Having shown that it is unlikely that TTIP will lead to a spectacular ‘growth and jobs’ boost or contribute to global economic leadership for the EU and the US, in this chapter we examine what might instead be expected from it. Why is all of this effort being put into the negotiations?
We do not share some of the most vocal critics’ view that TTIP will allow US corporate interests (and a fifth column of EU multinationals) to ram hormone-treated beef, chlorinated chicken and genetically modified vegetables down European consumers’ throats or to privatise the UK National Health Service (NHS) at the stroke of a pen. On the former, the EU and the US have already been engaged in a number of highly politicised trade disputes at the WTO, which have failed to alter EU regulations substantially on account of the institutionally entrenched nature of the ‘precautionary principle’ in a highly controversial area. Meanwhile, the services liberalisation commitments seen in TTIP are largely about ‘locking in’ existing levels of marketisation in public services rather than bringing about a privatisation from above (Raza 2014).
The effects of TTIP are thus likely to be much subtler, if not unimportant, entrenching institutional machineries and processes that are likely to have a deregulatory impact. While close scrutiny of the negotiations by public advocacy groups has led to a softening of the real bite that the regulatory cooperation commitments may have, TTIP’s main consequence is expected to be a reinforcement of economistic disciplines in decision-making. In other words, it may lead to the effects of regulatory proposals being increasingly judged against their consequences for trade, competitiveness and economic growth. What is being proposed in the agreement is thus still largely in line with the preferences of businesses on both sides of the Atlantic seeking to reduce their costs by minimising not only barriers to transatlantic trade but also the impact of domestic rules and regulations. Crucially, TTIP’s focus on cutting ‘red tape’, as the agreement’s advocates often call regulations, dovetails with initiatives in the EU to go over rules with a fine-tooth comb. As Colin Crouch (2014: 2) argues, ‘a trade treaty with the US seems to be reinforcing pressures already at work within Europe, rather than some distinctively American threat.’
We begin this chapter by providing some context to the regulatory cooperation negotiations at the heart of TTIP. One of the most important ways in which the neoliberal sway in economic thinking and practice since the late 1970s has also affected the trade regime is the uncritical acceptance of the premise that a wide array of domestic policies are in fact ‘non-tariff barriers’. While TTIP has been seen as a ‘game-changer’ (in many respects with good reason), there is considerable continuity between these negotiations and broader trends in global trade politics. We then briefly compare the regulatory systems in the EU and the US that negotiators are seeking to reconcile and discuss proposals for regulatory cooperation in TTIP. These have strongly reflected the preferences of business organisations in the EU and the US, especially their advocacy of mutual recognition, horizontal disciplines and coordinative institutions for regulatory policies as the way to reduce regulatory differences. However, as opposition to TTIP has gained strength, negotiators have been forced to reassure the public by softening the ambitions for regulatory cooperation. Nonetheless, we argue that, while negotiators may have promised that TTIP will not lead to lowering levels of protection in the EU and the US directly, the procedural disciplines and institutions for regulatory decision-making that may be negotiated – and the increased competition that transatlantic liberalisation would entail by definition1 – would still constitute a further constraint on public policy decisions. The whole focus on ‘cutting red tape’ in TTIP is very much in line with a similar contemporary agenda of ‘better regulation’ within the EU. This is also how we interpret the provisions on ISDS, which are likely to lead to regulatory chill in policymaking. TTIP should be seen as an attempt to further guard the market from political interference, even if the level of political opposition to the agreement has meant that it has not been entirely successful so far.
TTIP is the culmination of a broader process where international trade negotiations increasingly intrude on domestic policy autonomy, a trend that goes back nearly four decades. Just as the launch of the TTIP negotiations has often been framed as a response to the most recent crisis, an important qualitative leap in the global trade regime was supposedly taken in reaction to the 1970s oil shock and stagflation crisis. As Andrew Lang has written, in his discussion of the shift from ‘embedded liberalism’ (this term is from Ruggie 1982) to neoliberalism in the global trade regime,
by the beginning of the 1970s the GATT had been used to challenge only a highly restricted range of internal regulatory measures which affected international trade in a direct and obviously discriminatory way. By the end of the 1990s, however, as informal norms limiting the scope of application of GATT regulatory disciplines were gradually reconstituted, the range of measures subject to challenge … had broadened considerably. (Lang 2011: 223)
After first resorting without apparent success to protectionist policies, the response to the 1970s crises was to pursue further and deeper liberalisation through regional integration and the multilateral trading system. This would eventually lead to the completion of the Single Market in the European Union (1992) and NAFTA in North America (1994). At the multilateral level, the GATT Tokyo Round agreement, concluded in 1979, tackled non-tariff measures for the first time in a series of ‘codes’. Later, the subsequent Uruguay Round agreement (1994) established not only the WTO, which featured a reinforced dispute settlement mechanism, but also a number of agreements focusing on behind-the-border issues, such as services regulations (the General Agreement on Trade in Services, or GATS), technical and food safety measures (the Agreements on TBT and SPS) and intellectual property rights (the Agreement on Trade-Related Intellectual Property Rights, or TRIPS). On a fundamental level, what shifted in this period is the perception of what constitutes a barrier to trade. This was no longer seen as limited to deliberately discriminatory measures but was broadened to potentially encompass every governmental action that supposedly distorts
the conditions of competition between foreign and domestic products, as compared to the conditions of competition which would exist in an imagined ‘free’ market…. The result is that the notion of a ‘trade distortion’ comes to be equated in practice with the existence of a commercially significant institution or regulatory difference between countries. (Lang 2011: 226–7, emphasis added)
This is exactly the way remaining trade barriers are seen in TTIP, where negotiators on both sides have stressed time and again that the ‘most important [area of the negotiations is]: reducing regulatory differences to facilitate trade’ (De Gucht 2014b, emphasis added). Domestic regulatory differences between the EU and the US have been redefined as non-tariff barriers, or alternatively as ‘red tape’, with the focus being on their economic, quantifiable effects, not just among modellers, as we saw in chapter 1, but also among policymakers. Such a framing can have a significant impact on whether the intrusion of trade negotiations into domestic policies is seen as acceptable. It is much easier for citizens and voters to accept regulatory commitments in trade agreements when these are presented as ‘cutting red tape’ rather than as reciprocal concessions on health protection measures. Redefining regulations as barriers or red tape is thus a significant political act that can help in ‘manufacturing consent’ for unpopular policy decisions (Herman and Chomsky 1988).
As we will see in the remainder of this chapter, this depiction of differences in regulation as non-tariff barriers, and the intention of addressing them in TTIP through mutual recognition and increased disciplines and cooperation in the preparation of future regulation, is very much in line with the preferences of transatlantic big business. Before we discuss these issues, however, we provide a very brief overview of the main differences between the regulatory regimes in the EU and the US.
Regulation in the EU and the US differs not only in terms of its outcomes but also when it comes to the process by which rules are made. This is one of the reasons why, notwithstanding many attempts at transatlantic regulatory cooperation, this has proven largely elusive (see the Introduction). As we will see in the remainder of this chapter, TTIP is meant to kill two birds with one stone: by reducing the differences in the process by which regulations are made (under the heading of ‘horizontal cooperation’), it is also intended to make convergence of regulatory outcomes easier (‘sectoral cooperation’).
EU and US regulatory politics are different in a number of ways (see Alemanno 2014). While the Constitution mandates that the US Congress has the sole power to make laws, in practice there are over 100 federal agencies (such as the Food and Drug Administration [FDA], the Occupational Safety and Health Administration [OSHA] or the Environmental Protection Agency [EPA]) with a remit allowing them to pass rules or regulations in a certain field and which have the effect of laws. Congress only generally instructs and exercises broad oversight of those agencies. In the EU, regulations can be set directly either by the legislature (the European Parliament and Council, after an initiative by the Commission through what is called the ‘Ordinary Legislative Procedure’) or by the European Commission via its competence to draft delegated and implementing acts, subject to case-by-case oversight by Member States in the Council (and sometimes also the European Parliament). Hence, the role of (directly) politically accountable actors in the day-to-day regulatory process is much stronger in the EU than in the US, where risk assessment and risk management is delegated to non-majoritarian agencies. With regard to standardisation, specifically, defining the technical standards for goods and services (such as the shape and size of light bulbs), the process in the EU has been characterised as a centralised public system, while in the US it has been defined as decentralised, with the private sector playing a key role in defining the standards (see CEN/CENELEC 2013).
Secondly, the involvement of the private sector in regulatory policymaking is considered stronger in the US. Under the Administrative Procedure Act, it has a ‘notice-and-comment’ system requiring all agency proposals that carry the force and effect of law to go through a profound stakeholder consultation process. This especially gives business organisations with the appropriate means and expertise at their disposal the opportunity to engage in lobbying on regulatory proposals. Moreover, in the US, the Office of Information and Regulatory Affairs (OIRA) is in charge of reviewing whether proposed rules meet a number of requirements, such as being based on the best available science; being drafted in a process involving public participation; being the least burdensome alternative available; and being based on a cost–benefit analysis. This agency has been accused by NGOs such as Public Citizen (2013) both of delaying new regulations in the US and for upholding a deregulatory bias when reviewing regulations (see also Steinzor 2012). These procedural requirements are also subject to judicial review.
Thirdly, while impact assessments have increasingly become the norm in the EU, they are a much less strict formal requirement, with their parameters prescribed in far less detail. There does not have to be a (legally enforceable) link between the impact assessment and the outcome of the regulatory process. A study by the European Commission’s DG for Enterprise and Industry in 2007 referred to the US’s binding IA approach as ‘quantitative economic analysis’, while that of the EU was characterised as ‘an integrated approach, which establishes no ranking between economic, social and environmental impacts of policy options’ (O’Connor Close and Mancini 2007: 4).2 This is of course also related to the impact of the ‘precautionary principle’ (the ability to rapidly protect human, animal or plant health and the environment where scientific data for risk evaluation may be incomplete) in the EU, which is enshrined in Article 191 of the Treaty on the Functioning of the EU. The precautionary principle hence enables regulators to take into account information and considerations other than strict scientific and economic cost–benefit analysis when managing risks (see Bergkamp and Kogan 2013).
The implications of all this for the TTIP negotiations are that regulatory cooperation faces the challenge of reconciling rather different administrative systems. Another consequence is that, in the decentralised system in the US, it is less self-evident that commitments made by the federal government will be followed up by the hundreds of agencies with regulatory or standard-setting competencies. This risk of domestic non-compliance by decentralised agencies is one of the reasons why the US is hesitant to go into sectoral agreements in the TTIP negotiations and was responsible for the failure to implement most of the EU–US MRAs of the late 1990s. Aside from these practical considerations, the attempt to reconcile these two rather different regulatory systems has some more fundamental consequences for the nature of domestic policymaking. It is to these that we turn in the remainder of this chapter.
In sum, the EU’s regulatory system is seen as still adhering more to the principle of the primacy of politics (where democratically generated societal preferences trump scientific considerations in the risk management decision) and to precautionary and hazard-based (‘the potential for a substance, activity or process to cause harm or adverse effect’; Lofsted 2011: 149) than to stricter risk-based analysis (‘a combination of the likelihood and the severity of a substance, activity or process to cause harm’; ibid.). On the whole, the opposite goes for the US. As we will discuss in what follows, the EU’s regulatory system has in the past decade been undergoing some changes that are bringing it closer to that of the US (see also Meuwese 2011), a process TTIP may well expedite.3 In the next section, we show how TTIP’s focus on and approach to regulatory convergence is very much in line with the preferences of big business organisations, before discussing how an internal reform process is already bringing EU regulatory policies closer to those of the US.
Business interests, especially the larger, multinational firms that are active across borders, are represented, among others, by BUSINESSEUROPE (a supranational confederation of European employers’ organisations) and by the US Chamber of Commerce. These organisations, and their largest members, have a history of cooperating to weigh in on issues of transatlantic economic interest, such as through the Transatlantic Business Dialogue (TABD) that was convened in 1995 by the US Department of Commerce and the European Commission (Cowles 2001: 168–70). They have been lobbying for profound regulatory cooperation and convergence for years and could build on this work in their TTIP activities. In the meantime, BUSINESSEUROPE and the US Chamber of Commerce, together with a number of other organisations,4 have launched the ‘Business Alliance for a Transatlantic Trade and Investment Partnership’ to ‘educate and advocate for the successful conclusion of TTIP’ (BUSINESSEUROPE et al.2013).
BUSINESSEUROPE and the US Chamber of Commerce had already clearly conveyed their preferences for the negotiations months before these were officially announced in President Obama’s 2013 State of the Union address. The resemblance of these organisations’ positions with the eventual official agenda for TTIP is striking, especially their call for mutual recognition and horizontal regulatory cooperation commitments (BUSINESSEUROPE and US Chamber of Commerce 2012). These two peak associations of course do not have a monopoly on representing businesses in the EU and the US. Other organisations have also participated in consultations with policymakers. In this vein, Alasdair Young (2013) has undertaken an analysis of the submissions made by business organisations to the joint EU–US consultation on regulatory issues organised by the High Level Working Group on Jobs and Growth (HLWG) in October 2012. He found that mutual recognition is by far the preferred form of regulatory cooperation among transatlantic business coalitions (composed largely of multinational firms) as well as by most of the ‘peak’ associations in the US and the EU. Big business on both sides of the Atlantic is on the same page. Only in agriculture, the least transnational of all sectors, is there a clear diverging preference for harmonisation based on home rules. The US agro-associations object to the EU’s use of the precautionary principle and demand that the EU switch to a ‘sound science’ approach to risk management. Andreas Dür and Lisa Lechner (2015) have found very similar results using a larger sample of business submissions, position papers and speeches on TTIP. They also conclude that the trade policy positions of the EU and the US largely reflect those business interests.
With regard to aligning the regulatory processes in the EU and the US, business organisations on both sides have for long argued that ‘common regulatory methodologies should be created in the long run’ (AmCham EU 2008: 1). On the EU side, business organisations have also advocated that the EU should move towards the US practice of strict cost–benefit analysis and ‘should give due weight to the burden anticipated for affected companies’ (BDI 2008: 4). The German Industry Association has even gone as far as to suggest that ‘US and EU regulatory authorities should consider a common threshold for determining when to cancel or modify regulatory plans based on the net cost generated by the cost–benefit analysis’ (ibid.).
The final report of the HLWG that led to the decision to open negotiations on TTIP lists five basic components a TTIP agreement should contain (which is in line with the business position detailed just now). It foresees an SPS-plus component (in other words, an agreement on SPS that goes beyond existing WTO disciplines in this area in terms of, for example, scientific risk assessment in food safety); a TBT-plus component (going beyond WTO disciplines with regard to, for example, reducing unnecessary burdens arising from differences in conformity assessment requirements); sectoral annexes with detailed commitments for specific goods and services sectors; cross-cutting disciplines on regulatory coherence and transparency; and a framework for regulatory cooperation in the future.5
On the latter issues, the initial position paper of the European Commission on ‘Trade cross-cutting disciplines and institutional provisions’ (European Commission 2013c), written before the intense public debate on the negotiations kicked off, reveals the level of ambition that was present at the start of the negotiations. The horizontal disciplines on the regulatory process should apply to ‘all measures of general application … regardless of the level at which they are adopted and of the body which adopts them’ (ibid.: 2). The horizontal rules and the regulatory cooperation commitments are seen as intermediate steps towards ‘the ultimate goal [of] a more integrated transatlantic market where goods produced and services originating in one party in accordance with its regulatory requirements could be marketed in the other without adaptation’ (ibid.: 3), an explicit reference to the final objective of creating a single market (analogous to the European one) based on the principle of mutual recognition. However, negotiators already recognised at this stage that this objective could not be realised in one fell swoop. TTIP would act as an intermediate step and contain procedural commitments that would oblige the EU and the US to consult better and cooperate when developing regulations (agreeing on regulatory principles, best practices and transparency), to strengthen the assessment of impacts of regulations on international trade and investment flows, and to use common or similar criteria and methods in executing impact assessments. TTIP would become a ‘living agreement’ that facilitates regulatory cooperation beyond its formal conclusion. This would be the task of the regulatory institutional framework, whose main components would be (at this point it is worth reproducing the Commission’s original position paper at length):
One of the more revealing passages in this document (italicised above) is the idea that an eventual regulatory cooperation body would be able to amend the agreement without domestic ratification. Such strong language was, however, quickly criticised both by NGOs (e.g., CEO 2013c) and by sovereignty-sensitive politicians (EU Trade Insights 2015). Consequently, when this position paper was translated into a textual proposal from the EU for the negotiations, the wording was toned down. It now stated that ‘the RCB [regulatory cooperation body] will not have the power to adopt legal acts’ (European Commission 2015a: 11). The scope of the horizontal disciplines has also been limited somewhat, applying in a more confined way to the non-central level (see European Commission 2015g). But, while the scope and bite of the horizontal disciplines have been moderated to some extent, these procedures would still strengthen commercial interests in deciding on the priorities for regulation (what should be regulated) and give such interests more weight when considering the cost and benefits of alternative solutions (how these risks should be regulated).
The extent to which the EU’s initial ideas for the regulatory dimension of TTIP are a ‘copy/paste’ of businesses’ demands is remarkable. But both negotiators and their supporters in business organisations argue that it is not only businesses that stand to gain from TTIP, and regulatory cooperation in particular, but also consumers (e.g., American Chambers of Commerce to the European Union 2014: 15), analogous in some ways to the claim that it is not just big business but also SMEs who benefit from TTIP (see chapters 1 and 4). Consumers are often depicted in academic and political debates as the losers of ‘collective action’ dynamics when it comes to trade policy (see Olson 1965). As a diffuse interest that benefits from liberalisation through cheaper prices and greater product choice, they are said to fail to mobilise in contrast to concentrated losers from trade liberalisation, who will usually lobby for protection.
However, in both the EU and the US there are consumer organisations that mobilise on trade politics and have voiced views that are mostly critical of TTIP. In the EU, the Bureau of European Union Consumer Organisations (BEUC) is the well-respected umbrella group for forty national consumer organisations from thirty-one European countries, while in the US there are a larger number of consumer organisations with different priorities and strategies. Consumer organisations are also organised across the Atlantic in the Transatlantic Consumer Dialogue (TACD). In one of its position papers on the negotiations, after expressing general support for balanced, conditional trade liberalisation, BEUC writes under the heading of ‘Non-Tariff Barriers (NTBs) and regulatory coherence’ that
[i]t is essential for negotiators to acknowledge that consumer protection laws may not be interpreted as trading rules, but are there to benefit the society as a whole…. The focus on reducing non-tariff barriers inevitably therefore raises concerns about the deal being used as a backdoor mechanism to reduce protections, or to harmonise by levelling down. (BEUC 2014a: 5–6, emphasis added)
The Transatlantic Consumer Dialogue has taken a very similar position on TTIP (TACD 2013). Consumer organisations are thus not only more vocal than is commonly assumed; they are also less convinced about the one-sided focus on cost-reduction that business organisations and negotiators single out as one of the principal gains from TTIP. Instead, what the likes of BEUC and the TACD have done is draw attention to the benefits of regulation (see also Myant and O’Brien 2015). As we will argue in the next section, they have good reasons to be suspicious of deregulation through the back door in the case of TTIP. Regulation in the EU is currently already being scrutinised internally according to similar logics, arguments and concepts. There is a strong parallel between the regulatory cooperation commitments being discussed in the TTIP negotiations and the review of regulations and the regulatory processes currently ongoing within the EU. This has been applauded by the US ambassador to the EU, who has expressed his ‘great interest [in] what the EU is doing internally … on the REFIT programme’ (Vincenti 2014).6
Under pressure as a result of the unexpected civil society contestation of TTIP (see chapter 4), the negotiators, especially on the EU side, have had to promise time and again that no provision in the agreement will lead to a lowering of the level of protection in regulation. We argue that, while this might be true in a formal sense – for example, TTIP will most likely not explicitly oblige the EU to lift its ban on hormone-treated beef or force it to scrap its chemicals regulation – the agreement might still affect regulation in a number of indirect ways, having a chilling effect on current and future levels of protection. We now turn to discuss three reasons as to why the sectoral commitments (relating to specific products and services) and the horizontal disciplines (featuring the ‘regulatory cooperation body’ described above and applying across the board) foreseen by negotiators give cause for concern despite the many assurances proffered.
We want to warn here against the simplification that the EU always has the higher level of protection across the board (see, for example, Wiener et al. 2010). It is generally recognised that, on average over the past decades, the EU7 has developed higher levels of social and environmental protection than the US (Vogel 2012). For this very reason trade unions in the US are more supportive of TTIP than their European counterparts.8 But in the area of pharmaceuticals or medical devices, for example, experts and stakeholders (e.g., BEUC 2014b) argue that the regulatory system in the US guarantees at least as high a level of human test subject and patient protection as that in the EU. Another example, and a key bone of contention between the EU and the US in the TTIP negotiations, is the area of financial services. The EU has been pushing to include cooperation on financial regulation in the negotiations, with the US (and in particular its regulators in the Treasury) refusing to do so because of fears that this could undermine the stricter approach to macroprudential regulation established in the US after the financial crisis, notably the Dodd–Frank Act (see Jones and Macartney 2015). Even the USTR’s official position of excluding financial regulatory cooperation from the negotiations is insufficient to assuage the fear among some Democratic legislators in Congress, such as Elizabeth Warren (2015), that other elements of the agreement (such as ISDS or market access for financial services providers) could undermine Wall Street reform.9
Returning to the issue of regulatory chill, this could, first of all, result from the dynamic effects of mutual recognition if applied in cases where regulations are not completely equivalent in terms of outcomes. Businesses faced with stricter, and hence more costly, regulations may then lobby their governments to move towards the lower-cost standard, threatening relocation to the other party. Negotiators’ response to this concern is that sectoral regulatory convergence in TTIP is only about areas where EU and US regulations are different solely in method but equivalent in effect. To underpin this claim, the same example is usually given, namely that of technical and safety standards for cars (e.g., De Gucht 2013a).10 And, even in this case, it has been argued that differences in, for example, the technical standards for bumpers represent different preferences in the EU and the US when it comes to the trade-off between driver protection against car-on-car collisions and pedestrian safety (Asian Trade Centre 2015).
The self-proclaimed ambition of negotiators is to remove not just regulatory differences with regard to car safety but as much as one in two ‘actionable’ NTBs (in order to realise the ambitious economic gains modelled for TTIP). In the annexes to the study on non-tariff barriers in transatlantic trade discussed in chapter 1 (ECORYS 2009b: 327–52), we find an extensive list of the NTBs identified by experts and industry representatives. It is obvious that this catalogue covers much more than non-sensitive areas about which there might be a relative consensus that EU and US regulations are effectively equivalent. In the list of NTBs we find all those EU regulations that have led to serious friction with the US as well as contributing to Europe’s status as a global regulatory leader (see chapter 2): REACH, RoHS, WEEE, the ban on animal testing for cosmetics, the emissions trading scheme in the aviation sector (which has subsequently been watered down) and several directives for energy efficiency. The EU’s GMO approval system and its ban on hormone-treated beef are also listed, but – although US industry and influential senators, such as the former Finance Committee Chairman Marc Baucus, ‘urge [the USTR] to resolve these and other unwarranted agricultural barriers as part of the FTA negotiations’ (US Senate 2013) – we suspect that the USTR realises that directly addressing these is a no-go area. Although there have been previous attempts at regulatory cooperation between the EU and the US in the area of food safety, which saw EU regulators share the view of their US counterparts that there was a need to move towards more ‘science-based’ risk management, the opposition of Member States and civil society groups (and the presence of multiple veto points within the EU’s institutional structure) prevented any successful accommodation (Pollack and Shaffer 2009: 85–112). On the US side, the likes of the Clean Air Act were also singled out by the study as NTBs to be potentially targeted.
For a number of these issues, the negotiators have already had to recognise that achieving meaningful regulatory alignment directly through TTIP is unfeasible.11 Consider, for example, the wide gap between the respective EU and US regulatory systems for chemicals (REACH and TSCA), which led policymakers to remark at the start of the talks that ‘neither full harmonisation nor mutual recognition seems feasible’ (European Commission 2013g: 9; see chapter 1). But in other sectors regulatory convergence has to be pursued, otherwise the promises of ‘growth and jobs’ and ‘global regulatory leadership’ may fall apart. The key question in all of this is how regulations that fall into the ‘grey zone’ – between undeniable (and arguably irreconcilable) substantial differences in regulations (such as for food safety and chemicals) and regulations that are obviously different only in their concrete prescriptions but largely equal in effect (such as car headlights) – will be dealt with. Who will decide on their equivalence? On the basis of what criteria? And how far will regulatory alignment go?
A second reason why TTIP might lead to regulatory chill is that, even where joint adoption of international standards rather than mutual recognition (which usually has more of a deregulatory impact) is pursued, this can result in a less ambitious outcome in terms of protection levels than the status quo. An example can be found in the EU’s textual proposal for the SPS chapter. This mandates that ‘maximum residue levels’ (MRLs) of pesticides in food or animal feed adopted within the Codex Alimentarius Commission – a committee of experts which sets internationally recognised food safety standards under the auspices of the UN Food and Agriculture Organisation and World Health Organisation – should be applied between the parties twelve months after their adoption (European Commission 2015b: 3). As the Center for International Environmental Law has shown, ‘due to influence of US and corporate lobbying’ (Smith et al. 2015: 11ff.), Codex MRLs are in many cases significantly lower than those the EU is applying.
A third (and in our opinion the most important) risk from TTIP can be found in the procedural ‘transparency and consultation’ disciplines on regulatory policymaking (the ‘horizontal’ regulatory commitments). According to the EU’s proposal, regulatory proposals would have to be sent to the other party for comment by their regulators and stakeholders if requested before being seen by domestic legislatures. NGOs understandably fear that this might slow down regulatory processes and give privileged access to this complex multi-level regulatory system to well-resourced business organisations (see chapter 4). Moreover, the obligation (foreseen by negotiators) to ‘take into account’ the effect of regulations on transatlantic trade and investment when conducting IAs for new policies might further privilege commercial considerations above others.
When it comes to the horizontal commitments, the key question is what the dynamic effects will be for levels of protection. As EU and US regulations currently often differ (and quite significantly in a number of cases), why should future standards converge smoothly? Will there be a race to the top or a race to the bottom when compared against the current trend? Absent a ‘Transatlantic Parliament’ – an important difference between the EU’s Single Market and the Transatlantic Market envisaged by advocates of TTIP – what will the impact be for democratic decision-making and the legitimacy of future regulations?
These questions are difficult to answer definitively at this stage, but we argue that we can get a better sense of the direction of travel by examining ongoing changes to regulatory politics taking place within the EU. We contend that the internal regulatory reform programme not only dovetails with TTIP’s underlying philosophy but is also being reinforced by the agreement. For those pushing deregulation in the EU, this is arguably the main objective of the deal.
‘Red tape’ is being cut vigorously not only through TTIP but also within the EU. Initiated in 2012 under the previous Barroso Commission (but going back to the 2001 Mandelkern Report on Smart Regulation, one of the initiatives coming out of the 2000 Lisbon Agenda), the Regulatory Fitness and Performance Programme (REFIT) is aimed at making EU regulation ‘lighter, simpler and less costly’. Alongside TTIP, it is also listed as one of the top priorities of the new Juncker Commission (Juncker 2014). ‘Better regulation’ is the core area of work of the new First Vice-President of the Commission, Frans Timmermans, who, as Minister of Foreign Affairs of the Netherlands, was involved in a ‘subsidiarity review’ of EU policies. This is a comparable exercise to the ‘Review of the Balance of Competences’ being conducted in the UK (Foreign and Commonwealth Office 2012), which may partly explain why Timmermans was welcomed as a choice for the Commission by a British government wrestling with the issue of continued EU membership. Indeed, a first interesting parallel to note between TTIP and the REFIT ‘better regulation’ project is that both are among the few EU initiatives applauded by the UK government and sometimes explicitly seen as instrumental to keeping the UK in the EU (Traynor and Neslen 2014).12
REFIT is the latest initiative in a Commission agenda for ‘better’ and ‘smarter’ regulation that is already more than a decade old. In 2007, for example, a target was set to reduce administrative burdens to businesses by 25 per cent by 2012, echoing NTB reduction goals in TTIP. Just as the definition of NTBs has expanded in the area of international trade (with mere differences in regulation between countries being defined as ‘red tape’), much the same is true for what accounts for ‘red tape’ in the case of the EU’s internal better and smarter regulation agenda. Where this was originally meant to be focused purely on administrative burdens, it has now come to cover substantial regulations and, according to NGOs and trade unions, to be specifically targeting environmental, health or safety-related (proposals for) regulation. Under REFIT, the European Commission has already decided not to present proposals that it had been preparing on occupational safety and health for hairdressers, musculoskeletal disorders, environmental tobacco smoke, and carcinogens and mutagens. It has also initiated so-called Fitness Checks13 on regulations for the protection of birds and habitats (called Natura 2000), waste policy and renewable energy (European Commission 2014b).14
TTIP and REFIT thus seem driven by very similar interests and to be promoted by a comparable set of ideas. The power of words is being exercised simultaneously on the international and domestic planes. As European Trade Commissioner Cecilia Malmström noted in her confirmation hearing before the European Parliament, ‘what can really contribute to growth would be to get rid of the regulatories [sic] and ease the red tape that is making life difficult for many SMEs in Europe as well’ (2014, emphasis added).15 This parallel is also reflected in some of the specific criticisms made of the wider ‘better regulation’ agenda by members of the Stoiber Group. This ‘High Level Group on Administrative Burdens’, chaired by the former Conservative Minister-President of Bavaria Edmund Stoiber, presented its final report in October 2014.16 In a dissenting opinion, four members of the group opposed a number of the recommendations in the final report that ‘have a clear deregulatory purpose’, such as setting a (net) target for reducing regulatory burdens; the obligation to release draft impact assessments for public consultation (which might lead to ‘paralysis by analysis’); delaying or obstructing the development of regulations; or strengthening the administrative “competitiveness test” for EU legislation (all very similar to concerns voiced about TTIP). The dissenters argue that ‘it is for political decision makers to decide how much relative weight to assign to one factor rather than another’, again echoing the criticism that TTIP’s horizontal disciplines privilege commercial above other considerations in regulatory decision-making (Kosinska et al. 2014: 3). Moreover, it is not just the goal set in the better regulation programme that echoes the (de)regulatory dimension of TTIP, but also the same assurances given to critics that ‘[REFIT does not] come at the expense of the health and safety of citizens, consumers, workers or of the environment’ (European Commission 2014b: 17).
One of the objectives of the regulatory cooperation dimension of TTIP is to prevent the occurrence of regulatory differences between the EU and the US in the future. The mere fact that negotiations are going on may already be having such an effect, leading policymakers to abandon (or tone down) regulatory proposals that may offend the other party. It has been reported that the decision by the European Commission (in February 2013, a few days before the announcement of the TTIP initiative) to drop its ban on beef washed in lactic acid was meant to please the US (EurActiv 2013). A link has also been suggested between TTIP and a delay in Commission regulatory proposals to take action against endocrine disrupting chemicals (EDCs) in pesticides (Horel and CEO 2015). The most notorious example of trade negotiations influencing simultaneous domestic regulatory policymaking is the EU’s Fuel Quality Directive (FQD), specifically the issue of allocating higher greenhouse gas default values for fuels derived from oil sands and shale oil. These are extracted and refined, respectively, mainly in Canada and the US, and therefore the directive would have the effect of limiting imports from these ‘dirtier’ sources of oil. Industry in both countries has been lobbying their governments to include the FQD issue in the EU–Canada Comprehensive Economic and Trade Agreement (CETA) and TTIP talks, respectively. Their demands have also been raised by peak business associations such as the Transatlantic Business Council (see Friends of the Earth Europe and Transport and Environment 2014).
These lobbying efforts appear to be having some impact. There have been press reports of the Canadian government threatening to block the CETA negotiations if the EU did not remove tar sands oil from its list of dirty fuels. Meanwhile, USTR Michael Froman has reportedly brought up the FQD during the TTIP negotiations. While in public the USTR states that the US does not want to compromise the EU’s substantial climate policy goals and simply has concerns about the lack of transparency and public consultation in the process of writing the FQD, a request by Friends of the Earth Europe for access to documents showed that the US has been lobbying on the substantive issue of the fuel quality standards.17 Ultimately, the Commission decided not to label tar sands oil as ‘dirty’ in the FQD. In a statement before the vote on the directive in the European Parliament, BUSINESSEUROPE Director-General Markus J. Beyrer (2014, cited in Crisp 2014) explicitly linked the need for this exemption to broader trade policy imperatives: ‘[i]n the CETA agreement, the EU and Canada agreed to liberalise trade, including energy … By blacklisting oil sand imports from Canada, such a decision would risk imposing trade restrictions on a stable, reliable and democratic country which is a strong economic partner of the EU.’
BUSINESSEUROPE also invoked geopolitical arguments (see chapter 2) by stating that energy security should be taken into account, as the Ukraine crisis showed the increased need to diversify the EU’s energy supply (Crisp 2014). Friends of the Earth Europe and Transport and Environment (2014: 3) have therefore concluded that ‘[t]rade agreements don’t only threaten environmental policy-making upon completion. Environmental regulations currently in the making, such as the FQD, are already being delayed and potentially weakened in the negotiation process.’ This concern has even been expressed by more than ten members of the US Congress, who noted that ‘trade and investment rules may be being used to undermine or threaten important climate policies of other nations’ (Whitehouse et al. 2014).
The ‘chilling effect’ of TTIP is also obvious in the proposal to include ISDS in the deal, probably the most contentious issue in the public debate on the negotiations (see chapter 4). Such provisions allow foreign investors to sue governments for perceived violations of their investor rights in independent arbitration tribunals. These usually meet in secret and are composed of three arbitrators, one chosen by either party and a third agreed upon jointly or appointed by one of the organisations managing investor disputes (such as the International Centre for the Settlement of Investment Disputes). Investor rights, as enshrined in numerous bilateral investment treaties (BITs), usually involve provisions not only on ‘direct expropriation’ – when a government directly takes the property of a foreign investor – but also on ‘indirect expropriation’ – where a government’s regulatory action has an effect ‘equivalent’ to a direct expropriation, often interpreted by arbitral tribunals to include effects of regulatory decisions on companies’ future profit. There is also habitually a requirement for host governments to treat foreign investors ‘fairly and equitably’, which has frequently been interpreted broadly by arbitrators. In this vein, it has often been remarked in the literature on investment policy that arbitrators not only have considerable leeway in interpreting investment protection but are also far from impartial, insofar as they benefit financially from repeat custom from investors bringing suits against states (Van Harten 2014).
ISDS has been the subject of criticism before, given that an extensive network of BITs with such provisions already exists. But these agreements have mostly been signed between developed and developing countries. In the EU, for example, only a number of Central and Eastern European Member States have such an agreement with the US.18 The traditional rationale given for BITs is that they are a necessary instrument to supplement underdeveloped legal systems and ‘depoliticise’ investment disputes between states that might otherwise ‘turn ugly’ (the image of the ‘gunboat diplomacy’ of the nineteenth century between colonial powers and the ‘colonised’ is often invoked; for example, Puig 2013: 601). In the context of a trade and investment agreement between two economies with largely developed legal systems, where disputes involving investors are not known to escalate into major cross-cutting political conflicts, such justifications do ring a little hollow. Rather, such tribunals ‘provide significant advantages to multinational enterprises at the expense of governmental flexibility’ by establishing a system of privatised transnational governance (Van Harten 2005: 600). Although they cannot formally strike down laws, the damages they award may ultimately result in regulatory chill, much like TTIP’s proposed provisions on regulatory cooperation (Poulsen et al. 2015).
Ultimately, ISDS is consistent with the broader depoliticisation of regulatory politics being pushed for in the agreement. This does not quite amount to the ‘horror story’ of some critics of TTIP that ISDS amounts to a ‘full-frontal assault on democracy’ orchestrated by corporations (Monbiot 2013; see also Wallach 2012). In general, the evidence suggests that foreign investors (read multinationals) are often not clamouring for investor protection provisions (e.g., Basedow 2014) – although it must be said that they have pushed for such provisions to be included in TTIP (see, for example, BUSINESSEUROPE 2014: 9). As noted above, legal systems in the EU and the US are well developed, and thus suits are less likely, while tribunals cannot strike down laws (they can only award damages). Finally, the European Commission was, at the time of writing, proposing a series of reforms to ISDS, such as increased transparency, a roster for arbitrators, and a greater ‘carve out’ from investor protection provisions for regulatory measures, which may render ‘abuse’ of the system by multinationals less probable (see chapter 4). That said, the conclusion reached by a number of experts in the field is that ISDS in TTIP ‘may impose non-trivial costs, in the form of litigation expenses and reduced policy space’. Moreover ‘an investment chapter would almost certainly give foreign investors greater rights than they currently enjoy under EU and member state law’ (Poulsen et al. 2015: 1, emphasis added). Its effects may thus be more subtle than the furore around the provision suggests, but still important.
TTIP is aimed mainly at eliminating regulatory differences between the EU and the US. Such differences, which get in the way of achieving the theoretical construct of a global free market, have over the past decades been reframed as ‘red tape’ – both within the international trading system and domestically (as the EU’s REFIT agenda highlights). For one, TTIP is pursuing the elimination of regulatory differences directly through commitments in specific sectors, with mutual recognition as the preferred approach. But negotiators are also conscious of the political and administrative limits to achieving mutual recognition through TTIP. They are therefore pursuing ‘horizontal’ cooperation, establishing rules and institutions that should help bring about future regulatory convergence and discipline domestic regulatory policymaking. We have warned of the risk that this might lead to regulatory chill.
These effects can be expected from TTIP even if we accept negotiators’ promise that no commitments in the agreement will formally lower existing levels of protection. They discipline market-correcting policies and tilt the state–market balance further towards the latter. Bronwen Morgan (2003) has critically reviewed such reforms of the process of regulation, also known as ‘meta-regulation’.19 She calls the social logic behind this meta-regulation an example of ‘nonjudicial legality’ leading to the ‘economisation’ of regulatory politics. Regulatory policy choices become expressed increasingly in terms of ‘market failures’ or ‘distortions’ instead of need, vulnerability or harm. The result, and arguably the aim, of this process is the silencing of alternative modes of justice, especially those relying on moral or distributive justice – as the case of ISDS and the privileging of investor rights starkly illustrates.
This chapter has highlighted the redefinition of regulation in economistic ‘cost’ terms at the level both of the global trading system and of domestic regulatory processes, which is being reinforced by TTIP. Regulators tend to internalise the administrative disciplines that oblige them strictly to prove that their proposals hinder the free market – and transatlantic trade in particular – as little as possible, and are thus likely to be increasingly socialised within the ‘trade environment’ in which they are compelled to cooperate with their counterparts across the Atlantic. Moreover, while it might sound reassuring that regulators are actively involved in the TTIP talks (and other trade agreement negotiations), they are playing an ‘away game’ against trade negotiators who are on home turf when it comes to negotiating such deals. It was often recognised during our interviews with trade negotiators20 that there are often deep divides between their ‘trade perspective’ and the perspective of regulators.
This ‘economisation of regulatory politics’ – and in particular ISDS – has, however, been hotly contested by NGOs, leading us straight into the next chapter. Here we elaborate on how the attempt to take the politics out of regulatory policy in TTIP might actually end up by (re)introducing the politics into trade policy.