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What fate for the EU-U.S. trade deal?

Photo credit: uwehiksch on Flickr

Photo credit: uwehiksch on Flickr

With all the attention turned to the Trans-Pacific Partnership (TPP), currently negotiated by the U.S. with 12 Asian countries, few seem to notice anymore the equally important Transatlantic Trade and Investment Partnership (TTIP) between the European Union and the United States. The two deals are similar in essence: They both seek to advance the beacon of free trade by tearing tariff and non-tariff barriers, with the promise of creating jobs and delivering a much-needed economic boost to the nations involved.

However, both trade agreements have been plagued by concerns raised by consumer groups, academics and politicians of all stripes over the so-called Investor State Dispute Settlement (ISDS), an arcane mechanism that allows aggrieved corporations to challenge the validity of government regulations that can impact their bottom line in extrajudicial tribunals. According to critics, the threat of expensive lawsuits from multinationals can leave governments afraid to act in citizens’ favor, a phenomenon known as regulatory chill. Activists are increasingly skeptical of any measure meant to protect the profits of corporations, seen as largely responsible for the near collapse of the financial system and the start of the Great Recession.

Adding insult to injury, the fact that trade negotiations are conducted in secret did not advance the cause for the TPP and the TTIP and an amendment to force the White House to make the texts public was struck down in the Senate. As expected, Capitol Hill has been the scene of some particularly thespian speeches given by opponents and proponents of the ISDS, most recently evidenced on May 22, when the Senate overwhelmingly rejected another anti-ISDS amendment from Senator Elizabeth Warren.

Far from the limelight of the U.S. media, the European Commission has also went into damage control mode over the ISDS, facing off a multipronged crusade mounted by member states, the European Parliament, businesses and the public. Many fear the same fate for the TTIP as that of the shelved copyright infringement treaty, ACTA, rejected after massive popular demonstrations. Indeed, the general mood in Europe is sour to say the least. A petition against the TTIP and the ISDS has gathered almost 2 million signatures in eight months, twice the number needed for the European Commission to take action on the demands of petitioners. Moreover, a public consultation to assess the concerns of businesses on the proposed trade deal received a record 150,000 replies, in which 88 percent of respondents were opposed to the ISDS.

Making matters worse, the governments of France and Germany have voiced strong opposition to the ISDS, threatening not to sign the trade deal in its current form. Paris expressed outrage, with the Secretary of State for Foreign Trade saying that his country would “never allow private tribunals in the pay of multinational companies to dictate the policies of sovereign states, particularly in certain domains like health and the environment.” German Environment Minister, Barbara Hendricks, told the German press she believes that ISDS is “simply not necessary.” Further afield, the European Parliament has echoed such concerns, fully aware that without its vote, scheduled during the week of June 8, the TTIP would be scuttled.

Cobbling together all the elements, it’s clear that the TTIP will survive only after lawmakers on both sides of the Atlantic significantly review the investor-state dispute mechanism. Cecilia Malmström, the European Union’s Trade Commissioner sought to dispel fears when she announced earlier in May a reform plan for the ISDS. Calling the ISDS “not fit for the 21st century,” she put forth a concept paper to revisit it across four areas: the protection of governments’ right to regulate; the creation of an appellate mechanism; the establishment of a clear code of conduct for judges to reduce conflicts of interest and the reassessment of the relationship between ISDS and domestic courts.

But neither the European Parliament nor the United States responded favorably to Malmström’s proposal. European lawmakers insisted that the plan doesn’t go far and deep enough, with one MEP calling it “trying to put lipstick on the ISDS pig,” while the U.S. Undersecretary for International Trade, Stefan Selig, lauded the status quo and rejected the need for any reform to the extrajudicial court system.

However, the European Parliament’s trade committee managed to scrape together enough support and on May 28 backed a resolution in support of the TTIP on the condition that Malmström’s ISDS proposal stays on the table and will be included in the final deal.

“Deplorably, the European Parliament took a very ambiguous stance on the infamous ISDS system. We have yet to see any facts justifying its inclusion in an EU-US trade deal,” said one of the opponents of the trade deal. Even if the non-binding resolution was approved, it will be a long uphill climb in the Parliament once the bill comes to a vote.

Do we really need the ISDS? The answer is far from clear, but so far the “no” camp has the upper hand in the debate. With lawmakers deeply divided on the topic of the ISDS, it’s obvious that the far-reaching deal that would cover 800 million citizens and $35 trillion in GDP, will be the result of fierce political infighting and pork barreling. Nevertheless, the voice of the European Union will carry significant weight across the Atlantic and will certainly impact the equally fierce negotiations on Capitol Hill.



James Nadeau

Originally from Maryland, James Nadeau is a European affairs advisor and foreign policy analyst currently based in Brussels, Belgium. His writings have been featured in The Kyiv Post, The Hill and RealClearWorld.