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TTIP: Trifling Economic Advantages at the Cost of Democracyand the Public Interest

by Werner Raza and Heribert Schmitz Tuesday, Feb. 17, 2015 at 4:59 AM
marc1seed@yahoo.com

The controversial investment-protection agreement establishes a parallel justice giving security to all investors.. The states would be liable for compensation for any lower profits.. We all know our plane can only survive when we do everything for a sustainable economy.

TTIP: TRIFLING ECONOMIC ADVANTAGES AT THE COST OF DEMOCRACY AND THE PUBLIC INTEREST

EU Trade Policy: Is Greater International Competitiveness the Solution to the EU Economic Crisis?

By Werner Raza

[This article published in: Kurswechsel 2/2014 is translated abridged from the German on the Internet, http://www.kurswechsel.at.]

The forced competition orientation of EU economic policy is not a new phenomenon but was raised to the rank of a strategic goal with the Lisbon Agenda of 2000…

The outbreak of the global financial- and economic crisis did not change this political-economic orientation. The answer of the EU to the economic crisis was marked by the firm belief that Europe can only overcome the economic crisis with a substantial improvement of its competitiveness. With its export surpluses, Germany is regarded as a model for the crisis-ridden countries of the European periphery. Behind this is the notion that a decline of the internal demand through strict austerity measures together with a strong reduction of nominal wages would improve the cost-position of the European export industry and thus positively influence net exports. In fact, EU imports from the rest of the world collapsed in 2008-2009 as a consequence of the global crisis and only slowly recovered while EU exports to the rest of the world quickly picked up steam. Thus the EU balance of trade surplus rose eightfold since 2008 and amounted to 255 billion E (trade in goods and services) in 2012. A further increase of the surplus was predicted for 2013 and the following years.

This development is very remarkable amid stagnating worldwide growth rates. Firstly, it is based on the stagnating import demand in the EU since 2008 above all in the EU-crisis countries. Secondly and more importantly, it is based on the strong export-growth of crisis-ridden countries like Spain and Greece, not only traditionally export-oriented countries like Germany. In 2012, Germany showed a balance of trade surplus of nearly 140 billion E and has more than doubled its surpluses with the rest of the world since 2008. Between 2008 and 2012, the exports of Spain to countries outside the EU rose around 43% and the exports of Greece around d 146%.

On first view, these developments seem to confirm the EU strategies for settling crises… Economically it is nothing but a beggar thy neighbor-strategy to the burden of third parties…

TTIP aims primarily at extensive de-regulation, dismantling or harmonizing norms, standards and legal conditions, for example in the areas of agriculture, food security, the service sector and in awarding public contracts. Liberalization and protection of investments and investors will play a central role. TTIP must be seen as a project with eco-political ambitions. It is both a reaction to the growing economic and political influence of the BRIC-states, above all China, as an attempt to set a new global benchmark in regulating trade and investments.

UNDERMINING DEMOCRATIC POLICY – A CRITICISM OF THE TTIP NEGOTIATION MANDATE

Recently the Commission tried very hard to show the political and economic advantages that the TTIP would provide the EU. Several studies were commissioned to substantiate the economic advantages from the agreement. The study of the London Centre for Economic Policy Research (CEPR 2013) quoted most often claims the annual income growth for the EU will amount to approximately 120 billion E. This is only 0.5% of the GDP of the EU (2012). This advantage will first appear after a transition time of 10 years or more. Thus TTIP is by no means a short-term turbo growth as claimed by proponents of the agreement. Around 80% of this wealth gain will result from the dismantling or simplification of regulations (standards, norms, approval procedures and others) and from the liberalization of trade in the service sector and publically commissioned works. The (temporary) loss of jobs is estimated at 0.2-0.5% of EU workers. The method of these studies underlying the estimates has serious shortcomings. They ignore adjustment costs, particularly for public budgets and the labor market. A recent OFSE study estimates these adjustment costs at 30-60 billion E for the transitional time of 10 years. TTIP will probably have a negative effect on intra-EU trade, that is on the domestic market and on the trade of the EU with non-EU member states, e.g. on countries of sub-Sahara Africa. Still the official numbers for TTIP are not impressive in an economic regard. No appreciable economic advantages will be gained from the tradition al trade liberalization since the average tariff barrier between the EU and the US is already very low (around 3%).

TTIP proponents hope for advantages from dismantling so-called non-tariff trade measures, that is the huge number of technical norms, standards and legal regulations. The negotiations will concentrate on the so-called non-tariff trade measures and cooperation in the regulatory realm. According to the statement of EU trade commissioner De Gucht, this cooperation includes the following points: (i) organization of a process for cooperation in regulatory questions, (ii) harmonization of existing regulations through mutual acknowledgment of regulations and (iii) cooperation of regulatory authorities in the two economic blocs.

What may sound like a good idea on first view proves extremely problematic on second view. Firstly, the regulatory norms between the EU and the US are very different in highly sensitive social-political areas like food security, health, animal- and plant protection and worker- and environmental protection. Secondly, the regulatory philosophies in dealing with high risk technologies are fundamentally different. The precautionary principle is in effect in the EU so genetically-altered food is not allowed. In contrast, the cost-benefit principle of the US led to the business-friendly cultivation of genetically-modified plants, utilization of hormones in meat production and application of chlorine-dioxide disinfecting animals for slaughter. The US has clearly signaled that it demands an abolition of EU regulations in these areas or a mutual acknowledgment of regulations. Thirdly, there are great differences in policy as to protection of privacy and exchange of data. There are divergent approaches here which are expressions of unequivocal basic social convictions firmly anchored in legal norms and rules. Fourthly, a necessary democratic debate on all these questions is vital with the TTIP. Thus it is very worrying that both sides intend to call into existence “an institutional basis for further progress” with the regulations. “An accelerated procedure is proposed for changing present sectoral supplements through a simplified instrument that does not need any national ratification” (European Commission 2013). The strengthened cooperation between the regulatory authorities for the TTIP undermines the democratic right of parliaments in defining the direction and substance of public regulation.

That investors are granted special rights in the framework of TTIP is problematic. Besides granting rights of access to previously protected economic sections and limiting measures that previously earmarked a discrimination of foreign businesses or protection of strategically important industrial areas, the Commission seems willing to allow an out-of-court international process for settling disputes between investors and the state (ISDS) in the framework of TTIP (cf. Eberhardt). While this procedure already exists in many agreements for bilateral and regional projects, it was not a theme of EU trade agreements up to CETA (EU-Canada free trade agreement). The ISDS enables investors to sue for their rights in international civil law tribunals. This will lead to civil law lawyers attempting to enforce the interests of their clients with lawsuits that could cost the states enormous amounts in compensation. States have no possibility of appealing decisions of these tribunals (ICSID – International Center for the Settlement of Investment Disputes). Experiences show clearly that the danger of compensation demands by multinational conglomerates intensely restricts the readiness of governments to act in the public interest (the so-called chilling effect).

The ISDS was originally intended for international investment agreements to ensure a fair treatment of investors in countries whose legal systems were deficient in many regards. This agreement cannot hold up for the relations between the EU and the US where a fair treatment and fair procedures before courts are generally guaranteed.

The attractiveness of ISDS for transnational businesses is owed to the comprehensive and completely exaggerated term expropriation which covers missed profits throu9gh investments for the originally planned running time and not only all damages arising from investment costs that accrued in the past (for example through construction of a nuclear power plant). Thus an investor is presently justified in demanding compensation for missed profits when a government decides to exit from nuclear energy and a nuclear reactor is closed 20 years before the expiration of the operating time. This happened in Germany when the Swedish energy supplier Vattenfall sued the German government in 2012 for 3.7 billion E compensation. As a result, more and more ISDS procedures were attempted in the last 20 years. According to data from the UN Trade and Development conference, 514 such cases were known at the end of 2012. Hardly surprisingly 123 of these procedures were initiated by US investors, followed by 50 cases by EU investors in the Netherlands, 30 from Great Britain and 27 from Germany (Seattle to Brussels Network 2013). Given the great range of bilateral investments between the EU and the US, the ISDS offers investors a welcome possibility for putting pressure on governments on both sides of the Atlantic by means of threatened lawsuits.

Another alarming development concerns the further liberalization of the financial services branch. Despite all experiences from the last global financial crisis, the financial industry should be granted more rights and protection while financial stability and consumer protection are scaled down. Interestingly enough, the EU Commission seems to be following a more radical approach than the US. In the past, the government of President Obama formulated reservations to two fundamental EU demands on the cooperative framework of financial services in the agreement and on the instrument of ISDS for the financial industry (Vander Stichele 2013). In view of this total concept, it is unlikely that people will agree in the negotiations on more than only the smallest common denominator in regulating the financial markets.

AN ALTERNATIVE EU TRADE POLICY IS URGENTLY NECESSARY

The TTIP negotiations are now oriented almost exclusively in the interests of businesses. This is because of the disproportional influence exercised by the lobby groups of the economy in the EU (and the US). Firstly, the negotiations must be more transparent. Both the European Parliament and civil society must be informed about the state of negotiations and all documents must be published. Essential contents of the negotiations turn around central concerns of the public interest and therefore must be discussed in public.

There are more reservations regarding the EU impact assessment. Unlike models that provide the desired result in advance, well conceived economic models help in analyzing the consequences of a transatlantic agreement. Still they must be supplemented by other methodological approaches for estimating likely consequences of such an agreement. Individual studies should focus on the probably consequences of such an agreement as to the rights and working conditions of employees, the environment as well as the implications of the proposed institutional frameworks for the future of democratic politics, transparency and control. None of these themes has been discussed.

With the help of such an approach, a realistic estimate and corroborated results on the effects of TTIP would be possible. Research institutes commissioned by EU institutions should be truly independent and not financed by business lobbies. The public interest should be protected in the substantive themes of the negotiations. Concretely this means:

• No lowering of standards in public health, public security, worker- and consumer rights and environmental care;

• No de-facto transfer of regulatory authority from democratic institutions to unelected technocratic groups;


• No arbitration court procedures for settling conflicts between investors and states (investor-to-state dispute settlement); the Commission’s proposal to reject “frivolous claims” of investors is not enough;

• No liberalization and no regulatory standstill for financial services and public services (services of the general interest), above all not in the areas of health, the social, cu9lture and water;


• No decrease of political action possibilities in important areas like public contracts for community projects and for other public goals.

Similarly subsidies of cultural productions or educational activities must be protected.

When essential public interests are sacrificed for trifling and dubious economic advantages, the severe economic crisis in Europe is not overcome. Successful crisis management and the urgent challenge of social-ecological transformation require a political system that strengthens democracy, expands action possibilities and subjects transnational capital to social goals again. The TTIP negotiations in their present form cannot make any positive contribution to this.

LITERATURE:

EuroMemo Group (2014): The Deepening Divisions in Europe and the Need for a Radical Alternative to EU Policies, http://www2.euromemorandum.eu/uploads/euromemorandum_2014.pdf

Raza W./ Grumiller, J/ Taylor L. (2014): Assess_TTIP: Assessing the Claimed Benefits of the Transatlantic Trade and Investment Partnership, OFSE-Austrian Foundation for Development Research, Vienna. http://guena.eu/uploads/plenary-focus-pdf/ASSESS_TTIP.pdf

Seattle to Brussels Network (2013): A Brave New Transatlantic Partnership. The proposed EU-US Transatlantic Trade and Investment Partnership (TTIP/TAFTA) and its socio-economic and environmental consequences, October 2013

Vander Stichele M. (2013): TTIP Negotiations and Financial Services, Issues and Problems for Financial Services Regulation. Centre for Research on Multinational Corporations (SOMO), October 16, 2013
TTIP AND CETA MUST NOT BE WAVED THROUGH!

By Heribert Schmitz

[This article published on December 1, 2014 is translated from the German on the Internet, http://blog.ethisch-oekologisches-rating.org.]

Unfortunately it seems as though the German government and many parliamentarians have resolved to wave through the CETA and the TTIP. The reasons why this must not happen will be summarized here.

If the agreements (CETA and TTIP) would maintain or further develop the effective standards (social-, environmental-, consumer-protection) in Europe and the US as global standards, I would be an ardent defender of these agreements.

Unfortunately the opposite is the case despite all soothing assurances of the US Commission and the German government.

To understand the whole, the initial situation of the negotiations and the positions brought by the essential lobby groups must be grasped. These original positions must be clearly outlined.

The initial position of the negotiations was that the present standards should be accepted. The German government claimed our standards will not be lowered. However that was only a snapshot. In the competition, a mutual acknowledgment of standards means the lowest standards will ultimately prevail. That is the principle of the free market economy.

Using the agreement to lower the standards to the standard of the other side was the unequivocal goal of all lobby groups. The state would then be forced through the competition to lower the standards to the level most favorable in the competition. Business taxes lowered again and again on account of the competitive pressure are a good example for that. I recall the recent statement of the so-called “economic wise men” who recommended to the German government reducing the taxes by referring to more favorable taxes in developing countries. Although contempt or mockery is hidden, that continues to function.

When one considers how many different standards exist in Europe alone in social standards, environmental standards, consumer protection, taxes, and so forth, it is clear where the whole matter ultimately leads. In addition, there is the controversial investment-protection agreement that establishes a parallel justice giving security to all investors that there will be no laws in the future which have a negative impact on the profits. The states would be liable for compensation for any lower profits. This is not a mere theory. States are already sued worldwide by businesses. Several examples could be cited here. The Federal Republic of Germany was sued by Vattenfall for its nuclear exit, the Egyptian state for introducing the minimum wage and Australia for prohibiting tobacco advertising. There are thousands of other examples. Interestingly, all these lawsuits occurred under the strictest secrecy. Thus it is impossible for example to study the complaint of Vattenfall against Germany. An investment-protection agreement combined with an agreement on mutual acknowledgment of respective standards would mean the state and local governments could not pass any laws or regulations that could have a negative impact on the profits of businesses. Because of this, our democracy could become a paper tiger. Why our parliamentarians and the German government do not see this is baffling to me.

The argument that such an agreement should be a blueprint for further agreements with China for example and would then bring us into a better negotiating position is gladly used by advocates. How naïve must one be not to see we will ultimately land with the standards of the Chinese by applying the principle “acknowledgment of the respective standard”?

We all know our planet can only survive when we do everything in our power for a sustainable economy in all areas (energy, raw materials, agriculture). As we know, we are not doing justice to this today. We need more and consistent sustainability and not less. This means we must work so no costs may be “externalized” any more in the future and must abstain from other works and not shift costs to the general public or the environment. The ethical-ecological rating study group at the Frankfurt Goethe University is devoted to this challenge. Agreements like those now planned will make these efforts virtually impossible.

The agreement that such free trade agreements will lead to considerably increased growth in Europe and more jobs must be relativized. In the first case (according to official data of the EU Commission), the volume could improve 0.5% over 10 years, a ridiculous 0.05% per year.
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