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A very big deal?: The Transatlantic Trade and Investment Partnership (TTIP)

25 November 2014

Many readers will be aware that the European Union and USA are in the process of negotiating a bilateral trade agreement known as the “Transatlantic Trade and Investment Partnership” agreement. 

If the deal is completed, it will provide a legal framework for the biggest trade deal in history; business between the EU and US accounts for 30% of all world trade. Significant obstacles remain to the finalisation of the agreement.

There is also huge political opposition from some groups who criticise the process for a lack of transparency and for threatening to override the ability of governments to regulate in the public interest.

Negotiations have now been in progress since the beginning of 2013 with both sides currently moving to reach a final agreement by the end of 2015.

What will TTIP do?

TTIP will remove remaining obstacles to trade between the two trade blocs with the aim of boosting growth and investment. While EU-US trade tariffs generally are already set at a very low level (generally around 4%), TTIP will lower or substantially eliminate them yet further. 

It will also try to reduce regulatory barriers to trade by removing unnecessary legal red tape and, wherever possible, making regulatory systems in the EU similar to those in the USA.  

More significantly, it will also give legal protections to those businesses from one trade bloc which choose to make investments within the jurisdiction of the other. Governments within host states must treat foreign investors fairly and equitably.

They must also refrain from arbitrary or discriminatory conduct which would harm foreign investments within their jurisdiction. These protections are highly controversial.  

Investors have used similar provisions in other international trade agreements to commence compensation claims worth billions of dollars. The EU has pledged to tighten up the language of the fair treatment obligations in order to prevent frivolous claims. 

Frequently, investors have been able to commence litigation under a type of mechanism known as Investment State Dispute Settlement (“ISDS”). This is a type of arbitration procedure which enables claimants to have disputes settled quickly and out of court.  

It is unclear whether or not TTIP would include an ISDS procedure.  Some are concerned by the lack of transparency of ISDS procedures and potential conflicts of interest (by profession, arbitrators are frequently lawyers with private sector clients). The fact that decisions are generally unreported also creates scope for inconsistent decisions and uncertainty. 

How will regulatory convergence work? 

TTIP will provide a framework to enhance co-operation between the EU and US in different regulatory areas. The negotiations have involved each side explaining to the other the fundamentals of its regulatory regimes for certain sectors and for processes such as public procurement. 

Both sides have also discussed the scope for convergence in each of these fields. 

This could ultimately lead to the introduction of uniform transatlantic regulation for certain sectors or areas of government activity. 

For example, both sides have noted that although they have distinct safety automobile safety regimes, these are similar in many respects. A single set of safety requirements for cars will enable manufacturers to introduce new vehicles and sell them on both sides of the Atlantic.   

Where complete regulatory convergence is not possible, TTIP may introduce a system of mutual recognition. This would require the USA and EU to allow the sale of goods and services which conformed to the requirements of the other’s regulatory system (even if they did not meet those of their own system).   

Why has TTIP been controversial?

Firstly, there are fears that regulatory regulation and convergence could lead to the loss of key consumer protections. The EU for example has stricter laws on the use of chemicals in products. Under the REACH Regulation, new chemicals may only be sold once they have been proven to be safe to the regulators. 

Under the corresponding US law, the Toxic Substances Control Act (TSCA), the onus is generally reversed; the regulator (the Environmental Protection Agency) may only remove a chemical from sale after is has been proven to be unsafe (this has happened only five times since the introduction of the TSCA in 1976).

There are also concerns that TTIP’s liberalisation thrust could threaten the continued provision of services by the public sector.  Some fear, for example, that the UK Government could be forced to privatise the National Health Service in order to open up market opportunities to the UK. 

Others are worried that the energy sector may rail against current environmental restrictions on hydraulic fracturing (“fracking”) (a temporary fracking ban in Canada has triggered a multimillion dollar ISDS arbitration under the North American Free Trade Agreement by a US incorporated company).   

Similarly, opponents of genetically modified foods have voiced worries that TTIP could force the EU to align itself with the US’ friendlier approach towards the sale of GMOs. 

Conclusion: what could it mean for you?      

Clearly, there are concerns and controversies surrounding TTIP and the potential impact it could have on public services and regulation. It is difficult to gauge whether or not these concerns are well founded without knowing the outcome of the final TTIP negotiations.   

The EU has moved to reassure stakeholders that their reservations have been heard and will be addressed in its negotiations. 

Potentially, the enhancement of transatlantic trade could benefit enterprises of all sizes.  The introduction of uniform regulations could cut compliance costs for smaller businesses as well as multinationals. 

TTIP could also create a drive for a streamlining of trade regulations, which will create efficiencies for doing business at home as well as abroad. 

Taken with the investor protection provisions, this regulatory streamlining could bridge the compliance costs and legal uncertainty which can deter corporations from seizing opportunities on the other side of the Ocean.

This article was written by Paul Henty.

For more information please contact Paul on +44 (0)20 7427 6506 or paul.henty@crsblaw.com