Correspondence

TTIP: Vince Cable’s detailed response to 'TTIP: no public benefits, but major costs'

Published 12 November 2014

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Vince Cable responds to a publication about the EU-US Transatlantic Trade and Investment Partnership (TTIP) from members of the #NoTTIP coalition: ‘TTIP: no public benefits, but major costs’.

1. Transparency

We need to remember that this is a negotiation, and making all positions available publicly would jeopardise our chances of getting the best deal for the UK and the EU. However, I believe that it is important to have a proper debate about what we want TTIP to provide and it is not correct to suggest that the European Commission has not made any key negotiating documents available. The Commission has, in fact, taken the unprecedented step of publishing position papers giving detailed information about the scope of the negotiations and its objectives, as well as a state of play document after every negotiating round.

There has also been extensive consultation. The European Commission consulted publicly on its negotiating priorities and investment protection, and is holding regular meetings with a stakeholder advisory group and many civil society groups throughout the negotiations and at each negotiating round. During Commissioner-designate Malmström’s confirmation hearing, she outlined that the European Commission is fully committed to engage in dialogue with civil society, a sentiment that was echoed by both the EU and the US at the 7th negotiating round stakeholder day. However, I recognise that transparency of the negotiations is raised regularly, and will continue to push the Commission to make more information available to the public.

The UK Parliament also oversees the TTIP negotiations via regular updates from the government. TTIP was debated in the House of Commons on 18 July 2013 and again on 25 February this year. It is also the subject of an all-party parliamentary group.

An inquiry into TTIP was conducted by the House of Lords EU Sub-Committee on External Affairs. The Committee’s report was published in May this year and its findings debated in the House of Lords on 17 June. The EU Commissioner for Trade, Karel De Gucht, was questioned as part of this inquiry and the government has published its response. Importantly, any eventual deal on TTIP will be subject to approval by both the Council of the EU and the European Parliament. The UK Parliament will also scrutinise the final agreement.

2. Impact on small businesses

It is also misleading to suggest that TTIP is a threat to small business or that German businesses generally oppose it. In fact, small businesses would particularly benefit more from a comprehensive TTIP that substantially eliminated remaining tariffs and tackled non-tariff barriers. Measures such as reducing customs barriers and red tape, and elimination of specific tariffs are likely to be of significant benefit to small companies.

You may not be aware that the organisations in the UK representing businesses of all sizes (including the Federation of Small Businesses and Institute of Directors) welcome the TTIP negotiations, as they are an important opportunity to remove trade barriers with the US.

In Germany, the main business organisations, such as the German Chambers of Commerce and Industry (DIHK) which represents all German businesses, the Federation of German Industries (BDI) as well as the DGB (German Trade Union Confederation) are all supportive of TTIP.

3. Economic analysis

You raised questions in your briefing about the accuracy of the detailed economic study produced by the Centre for Economic Policy Research (CEPR), which shows an ambitious agreement could eventually bring benefits of up to £10 billion annually to the UK. This study, which builds on extensive econometric and survey evidence and discussions with regulators, offers the best estimate of potential benefits and provides a guide to the potential order of magnitude of a deal, its sensitivity to the level of ambition and the relative sectoral impacts. It is not intended as definitive statements of what an agreement will deliver but it does suggest that more ambitious scenarios, which tackle regulatory and public procurement barriers to trade, offer greater benefits to the UK.

You also raised a concern that lack of regulatory harmonisation in the chemicals sector undermines the predicted benefits for this sector. It is worth remembering that, in the CEPR study, the chemicals sector also includes pharmaceuticals. This is an area where we expect to see progress on non-tariff barriers. In addition, even in chemicals the EU and the USA are exploring actions which could reduce the costs of complying with the different regulatory regimes. Furthermore, whilst tariff rates are low, due to the large volume of trade and the nature of supply chains, where materials and products can cross borders multiple times, the potential cumulative savings to UK businesses from reductions in US tariffs on chemicals are significant.

Additionally, it may be helpful to note that the CEPR study assumes that only around half of non-tariff barriers are ‘actionable’. The figure of £10 billion benefit to the UK is therefore based on liberalisation of 75% of ‘actionable’ non-tariff barriers, translating to around 37.5% of all non-tariff barriers, in the 3 sectors identified. This is not unreasonable as an ambitious scenario, especially as a reduction in the costs of non-tariff barriers does not necessarily require the elimination or harmonisation of regulation. For example, recognition of testing and accreditation processes can maintain different standards, whilst reducing costs companies.

4. Employment figures

You correctly note that the CEPR model assumes no long term change in overall employment levels. The impact on employees in this model is instead felt through an increase in wages for both skilled and unskilled workers, as well as shifts in sectoral employment. In practice, while the economy is still operating at less than full capacity, we would expect that TTIP would lead to some rise in employment combined with some rise in real wages.

Looking at shifts in sectoral employment, the studies suggest that there will be some restructuring, with jobs being lost in some areas; but importantly it suggests these will be balanced by jobs created in other areas. The study predicts the movement of jobs between sectors due to TTIP at 0.7% following full implementation of the agreement. This is much lower than the annual job movement due to normal turnover – which in recent years has been 3.7% in the EU manufacturing sector. The report also notes that FTA-related labour movement is largely driven by ‘pull factors’, such as higher wages. This would involve workers who are attracted by higher paying sectors moving from lower paying sectors. Shifts in employment patterns, largely due to changes in technology, are a wider issue than TTIP and the UK and the EU will work to help those affected to adjust through providing assistance and training, to ensure that the economy remains flexible and can adjust to more competition and other developments in the economy.

Turning to your concerns about the past record of free trade agreements (FTAs) on employment, US, Mexican and Canadian trade, employment and gross domestic product (GDP) have all significantly increased since the North American Free Trade Agreement (NAFTA) was agreed. There have been various estimates of its impact, some of which note that NAFTA achieved many of the intended trade and economic benefits. These have been discussed in various US Congressional reports, for example see a 2013 report. This is consistent with the initial impact of the recent EU-Korea FTA, which has seen UK exports more than double from £2.1 billion to £4.6 billion already.

5. Investor-state dispute settlement (ISDS)

There have been concerns raised about investor protection and the investor-state dispute settlement process. As your briefing outlines, ISDS is not a new concept; it has been included in bilateral investment treaties around the world. There are around 3,400 investment treaties in force worldwide and to date there have been 568 known treaty-based cases. Only 274 (approximately half of all known cases) have been concluded. Of these, approximately 43% have found in favour of the state; 31% in favour of the investor. Approximately 26% of cases were settled. The UK already has over 90 bilateral investment treaties with other countries and so far there has not been a single successful ISDS case brought against the UK.

ISDS is about protecting businesses and individuals who have made investments overseas from unfair or discriminatory treatment by the host government. It cannot force governments to open markets or privatise public services, nor will it give excessive rights to US investors.

Neither the investment protection provisions nor decisions arising from ISDS cases will affect the ability of the UK government to regulate fairly and in the public interest. Investment treaties protect foreign investors from discriminatory and unfair treatment by the host state. There are specific provisions in the Commission’s consultation which are designed to safeguard the right of governments to take measures necessary to protect the health and security of citizens, and to protect the environment.

Moreover, ISDS tribunals cannot strike down or overturn laws. ISDS provides for recourse to independent international arbitration where an overseas investor believes it has suffered from unfair treatment or discrimination and for compensation to be awarded where the tribunal agrees. There is no evidence to suggest ISDS tribunals favour big business. In fact, as outlined above, governments win more cases than investors. Cases are regularly brought by individuals and small companies, not just large multinationals.

As you have noted, Department for Business, Innovation and Skills (BIS) commissioned research from London School of Economics to produce an analytical framework for assessing the costs and benefits of investment protection treaties. Whilst this research has been useful in informing policy decisions, the report itself acknowledges that there are certain factors, both economic and political, that it cannot accurately address without more detailed knowledge of the government decision-making process. In addition, the draft provisions consulted on by the European Commission have been drafted so as to mitigate against the risks identified in the report. For example, the report concludes that it did not expect the UK to lose many ISDS cases to investors, but cited the cost of defending unsuccessful claims as prohibitive. The introduction of a ‘loser pays’ principle, as included in the ISDS consultation, will reduce or remove these costs, as the unsuccessful claimant will compensate the government for their legal and arbitration fees.

The exact investment protection and ISDS provisions in TTIP are still under negotiation. The public consultation on these provisions carried out by the European Commission earlier this year sought stakeholder views on what modern investment provisions should look like in TTIP. The analysis of this consultation is still ongoing. It would be wrong to prejudice the outcome before the examination of all EU stakeholders’ views has been carried out. However, the EU has made clear that it would do nothing in TTIP that puts into question the right of governments to regulate.

6. Public services

The EU has been clear that market access and national treatment commitments in the trade in services chapters of its FTAs (including TTIP) do not apply to publicly funded services, including public health services (e.g. hospital or ambulance services) and education services. Policy space is reserved here for member states.

The EU has also drawn an important safeguard, taken from the General Agreement on Trade in Services (GATS), into all subsequent EU FTAs, protecting the ability of member states to organise services which are considered to be public utilities either in the form of monopolies or exclusive rights, where this is allowed under the relevant EU legislation. Read more information on these safeguards.

These agreements have not impacted on our ability to deliver public services. As the EU is taking the same approach in TTIP, it will not change the fact that it is up the UK to decide how public services, including the NHS, are run. The EU and US both recently reiterated their approach to public services during the 7th negotiating round. Both indicated that governments will remain free to decide how public services should be run.