The future of the Transatlantic Trade and Investment Partnership (TTIP) between the United States and European Union seems bleak. Beset by doubts and stumbling alongside the U.K.’s referendum on EU membership, the TTIP is starting to look like an awful lot of effort for unremarkable gains. President Barack Obama may have given the negotiation process a shot in the arm in recent weeks, but there is a good possibility that a deal will not be struck during his administration. After that, all bets are off.
So why has such a major piece of international deal-making found it so hard to make headway, and what are the chances of a deal ever being done?
Well, the first reason for the impasse is that no one can agree on what it should cover. It is deeply complex, but there are essentially two choices: Should TTIP only apply to the tariffs that countries place on imports, or should it also address other barriers to business, mostly technical regulations on things like car safety, or the procedures for testing new chemicals?
Estimates for the economic benefit to the EU from a tariffs-only deal come out at just 0.3 percent of GDP for the EU as a whole. If we abolish all non-tariff barriers, then we get a 4 percent boost.
Race to the Bottom
That makes it seem like an easy decision from an economic point of view, but it’s highly contested.
The reason for the logjam is clear. Going far enough to make it economically valuable drags into play all sorts of political and social issues. Our reading of the draft texts is that it won’t, in fact, lead to significant harmonization or even mutual recognition of existing rules. There are procedures to make sure future regulations are as compatible as possible, but there is nothing explicit to say that regulatory decision-making powers will be transferred. Indeed, it is hard to see the U.S. Congress accepting anything else. That might seem like an effective compromise, but of course, any weakening of the approach to non-tariff barriers may in turn dampen the economic advantages.
The less complicated route—a TTIP that only removes tariffs—would bring very limited gains. Both EU and U.S. tariffs are generally very low, except for cars, chemicals, and agriculture. Their removal would have only a small effect.
At its heart, the far more valuable non-tariff route drags up fears, founded or unfounded, of a regulatory race to the bottom on things like food safety, and objections from NGOs about the loss of domestic policy power on things like health or government procurement. Crucially, TTIP has also raised the (contested) possibility of major corporations suing states.
Healthy Debate
So on the one hand, the European Commission claimed that TTIP could not be used to undermine the U.K.’s National Health Service, yet the barrister hired by the Unite union concluded that “TTIP poses a real and serious risk to future [U.K. government] decision-making in respect of the NHS.”
It is generally agreed that past provisions to settle disputes between companies and countries were abused by arbitrators answerable to no one. EU member states have also signed many bilateral investment agreements that do allow firms to sue governments. For example, the state-owned Swedish energy firm Vattenfall has twice demanded compensation for German environmental policy changes under an old investment treaty.
To avoid this, the EU’s latest proposals on so-called Investor State Dispute Settlement (ISDS)—tabled as part of the TTIP talks—are intended to allow firms to demand compensation in very limited circumstances, for example where “fair and equitable treatment has been denied or contracts broken.”
