1. Negotiations
2. EU-US (TTIP)

TTIP’s suit of arms

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ALAI.net | 7 November 2014

Freely translated by Anoosha Boralessa (June 2015). Not revised by bilaterals.org or any other institution or person. Checked: no English version at June 13 2015

TTIP’s suit of arms

Author: Juan Hernandez Zubizarreta, Professor, University of Pais Vasco

The Transatlantic Trade and Investment Treaty between the European Union and the United States is a trade and investment agreement between the European Union and the United States. It claims to eliminate customs barriers and regulatory barriers (fundamental social and environmental laws that restrict big corporations accumulating wealth) between the two partners.

The key components of the TTIP are market access, regulatory norms, regulatory aspects and non-custom barriers: it covers substantive and formal issues.

The substantive challenges before us are proposals relating to the collapse of labour rights and European environmental regulation, financial sector deregulation, opening up public services – water, electricity, education, health, transport and social protection, to the private market… the armour of pharmaceutical patents, the consumption of genetically modified products and public procurement…

Taking up these themes, we will address the formal aspects and legal principles of the TTIP that form part of the legal armour that limits the exercise of democracy and the people’s sovereignty. The normative legacy of global capitalism – contracts, trade and multilateral, regional and bilateral investment regulation and arbitral rulings that make up the new lex mercatoria. They condition the shaping of social majorities; so, for example, the government of President Evo Morales, and the Bolivian people, have endured this imperial normative logic. The TTIP is not just a trade agreement; it is a new foundational treaty that serves transnational corporations.

TTIP’s legal methodology is not neutral. Its architecture is constructed to favour multinational businesses and capital. Inequality and asymmetry are the founding blocks of the Treaty. Furthermore, the TTIP’s opacity, lack of transparency and its reinterpretation of the formal components of the Rule of Law must be known, deconstructed and recovered by social majorities.

The chain of normative control that the TTIP establishes may be broken down into several links.

The Legal Context in which the TTIP operates

The rights of transnational businesses are protected by a global legal order based on trade and investment rules that are mandatory, coercive and enforceable. Such rules fall into the category of hard law. In contrast, the duties imposed on transnationals are located in:
– National orders that have surrendered to neoliberal logic;
– International human rights law that is patently fragile; and
– Corporate social responsibility (CSR). This is voluntary, unilateral and not legally enforceable. This is soft law.

The legal logic that allows unequal parties to form agreements imposes itself on international economic transactions. Power relations penetrate to the essential core of contracts that formally are bilateral as well as regional and bilateral treaties. In such cases, the shaping of desires is produced by simply adhering to clauses that protect fundamentally, the interests of transnational businesses.

On the other hand, the Treaty on the Stability, Coordination and Governance in the European Economic and Monetary Union and the European Stability Mechanism involve a genuine coup d’etat; these two texts act like connecting vessels. This is because, on the one hand, they raise the public deficit and public debt (and consequently the standardization of adjustment measures against social majorities) to the apex of the normative community pyramid. But, on the other hand, a technical intervention by community authorities by the side of national parliaments and the European Parliament is established. Parliamentary debate and the deliberation must be subject to rigid and automatic rules established in the formulation of budgetary policies.

The TTIP forms part of this legal and political maze of domination. There is no intersection between human rights and corporate rights. There is a profound rupture in the hierarchy and normative pyramid of the system protecting human rights. Furthermore, it clearly leads to a democratic deficit in global economic institutions, including arbitral tribunals that are delocalized from judicial power.

The Democratic Deficit of the TTIP

Secrecy and opacity are constituent elements of the TTIP. Trade and investment norms are drafted outside the control of parliament and citizens. We do not know the negotiators, the criteria used, the decisions adopted… an entire proceedings of technical assessments that “requires confidence” and “discretion between the negotiators” is involved. Decisions are taken behind the citizens’ backs and at the margin of parliamentary proceedings, by “hijacking” the texts under discussion even from MPs.

The EU institutional model is not adapted to traditional models of parliamentary democracy. The European Parliament and the national parliament play an ancillary role in the evolution of the TTIP. Furthermore, the Treaty on the Functioning of the EU establishes that

“the European Parliament must be kept fully informed of every phase of the negotiations.”

This means they are acting ultra vires. The practices surrounding the drafting of the TTIP conflict with Community norms.

In contrast, the role played by economic lobbies is not secondary; they play a central role. The lobbies represent transnational enterprises, the interests of the dominant classes and their political representatives. The advisors, meetings, proposals and the welding of political power with transnational enterprises form part of “legislative power” on which the TTIP is based. Secrecy and opacity do not apply where big capital is concerned.

The Normative Journey of the Treaty

The entire treaty making-process of the TTIP smashes the fundamental principles of the Rule of Law (ie, citizens’ procedural safeguards such as transparency, separation of powers, parliamentary debates…). Meanwhile, the final result is a norm (in this case the TTIP), legally very clear and mandatory. It is the complete opposite in the case of human rights laws. Their coming into being or normative journey is very open to proposals and to debate. However, the end product is very vague. Is it possible to compare an International Labour Organization Convention to a trade or investment treaty between the EU and any of the countries at the periphery of the planet?

The TTIP formation process (which involves the contractualization of law and economic relations) strikes a blow to the classic principles of Rule of Law. The process:
– eliminates general laws passed by parliaments and substitute for them asymmetrical - contractual systems or adhesion;
– triggers the cancellation of legislative proceedings;
– dislocates the separation of powers and the sovereignty of the people and nations.

On the other hand, the sharp increase in specialized rules, obscure and vague clauses, the incorporation of annexes into the TTIP, impinges on the rights of social majorities. Furthermore, the privitization of law through experts, soft law, the issuance of arbitral awards by private tribunals, closes the vicious circle of construction without punishment.

The principle of communicating vessels between trade and investment laws and between transnationals and institutions, implies that what is not obtained through the WTO will be obtained through treaties or bilateral or regional trade or investment agreements. This dense network gives rise to each agreement or treaty forming the basis for the next, which generates a model of constant negotiation. The result of this war between unequals means that when one treaty is abandoned, another is ready to take its place; hence, there must be a full-on rejection of the model of trade and investment imposed by capital and transnational businesses.

The TTIP combines deregulating transnational corporate obligations with re-regulating their rights. It claims to eliminate all barriers (not only custom-related barriers), that stand in the way of developing free trade and investment. For this reason, it takes a minimalist approach to normative harmonization. This means that if financial control is stricter in the US, harmonization will proceed on the basis of the EU regulation. If labour laws give greater protection in the EU, then US law that deregulates the rights of both male and female workers governs. Harmonization is achieved by deregulating the rights of social majorities in any matter that can be “bought and sold”. Responsible public procurement takes into account the labour rights of its employees and sub-contracted businesses, promoting fair trade and eliminating discrimination between men and women. It conflicts with the idea of derogating from any regulation that is an obstacle to opening the public markets to trade and investments.

This classic neoliberal technique is combined with re-regulating transnationals’ rights. Whereas in the 90s, neoliberalism was presented to shrink the State and to give free reign to the markets, now with the TTIP what is sought is a robust State that guarantees the profits of European and US transnationals. The State is indispensable for capital to accumulate wealth and to direct and reform society so that it serves big corporations. The TTIP strengthens big capital’s rights.

Regulatory Harmonization

In addition to regulatory harmonization through the aforementioned deregulation, the TTIP provides transnational lobbies with an unexpected presence. The Regulatory Cooperation Council – formed by the heads that establish agencies for the US and the EU Commission - is a regulatory filter for all community norms – past, present and future - that conflict with the treaty and which imply the direct or indirect presence of transnational lobbies. It acts at the side of these States and institutions; it is a supranational legislative power outside any democratic control.

Transnational businesses are introduced into normative processes and penetrate the regulatory framework that is open to regulatory cooperation and generating the co-writing of legislation. This is a familiar practice in drafting model laws. In addition to de facto power, lobbies will have a direct or indirect input in drafting norms.

Moreover, regulatory harmonization affects all Public Administrative Bodies (local, autonomous and central): their enabling legislation, its enforcement and delegated acts. The exceptions and general defences of social rights that the TTIP provided for, are subordinated to

“those that do not jeopardize the advantages derived from the agreement; regulatory coherence implies that any type of environmental or social impact study, any evaluation of damages … must not establish “stricter standards than what is absolutely necessary.”

That is to say, they must be compatible with the rights of transnational businesses.

On the other hand, transparency requires consulting providers and investors on any measure as if they were “public representatives”. So consultations may extend to issues not included in the treaty because such issues are legally connected to the outer confines of the approval proceedings; it is an open text meant to serve transnationals.

The Treaty’s Legal Principles

While these devastating principles are open to creative and expansive interpretation by law firms and arbitrators that are sympathetic to corporate power, they are in the interests of social majorities. Yet they greatly enhance the rights of transnational businesses. Furthermore, other legal principles such as abuse of rights, unjust enrichment…. are subordinated to the mandatory principles contained in the TTIP.

The Bankruptcy of the Principle of Equality: from power relations
A fundamental interpretation of fairness implies treating equals equally. It does not mean treating those who are not equal equally. The failure to allow affirmative action clauses in favour of the most disadvantaged social and economic sectors of impoverished countries, means in practice, supporting discriminatory practices. To sign contracts, approve trade and investment treaties and accept structural adjustments under the false premise that the parties are equal, is to put asymmetric power relations right at the heart of its legal methodology.

The TTIP is sustained by this principle of equality; treating transnational businesses and small national businesses as equal is essentially discriminatory.

Fair and Equitable Treatment
This is a vague legal concept that may suffer some substantive uncertainty. But framed and directed to protect a foreign investor against a Host State, it is the perfect choice. So, a Host State cannot discriminate against a foreign investor and will have to provide it with fair and equitable treatment. Treating unequals equally - is this fair and equitable?

National Treatment
This is a central principle in the functioning of the TTIP. Any advantage granted to national investors must also be granted to foreigners. This means national investors cannot receive any help from the State. This bankrupts the principle of national treatment. Government support to businesses on the basis of economic solidarity or short supply chains must be extended to transnational agribusinesses. Moreover, the application of “the national treatment principle” makes it very difficult to reverse the process of privatizing a public service.

The Most Favoured Nation Clause
The advantages that two states mutually agree to in a bilateral treaty – or that several States agree to in a regional treaty – automatically extend to treaties that are concluded with other States that include a Most Favoured Nations clause. This clause is commonly found in most bilateral treaties. The idea is applying the principle of non-discrimination to ensure that foreign investors are not harmed. The provisions of the TTIP marks, through their qualitative and quantitative dimensions, general guidelines for world trade.

The Umbrella Clause
This permits businesses to make claims against States not only in respect of treaty breaches but also in respect of contractual breaches brought about by a sovereign non- commercial act such as public policies. Under a similar regime, businesses can counteract health policies, environmental protection policies, financial regulation and labour regulation… by seeking from the State liquidated damages before arbitral tribunals that do not form part of the judicial system. Parliamentary sovereignty is subordinate to the umbrella clause.

Direct and indirect expropriations and prompt, adequate and effective compensation
This includes clauses on compensation in the event of expropriations or “other measures of equivalent effect”. It starts from the premise that if any measure, law, regulation, administrative act causes damage to an investor’s assets, compensation must be provided. Furthermore, compensation must be paid both in respect of actual loss and loss of profits. This means that an investment that has been paralyzed by public authorities must be compensated in two respects: first, for actual loss and second, for loss of future profits.

Investor State Disputes Resolution Mechanisms

Arbitral tribunals were created to resolve inter-state disputes; neoliberalism extended their work to conflicts between States and individuals. Transnational businesses – persons of Private law – representing the individual interests– can haul states before arbitral tribunals or panels. The individual interest prevails over the general interest.

These private tribunals can form a parallel system to judicial power –a system favourable to transnational corporations that works alongside national and international judicial powers. It is justice for the rich. Only businesses can make claims against states; there is no formal provision for a Host State to make a claim against a foreign investor. Transnationals elect the forum, there are difficulties in ensuring that hearings are open to the public and there is no requirement to exhaust local remedies. That’s not all: an appellate body can even review the rulings of ordinary courts but not arbitral awards.

From a substantive perspective: treaty norms are exclusively applied; human rights laws are not.

The arbitral procedure is not neutral. Thus the International Centre for the Settlement of Investment Disputes (ICSID) is located under the wing of the World Bank. Its arbitrators are judges and lawyers interchangeably. 15 arbitrators have resolved 55% of arbitral disputes in 2011 and the average cost of an arbitrator is 8 million dollars; three law firms share 55% of the cases. The arbitral proceedings is very costly and this benefits big transnational corporations.

Numerous studies confirm the damage to regulatory public spaces. States have seen their public policies challenged in areas such as the environment, health, labour laws, water and agriculture… where transnational corporations have obtained arbitral awards worth billions of dollars and many more are pending resolution. Furthermore, abandoning this legal armour will not be easy because normally provisions are made to extend jurisdiction for more than 10 years. This means that although one of the parties is theoretically able to denounce the TTIP, it would remain in force.

Finally, there is no doubt that the “threat” that transnationals will make a claim before private tribunals provokes a regulatory chill in parliaments and Administrations: for example, fracking is accepted to avoid arbitral claims in the future. Probably, this is not discussed in Parliaments thereby formalizing the regulatory chill. This provides TTIP supporters (that find comfort in its obligations) with a good excuse to support its objectives without any debate.

In addition to the investor state dispute mechanism, there is another mechanism that applies to the entire agreement. It allows private corporations to act to defend their generic interests against national, autonomous, regional and local public authorities. It is possible to appeal political decisions that impinge on the Treaty, even though such decisions are automatically enforceable and not subject to appeal. Thus the French Constitutional Council’s ruling (declaring the law that prohibits shale gas is constitutionally compliant), can give rise to the submission of a claim, by a potential investor or a group of investors that are favourable to shale gas, that the law violates the contents of the TTIP. It is the private arbitration system that deprives State institutions of their powers to exercise public policies.

At the same time, there is the option of establishing an arbitral panel to resolve environmental and labour disputes that act in parallel to national courts that lose power to the arbitral system. In the case of the TTIP, its function is not clear. However, it may be assumed that it is a mechanism for achieving regulatory harmonization between the US and the EU. The validity and scope of the right to strike may be interpreted by arbitral panels rather than by national courts.

Some guidelines on how to reinterpret the neoliberal legal weaponry constructed around the TTIP.

Legally speaking, there is a head on collision between the TTIP and the international law on human rights. The principle that “a law that is hierarchically superior takes priority” may be invoked. Thus, art 53 of the Vienna Convention provides that any treaty that conflicts with a peremptory norm of international law is void. The Universal Declaration on Human Rights, the International Conventions on Civil and Political Rights and Economic, Social and Cultural Rights, and other Treaties and international agreements on human rights and environmental rights are defined as peremptory norms (ius cogens) and general international law.

It is necessary to secure control over the constitutionality of treaties and verify if there are fatal defects in their formation and approval that will cause them to be null.

It is necessary to re-establish the territorial competence of national courts and for Parliaments to recover their role and to implement popular legislative initiatives. So too is it necessary to promote international norms that do not exacerbate the acute asymmetry between lex mercatoria and the international law on human rights, but on the contrary, are able to, at the very least, place the rights of persons and people on the same level as big enterprises. Hence they fully cover alternative proposals such as an international treaty for the people to control transnational enterprises.

There is one final principle that can be extracted from the total transnational impunity that the TTIP regulates. It is a devastating and violent Treaty. The structural violence of the capitalist system that permits a few of us to accumulate wealth while poverty prevails and the people’s culture and the environment are being destroyed – is regulated laterally by all the provisions of the TTIP.