs for electric cars, for example. But other, more controversial issues, are also on the agenda, including whether the Americans will be allowed to sell genetically modified corn without labeling it as such in the EU. Or whether the US Food and Drug Administration will be allowed to continue its assault on raw milk cheeses, such as Roquefort from France.

The negotiating partners enthusiastically extol the increase in prosperity the trade agreement would create. The pact, which would be the world's largest, would cover 800 million people and almost one-third of global trade. US President Barack Obama has spoken of the creation "hundreds of thousands of jobs on both sides of the Atlantic." The European Commission has calculated it would spur the EU economy by €120 billion ($162.5 billion).

Nevertheless, there are plenty of skeptics to be found. After the third round of negotiations, an unusually broad alliance of anti-globalization groups, NGOs, environmental and consumer protection groups, civil rights groups and organized labor is joining forces to campaign against TTIP.

These critics have numerous concerns about the treaty -- including their collective fear that the convergence of standards will destroy important gains made over the years in health and nutrition policy, environmental protection and employee rights. They argue the treaty will make it easier for corporations to turn profits at the public's expense in areas like water supply, health or education. It would also clear the path for controversial technologies like fracking or for undesired food products like growth hormone-treated meat to make their way to Europe. Broadly worded copyrights would also restrict access to culture, education and science. They also believe it could open the door to comprehensive surveillance.

A Deal Too Focused on Business

Critics say that such concerns are justified because negotiators are hewing closely to the wishes of the business sector. "The aim of this deal is to secure and expand the privileges of companies and investors," railed Wallach.

That may at first sound a bit like a conspiracy theory. But there is something to it, particularly if you go by data obtained by the NGO Corporate Europe Observatory (CEO). Using the freedom of information act, the organization was granted access to a list of the institutions the European Commission held discussions with prior to negotiations on the trade agreement. The NGO found that 93 percent of those talks were held with groups representing industry. Industry associations ranging from the US Chamber of Commerce to shipping companies were given the chance to present their wish lists for a free trade agreement. Environmental and consumer protection organizations were excluded.

The business community's interest in further opening the market is hardly remarkable -- especially when it comes to German industry. Car-makers, for example, would save billions annually if differing regulations didn't force them to make different wing mirrors, turn signals and shock absorbers for the US and European markets. German chemical and pharmaceutical companies are also hoping for easier approval for the strict US market for their products. And the subsidized agricultural industry would like to have the right to unload its surpluses of milk and pork abroad.

A Class of Its Own

These are all factors that have led the German government to position itself as a key driving force behind TTIP thus far. Nevertheless, even the most ardent supporters of the agreement have serious doubts about one important point in the trade deal: its provisions for Investor-State Dispute Settlement (ISDS).

It may sound harmless, but it's not. The provisions would create a kind of special parallel legal system for corporations, essentially giving them carte blanche that would fall outside of national laws.

Here's how it would work: If a company felt somehow financially disadvantaged or its interests otherwise trod upon, it would have the right to submit a challenge to a three-judge arbitration court. The country in question gets one "judge," the company would be able to pick one and the third would either be agreed upon by the two parties or would be chosen from a list of qualified candidates. This private trade arbitration court would have the power to make rulings on huge damage payments if an investor believed its profits were reduced -- through a new national law, for example. The hurdles might be high for such a procedure, but the rulings would be final and not appealable.

Depriving Countries of Power

It would essentially deprive national justice systems of their power. And it could have dangerous side effects as well. Fears of large fines could considerably limit political maneuvering room for governments.

It is a lesson that Argentina learned in 2003. Following the country's currency reform, a US company filed a complaint for damages. The existence of bilateral investment treaties between the US and Argentina meant the company could sue in an arbitration court, which ultimately ordered the country to pay damages of $133 million.

Such dual-track legal systems are nothing new. EU member states have codified certain degrees of investor protection in 1,400 bilateral treaties implemented as early as the end of the 1980s. Germany alone has 136 treaties which were originally intended to secure investments in countries that didn't have reliable legal systems.

But such provisions have since become standard fare in almost all bilateral treaties -- even those between industrialized nations. They're effective, too. The increase in the number of arbitration proceedings has risen precipitously, and developed economies are targeted with increasing frequency.

A Severe Lack of Transparency

Recently, for example, the Canadian province of Quebec decided to put a halt to controversial fracking practices to extract oil. A US company sued in response for $250 million to compensate it for investments already made in the sector and for lost profits. Multinational tobacco giant Philip Morris also sued Australia for billions of dollars in damages after the government passed a law requiring plain packaging in order to deter consumers from buying cigarettes. The US company didn't even base its case on a US-Australian treaty -- it did so through its Philip Morris Asia subsidiary in Hong Kong, which has a trade deal with Australia.

Even Germany is facing such a lawsuit -- from Swedish energy giant Vattenfall. The company is suing over Berlin's new laws ordering the phase-out of all nuclear power plants and a shift to clean energy. Invoking the Energy Charter Treaty (ECT), an international agreement that provides multilateral framework for energy deals, the company is demanding damages totaling €3.7 billion.

The Vattenfall case seems to have gotten Berlin's attention. Suddenly the government is able to see the flip side of such deals. Should investment protection become part of TTIP, Berlin worries, huge law firms in the US could begin examining each new policy change in EU member states to look for possible effects on the bottom lines of companies back home -- and then sue for damages.

Thus far, Germany has not officially vetoed the ISDS provisions in the trade agreement so as not to endanger the inception of talks nor has it vented publicly. But in a memo attached to its negotiating directives, the country's skepticism of ISDS has been documented in writing. It can be assumed that Berlin will use its substantial leverage to negotiate ISDS out of the free trade treaty. As such, critics of the provisions have a surprising and powerful ally.

The European Commission is aware of the rapidly growing opposition to its prestige project and EU leaders are becoming uneasy. Four months before the European Parliament election, they are concerned that the debate could result in numerous free-trade opponents landing seats in Brussels.

Immediate Outcry

EU leaders are well aware of just how quickly public opinion can shift, particularly in the wake of the successful fight against the anti-piracy treaty ACTA in the summer of 2012. Not long before the deal was set to be signed, a negotiation paper came to light which noted that Internet providers would be able to store and scan user data to filter out instances of copyright violation. Public outcry was immediate, resulting in a large majority of European Parliament voting against the pact.

A similar fate could await TTIP. Within just a few weeks, some 316,000 people signed an anti-free trade appeal on the petition website campact.de -- roughly double the number who joined a call for Germany to provide asylum for NSA whistleblower Edward Snowden.

It is no wonder, then, that the European Commission is doing everything it can this time to keep growing opposition under control. The press team of Trade Commissioner Karel De Gucht, for example, counters public criticism almost immediately and has been eager to meet with both journalists and NGOs. It has also been tirelessly repeating its message that the trans-Atlantic trade deal will not lead to a watering down of existing European laws, such as those banning hormone-treated meat and chlorine-washed chicken as well as mandatory labeling for genetically modified food.

The problem is that nobody believes them.

First of all, ACTA showed that the Commission was prepared to sacrifice the interests of European citizens to those of industry. And secondly, what does the EU intend to offer the US to get Washington to weaken its much stronger financial regulations?

'Faux Consultation Process'

The manner in which TTIP is being negotiated is also not exactly increasing faith in the process. Everything related to the talks is being kept highly classified. Even though the deal will affect the futures and interests of 500 million EU citizens, member states agreed to keep them in the dark about TTIP negotiations. All papers, documents, emails and negotiating minutes have been marked secret. Only the senior-most party members in the European Parliament's International Trade Committee are allowed to see documentation relating to the negotiations and they are forbidden from discussing what they see. Not even the negotiating mandate, upon which the talks are based, has been made public.

In addition, the US has forbidden the EU from passing along American position papers, even to members of the European Council and European Parliament -- despite the fact that these same papers have been shared with 600 industrial lobbyists in the US.

The Commission has sought to counter accusations that the talks lack transparency with an unprecedented number of briefings and discussions with NGOs, parliamentarians and member state representatives. An advisory council made up of seven NGO representatives and seven business leaders was even established. The teams hold stake-holder meetings during the negotiating rounds and listen closely to the brief presentations made by industry and NGO representatives.

Martin Häusling, a European Parliamentarian from the Green Party, calls it a "faux consultation process." A member of the Agriculture and Rural Development Committee, he says that the briefs they receive rarely go beyond the tenor of the talks, with details being rare. "What is really being negotiated remains unclear," he says. He doesn't accept the argument that the talks must remain confidential for strategic reasons. "Even the World Trade Organization makes its negotiation papers public," he says.

Totally Unclear

With good reason. Anyone who has ever been involved in the drawing up of a delicate contract knows that every comma and every clause is vital. "Without the exact text, nobody can determine exactly what is at stake," says Pia Eberhard of CEO.

Particularly when it comes to promises that the deal will create a broad increase in prosperity. Other free-trade agreements have shown that, while they may trigger growth, not everybody benefits. Twenty years after the signing of the North American Free Trade Agreement, for example, it has become apparent that the consequences have not been universally positive for the signatory states of Canada, US and Mexico. Millions of industrial jobs have been lost in the US since the treaty came into effect and thousands of Mexican corn farmers have lost their livelihoods due to highly subsidized maize coming from the US, to name just two examples. Trade has increased dramatically, but it has been the bottom lines of large firms that have benefitted the most.

With TTIP, it remains totally unclear how many jobs might be created by the deal -- and how many might be lost. It has been forecast that free trade across the Atlantic would create additional economic growth worth €120 billion for Europe, which is a mere 0.5 percent of the EU's GDP. And that is the most optimistic scenario.

Commissioner De Gucht has promised that the free trade pact would bring every family in the EU an additional €545 per year. But even if the benefits of the deal were to be felt beyond companies' bottom lines, it will be difficult to explain to European voters why it is worth giving up control over economic policy.

Translated from the German by Charles Hawley and Daryl Lindsey

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