CEO | 31 January 2020
Post-Brexit EU-UK trade deal based on CETA would be bad news
The EU-UK trade talks begin with the UK objective to use the corporate-friendly EU-Canada agreement CETA as a template. This is not a good start for democracy nor the public interest.
As of today, the United Kingdom is no longer part of the European Union, but the future relationship is yet to be determined. At the heart of the coming negotiations will be a trade deal, and despite years of debate on the Withdrawal Agreement, it is not clear at all what that will look like. On the EU side there are preparations but nothing like a template for a trade agreement. The UK Government has said it is keen on a deal along the lines of the CETA Agreement between the EU and Canada, but little more than that.
If CETA indeed becomes the basis of such an agreement, perhaps the most remarkable aspect is what crucial issues might be excluded, such as migration which is not included in CETA. But there is also plenty to worry about when looking at what is in it, which is no surprise to anyone who followed the lengthy civil society struggle against CETA itself (for an overview of controversial issues check out Making Sense of CETA). There are risks to democracy and the public interest built into any CETA-style agreement, and these raise questions that have not yet been part of the lengthy Brexit debate and debacle.
There are plenty of statements made by governments and business groups alike to suggest the threats that could materialize. They include giving exaggerated powers to big business, including the crucial financial sector; they include ways to sidestep democratic decision-making in the name of mutual market access; and these threats are embedded in the process too, that is, how the whole debate on an important agreement could become an opaque endeavour run by government officials and corporate lobbyists.
Special courts for big business
One important question is whether an agreement will include an investor-state dispute settlement (ISDS) system along the lines of the CETA agreement. This controversial mechanism – included in thousands of trade and investment agreements globally – creates an obscure parallel legal system for corporations which they can use to sue governments that stand up to their power. From health warnings on cigarette packs to a moratorium on fracking, a whole range of government policies have been challenged in ISDS courts by corporations, and as a result governments have been ordered to hand out billions in taxpayer money. Introducing ISDS into the future EU-UK trade relationship would likely face massive public opposition. For the UK, it would not be ‘taking back control’ as citizens were promised in the post-Brexit world, but ceding power to a parallel legal system for big business.
This isn’t just speculation: investment arbitration lawyers are already advertising services to corporations, which could lead to more investor lawsuits against EU member states using the UK as a base. As EU members are about to cancel all ISDS deals with other EU member states (following a 2018 ruling by the European Court of Justice), several law firms have published briefings suggesting that it would be advantageous for corporations to structure their foreign investment into the remaining EU member states through the UK (see, for example, Crowell & Moring, Baker McKenzie, a lawyer from Fietta, Hogan Lovells, K & L Gates) as its bilateral investment treaties with EU countries are likely to remain in place. If you are a German company, for instance, and have an investment in Romania you could let this investment ‘flow’ through a subsidiary in the UK – possibly only a mailbox company. You could then sue Romania via its bilateral investment treaty with the UK – even if no such treaty was in place between Romania and Germany. According to a lawyer from US-based law firm Baker McKenzie “this would arguably give the UK a competitive advantage, which might mitigate some of the negative effects of Brexit”. In another article, the firm’s lawyers call Brexit a “golden opportunity” for the UK to attract foreign corporations.
Megabanks running the show
While the UK Government generally favours ISDS, so far they have not explicitly asked for it to be included in an EU-UK trade agreement that would cover all EU member states (not just the CEE member states which already have an investment protection agreement with the UK). But they have many powerful voices in their ear pushing for just that. The most important is the financial sector, which has long been asking for special courts to be included in a deal. The key lobby group for the UK’s financial services sector, for example, the International Regulatory Strategy Group (IRSD), has already proposed that an EU-UK trade deal includes ISDS, similar to the CETA agreement.
An agreement that include ISDS would be a major step with big consequences. While – controversially – the EU already has such an agreement with Canada, to have the same arrangement with the UK is a very different ball game, particularly when it comes to regulation of the financial markets. Canada generally has tighter financial regulation than the EU, despite the fact that the country did not go through the same economic nightmare as much of the world in 2008. The UK on the other hand, has always been a champion of deregulation. Putting special corporate-friendly courts in the hands of the City of London’s global banking giants is a scary prospect indeed.
Evading democratic decision-making
No less scary is the general framework the financial sector is proposing on regulation. Their problem is that the UK-based financial sector’s access to the single market is crucial to them. And they have been largely supportive of Single Market rules in the area. Now, they are compelled to fight hard for market access, and to ensure future rules in the EU27 does not develop in a direction that would go against their interests. Their cure – championed by UK Finance, a lobby group that includes most London-based big banks – is two-fold: first, a clause in the agreement that would “lock in existing levels of liberalization”. This formula would make it impossible for both the UK and the EU to tighten rules to prevent a future financial meltdown, and it could be an obstacle to the fight against tax evasion.
Their second answer is ‘regulatory cooperation’. They suggest a ‘Forum for Regulatory Alignment’ is established between the UK and the EU, that would scrutinise development of rules on both sides in order to secure the two trade blocs remaining on the same page, and refrain from legislative initiatives that would hurt the (business) interests of the other side. Both sides would be able to object to new ideas, and they would do so before such rules are ever presented to elected parliaments. The proposed forum would take on a lot of responsibility, including a key role in dispute settelement. Furthermore, the representatives of the European Commission and for UK authorities that are to make up the forum in the IRSG’s proposal, will be flanked by ‘expert groups’ packed with finance lobbyists, according .
A popular formula
‘Regulatory cooperation’ is not just popular in the financial sector. It has become the mantra of big business because it appears to square a circle. Corporate interests want to maintain access to the Single Market, but as single market rules evolve, they will lose ground (and influence) unless some sort of agreement ensures there is mutual acceptance of rules and standards. As the Confederation of British Industry said in a report from December 2016: “Business and government must work together to agree how to secure long-term regulatory cooperation between the EU and UK markets after the UK leaves. The EU is not a static organisation and its regulatory framework will continue to evolve after the UK leaves. This presents numerous challenges. It is not in the UK’s interests to be a rule taker.”
‘Regulatory cooperation’ is intended to make up for some of the influence over EU legislation the UK will lose with Brexit. But exactly what ‘regulatory cooperation’ will be about, what the purpose will be, and who is involved, is crucial. In this context it will be about business interests and it is likely to be run by civil servants from the European Commission and UK ministries, most likely flanked by advisory bodies dominated by business. It could create a space for big business lobbyists to secure their interests far from public debate and democratic scrutiny.
Circumventing environmental policy
The very CETA agreement that British Prime Minister Boris Johnson holds out as a template for the trade deal is a case in point. Canadian trade analyst Stuart Trew recently noted there is plenty of evidence that North American industry will use regulatory cooperation under CETA “to interfere with or pre-empt precautionary decision-making by EU institutions and member states”; and the other way around, it may be added. We have already seen examples of this. A report from the UK think tank Institute for Government, highlights an example: “Canada has successfully convinced the EU to revisit regulations classifying its oil sands as especially polluting.” Such cases are at the heart of concerns over regulatory cooperation: that in the long run this approach can lead to a quiet but permanent downward pressure on protection levels.
If regulatory cooperation is placed at the heart of an EU-UK trade deal, there is a risk it could undermine democratic decision-making on both sides. Crucial decisions could be moved to a setting populated by civil servants and business lobbyists, with deregulation a highly plausible outcome.
Negotiators alone with business?
Past experiences of EU and global trade policy alike warn us that these agreements are usually negotiated in darkness, with little democratic scrutiny. Two phenomena familiar from the CETA talks, as well as other EU agreements, are also at play in the EU-UK trade deal: opacity, and the dominance of big business.
It should come as no surprise then that the main talking partners of the official bodies from both the EU and the UK involved in the negotiations are first and foremost meeting with representatives of big companies. According to a count by Global Justice Now and Corporate Europe Observatory in late 2017, 91 percent of the meetings UK Trade Ministers had over a span of eight months were with business groups. The corresponding number for the Brexit department was 71 percent. One sector alone, the financial sector, had more meetings with UK Brexit ministers than all non-business groups put together. This trend appears to continue to this day.
A key concern that arises is the difficulty, if not impossibility, of following the development of such an agreement, in particular what is being talked about with lobbyists. In 2018 after months of pushing the EU and UK authorities, Corporate Europe Observatory and Spinwatch (UK) had to conclude there was no way of getting access to even basic information on the exchanges between official bodies involved in the negotiations and business groups. Both sides refused access to even basic information about their talks with lobbyists.
The need for civil society involvement
A final lesson from the CETA controversy is about public involvement. It was only when the controversy over US-EU agreement TTIP opened wide the trade debate in Europe that groups across the continent also discovered the flaws of CETA. But by then it was all but too late. An earlier discovery could have had improved chances of either the annulment of the most toxic elements of the agreement, or a victory over the whole project.
Hopefully the lesson is learned that the talks on an EU-UK trade agreement must be a priority for civil society groups across Europe. While the talks will present us with lots of difficult discussions, it would be both strange and sad if a CETA-style agreement between the EU and the UK did not spark at least the same civic involvement and level of scrutiny that CETA did in the end. Whether it will be a comprehensive agreement or not, it will have a strong impact on life on both sides of the Channel. That is why it is vital that civil society organisations in both the UK and the EU engage with the trade negotiations.