TTIP: dispelling the myths

The Transatlantic Trade and Investment Partnership (TTIP) has provoked numerous headlines and more than a few protests over the past year. However, this attention has so far generated more heat than light. The details of this nascent trade agreement between the United States and the European Union are little understood.

Moreover, the widespread lack of knowledge about the nature and consequences of TTIP has allowed misunderstandings – and even distortions – to arise.

“At a basic level, we need to remember that TTIP will encourage free trade and the free movement of capital,” explains Raoul Leering, head of international trade research at ING Wholesale Banking. “With few exceptions, the evidence shows that free trade increases GDP for all involved – in this case the US and the EU – because it facilitates economies of scale which improves efficiency. Ultimately, it benefits companies and consumers by lowering prices and increasing choice for intermediate and consumption products and services.”

Leering concedes that some opponents of TTIP object to greater integration of the US and EU economies and the potential opportunities it will give multinationals. “They’re valid worries and people have every right to protest,” he says. “However, alongside those arguments, there are a number of spurious claims that are being treated as facts when they are exactly the opposite. Given TTIP’s potential benefits, it’s important to correct these misunderstandings.”

Chief among the misunderstandings is the claim that TTIP will increase the power of corporations and undermine the legislative capabilities of national governments and the EU parliament. “This is simply untrue,” says Leering.

TTIP, like many existing trade agreements, will include a mechanism, called an Investor-State Dispute Settlement (ISDS), that allows companies to claim compensation after legislative changes that affect their business, such as withdrawal of permits or nationalisation of their assets, and seek compensation. However, the ISDS cannot prevent governments from changing policy and does not restrict their right to regulate.

Similarly, opponents say that TTIP will cow governments and prevent them from raising environmental standards, for example, for fear of large claims by corporates. However, there is no evidence that this would occur. Following the introduction of the North American Free Trade Agreement (NAFTA), which included a similar ISDS mechanism to TTIP, there was no weakening of standards and no subsequent slowdown in new legislation.

A second misinterpretation is that EU labour, food security and environmental standards will be lowered in order to align with US standards, which are generally perceived to be weaker. “But the European Commission is specifically prohibited from harmonising standards with the US where there are currently significant differences – it is only permissible if standards are already very close,” says Leering.”

One of the bugbears of TTIP opponents is the risk of the EU being deluged by genetically modified food, which is commonplace in the US. “That won’t happen because US and EU standards are so different,” explains Leering. “Similarly, the US practise of washing chicken with chlorine – instead of safeguarding against contamination at every stage of production – will not come to the EU and nor will US companies be able to appeal against different EU standards. And don’t forget that European standards are not always stricter. Sometime it is the other way around for example in relation to fats used for frying.”

A third common misunderstanding of the impact of TTIP is that the implementation of an ISDS will cost taxpayer billions. Again evidence from existing ISDSs shows that while claims may be high – at an average of $330 million – the average sum granted as compensation when a corporate is successful is just $10 million. Moreover, governments win arbitrage cases 1.5 times more often than corporates.

“Among some opponents of TTIP there has been an unhelpful tendency to overdramatise and distort the objectives of the agreement,” says Leering. “In reality the majority of the thousands of pages of TTIP address mostly technical barriers to trade that make it harder for EU companies to do business in the US and vice versa. Anyone who supports measures that enhance economic welfare cannot object to measures that will end the requirement for a German carmaker to undergo two sets of almost identical crash tests, not in the name of safety but just to fulfil a bureaucratic requirement, for example.”

Furthermore, while there is a perception that TTIP will primarily benefit multinationals, the opposite may be the case. “In the Netherlands, for example, 95% of companies exporting to the US are SMEs while 60% of the total export value comes from SMEs,” says Leering. “To date, SMEs seeking fair access to US markets or permits have often been put off by costs which are disproportionately high compared to those incurred by multinationals because of SMEs’ lower revenues. But cutting red tape costs for SMEs will create a more level playing field and new opportunities.”