What is TTIP?
The Transatlantic Trade and Investment Partnership ('TTIP') is an ambitious trade and investment agreement currently being negotiated between the European Commission and the United States. The European Commission estimates that the conclusion of this deal could boost the European Union economy by up to £100 billion per year.
The TTIP negotiations encompass a bold agenda aimed at cutting the cost of transatlantic trade and reducing barriers to exports, imports and investment activity across the Atlantic. In its broadest terms TTIP aims to boost trade and investment between the EU and the US through the reduction of customs duties (ie tariffs), cutting red tape through harmonised regulation, reforming the current system of investment protection for EU and US investors and opening new opportunities in the services and government procurement sectors.
However, many companies remain unaware of the broad contours of the TTIP negotiations and the potential impact that any final deal may have for their transatlantic trading interests and wider commercial operations. This briefing note highlights the key elements of TTIP discussions, the current status of negotiations and those issues which may impact on your business.
What is the current status of the TTIP negotiations?
Launched in November 2011, the original TTIP timeframe envisaged a conclusion to the negotiations by the end of 2014. At the end of April, negotiators from the EU and US concluded the ninth round of discussions. The April negotiations provided a further stepping stone towards concluding an agreement and negotiators are currently preparing for the tenth round of discussions, due to take place in Brussels in mid-July. However, a final TTIP agreement is unlikely to emerge before the end of 2016.
What will TTIP consist of?
A final agreement is expected to be broken down into 24 Chapters covering four broad areas:
- Market Access, including:
- Promoting trade in goods and reducing customs duties;
- Tackling barriers to Services exports;
- Opening up public procurement markets; and
- Agreeing Rules of Origin (ROOs) to determine which products will benefit from TTIP.
- Regulatory Cooperation, including:
- Greater coherence between EU and US regulation;
- Streamlining technical requirements for products;
- Reducing unnecessary repetition in place for checking products;
- Facilitating access to information on rules applicable to products; and
- Sector based initiatives for agribusiness, chemicals, cosmetics, engineering, medical devices, pesticides, ICT, pharmaceuticals, textiles and vehicles trade.
- Rules, including:
- Promoting the protection of workers' rights and the environment;
- Streamlining customs rules and controls;
- Introducing a new system for investment protection;
- Rules aimed at preventing collusion and abuse of market power; and
- An effective mechanism for resolving EU-US trade disputes.
- Investment Protection, including:
- Providing a framework for foreign investors to bring claims directly against EU Member States and the US by way of arbitration;
- A potential appeal mechanism to review arbitral decisions; and
- A mechanism by which the US and EU would be able to adopt agreed interpretations of the TTIP investment provisions which would be binding on arbitral tribunals.
What are the potential benefits and concerns regarding TTIP?
- Cutting the cost of exporting and importing goods between the EU and US
At just under 2%, the average customs duties between the EU and US are generally low. However, the average tariff rate conceals "peaks" for individual products, e.g. 30% for goods such as clothes and shoes and 10% EU import duty on cars from the US. Detractors say that there is no evidence that TTIP will reduce the cost of these products and it is therefore impossible to estimate the financial benefit of the agreement.
- Reducing barriers to transatlantic services trade and investment
The aim is to enable professionals to practise on either side of the Atlantic through the mutual recognition of qualifications, or make it easier for firms to get approval to offer services such as auditing, management consultancy or legal advice. Detractors have focussed on the potential for TTIP to lead to the loss of jobs in certain sectors.
- Facilitating competition with regards to public contracts
Here the focus is on agreeing rules which ensure EU and US companies are not discriminated against when tendering for public contracts in each other's market and raising transparency in the tendering of public contracts. The concern here is that public services such as the NHS could be outsourced to US companies, making privatisation inevitable and irreversible.
- Cutting red tape for firms through greater regulatory harmonisation
A significant challenge which aims to ensure EU and US regulators work more closely with each other, for example, through information exchanges and consultation, when they develop new regulations or review existing regulations. Critics argue that there is already sufficient regulatory cooperation and that TTIP is not the forum for such agreements to be made, as negotiations are being conducted away from domestic parliaments and public scrutiny.
- Reductions in technical barriers to trade, for example through harmonising labelling requirements or procedures for safety testing
A key element of these discussions will be around the greater use of internal standards and the elimination or reduction of unnecessarily duplicative procedures for checking products. However, critics argue that the difference in regulation is so fundamental that harmonisation is impossible. For example, the US tends to focus on achieving its food safety objectives by regulating the end product, while the EU tends to regulate the whole production process.
- Streamlining customs rules and controls to make exporting easier
When an EU or US company exports its products across the Atlantic customs officers perform border checks to ensure that the products meet relevant rules and regulations. TTIP aims to simplify these procedures to make them more efficient and save time, money and unnecessary bureaucracy for exporters. Some commentators have noted though that in order to facilitate such efficiency and cost cutting, the EU states would be forced to implement additional stringent rules from the US.
What does TTIP envisage with regards to settling disputes between foreign investors and governments?
It is proposed that TTIP will tighten up existing Investor State Dispute Settlement ("ISDS") provisions. Such provisions allow foreign investors to bring proceedings directly against a state via a separate arbitral process, rather than using the domestic legal system. The rationale is that such a mechanism provides investors with greater certainty that claims will be heard in an impartial manner with increased prospects for enforcement. This issue has courted controversy due to the fact that some EU Member States do not currently have in place bilateral investment treaties with the US. Therefore, the inclusion of ISDS provisions risks subjecting those States (as well as the US) to claims they would not have otherwise been exposed to.
Other issues that have been raised in relation to the ISDS provisions include:
- The transparency of arbitral proceedings and the need to ensure the independence of arbitral tribunals;
- The interpretation of investment protection provisions and the adoption of agreed interpretations of the TTIP investment provisions which would be binding on arbitral tribunals;
- Procedural mechanisms for disposing quickly of frivolous claims and a provision that the losing party bear all of the costs of the proceedings;
- Precluding the bringing of claims under the TTIP ISDS provisions and in domestic courts at the same time; and
- The review of ISDS decisions in the form of an appellate mechanism.
With the potentially significant impact of TTIP on the EU-US trade and investment environment and its bearing on wider global trade and investment flows, we expect the negotiation of any final agreement to continue to be complex and protracted.