The economic benefits of a Transatlantic Trade and Investments Partnership (TTIP) are relatively undisputed. The United States and European Union already have the largest bilateral trade and investment relationship in the world. Taken together, both economies account for nearly half of global GDP and 30 percent of world trade. They have enormous import and export exchanges: the US and the EU are the first and second largest export markets for the other side of the Atlantic, respectively. It is not easy to estimate the effects of this trade agreement, but studies show positive impact on trade volumes, economic growth and job creation. This would mainly result from the removal of non-tariff barriers and the regulatory heterogeneity between the US and the EU.
Current debates are thus not so much about uncertain economic effects. Instead, we are facing a political controversy. How can we ensure the democratic legitimacy of EU trade relations – a policy field that has far-reaching implications for the welfare of Europeans?
The controversy is about politics – not just about economics
Trade policy is an exclusive power of the EU – so only the European institutions, and not individual member states, can legislate on trade matters and conclude international agreements. Nonetheless, decision-making processes are long and complex, as even on the European level a multitude of actors has to be involved. On the part of the Commission, Trade Commissioner Cecilia Malmström takes the lead during the negotiating rounds (last April, the 9th round took place in New York). The Council and the Parliament are involved, too. Member states are constantly updated and consulted through the Trade Policy Committee, made up of senior officials from each member state, as well as the Foreign Affairs Council. Member states may have divergent interests and be driven by different domestic pressures (e.g. France’s insistence on the concept of cultural exception or Italy’s relevance of geographical indications as protection for food products).
Moreover, we have already witnessed attempts at increasing the democratic legitimacy of trade negotiations. At a first glance, this complicates matters even further: After the entry into force of the Lisbon Treaty in 2009, the European Parliament is co-legislator in the ratification of trade agreements between the EU and third countries .The EP’s International Trade committee (INTA) is responsible for drafting the Parliament’s recommendations; however 13 other EP committees contribute with their opinions (Economic affairs committee; Industry, research and energy committee; Internal market and consumers protection committee; Environment, public health and food safety committee; and many others). There is the risk, therefore, that the EU lacks a coherent approach to dealing with important issues, as Wolfgang Ischinger – Dahrendorf Senior Fellow – warned at a Dahrendorf Lecture in March, 2015.
More actors means less results
In simple terms, the more actors get involved, the more difficult it becomes to produce coherent decisions. A prominent example of an increasingly unsystematic approach by the European Union is the Investor-State Dispute Settlement (ISDS), which is an outstanding issue in the TTIP agreement. The ISDS grants foreign investors the right to sue states if they see their investments being at risk due to a change in laws or standards. On the subject in the European debate there are quite divergent positions. The Commission is in favor of including the ISDS in the TTIP negotiations, since it offers the chance to modernize this controversial mechanism. Dispute settlement has been applied worldwide for a long time – accompanied by criticisms of its alleged lack of transparency, inconsistencies of arbitral awards, and high costs of procedures for European companies, as LSE’s Stephen Woolcock has emphasized.
On the contrary, NGOs and public opinion (even consulted online by the Commission) consider the ISDS a “toxic mechanism” or even a “Trojan horse”, enabling foreign companies to challenge public health, environmental and social protection laws that harm their profits. Members of the European Parliament have seriously considered these concerns and criticisms when they expressed their opinion on the ISDS last April. Of the 14 committees, only one (the Committee on Agriculture) carried pro-ISDS language, mentioning the need for a “reformed ISDS”. The other committees included several anti-ISDS remarks. . The INTA Committee now has the difficult task of taking on board the committees’ opinions, but it has a very long and difficult road ahead, since the EP plenary scheduled for last June, 10 has been postponed due to political divisions.
There is, as a consequence, a considerable uncertainty on the final text of the TTIP agreement and the future role of the European Parliament in trade policy. Will the Parliament reject the ISDS clause in order to satisfy popular demands? It has done so before when it rejected ACTA (protection of intellectual property inter alia in the digital domain). On the other hand, will the Commission take on board the parliamentary opinion during the next negotiating round? Many would argue that this is imperative in order to make decision making on EU trade policy more democratic. However, this leads to a deeper question: is democracy achieved when the final outcome is a compromise of everyone’s position – or when it benefits as many people as possible.
The opinions expressed in this blog contribution are entirely those of the author and do not represent the positions of the Dahrendorf Forum or any of its hosts Hertie School of Governance, London School of Economics and Political Science and Stiftung Mercator.