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TTIP, the Transatlantic Trade and Investment Partnership is a free-investment, free-trade agreement currently being negotiated between the EU and the US. It is one of many such agreements worldwide. These agreements are negotiated in secret and we have only learnt about some of their provisions through leaked documents. More on TTIP here.
The stated aim of trade and investment agreements is to facilitate international trade but what they achieve in effect is a rolling back of regulations which protect citizens, workers and the environment. One of the aspects of TTIP which has received less public attention is its potential impact on financial regulation and on the European Financial Transaction Tax, a small levy on the trading of shares, bonds and derivatives, which 10 European countries have agreed to introduce.
One of TTIPS’s most controversial elements is a provision for an Investor State Dispute Settlement mechanism (ISDS). This mechanism allows private corporations to sue sovereign states in unaccountable private tribunals if a change in policy or regulation affects their profits. For example, a financial institution in the US could argue that the European FTT is an obstacle to the free movement of capital and sue to recoup the increased costs it occasions for investors.
Other proposed aspects of TTIP are equally worrying as far as financial regulation and FTT are concerned. In October 2013, the TransAtlantic Consumer Dialogue (TACD) expressed its fears that the TTIP process would “devolve into an effort to deregulate the financial services industry, harmonize rules to the lowest common denominator and preempt local efforts to create stronger rules and regulations”. In October 2014, in an Open Letter on TTIP and Financial Regulations to U.S and EU Negotiators, civil society groups on both sides of the Atlantic wrote: “We believe it is highly inappropriate to include terms implicating financial regulation in an industry-dominated, non-transparent ‘trade’ negotiation. Financial regulations do not belong in a framework that targets regulations as potential ‘barriers to trade’. The letter concluded that TTIP “could not only restrict the usage of capital controls, but also financial transaction taxes, which eleven EU member nations are currently planning to implement to curb the destabilizing impacts of speculative, high-speed financial trading.”
In July 2015, the European Parliamentary Research Service acknowledged that: “Liberalization of financial services is a controversial chapter in the negotiations towards a [TTIP] … Discussions on regulatory cooperation within TTIP negotiations are a challenge to transatlantic relations, as the United States fears that such a cooperation may dilute its own regulatory reform.” This document is important to civil society organisations, because it acknowledges the concerns of many NGOs, in particular with regard to the FTT, to which it allocates a special paragraph. It concedes that capital movement restrictions are normally forbidden in Free Trade Agreements but suggests that the FTT could benefit from an allowance made for financial measures aimed at insuring the stability of the financial system. It is open to debate, and therefore to a possible challenge in ISDS, whether an FTT applied only in 10 countries in the EU would qualify for that exception.
As for the ISDS in TTIP, due to public disquiet, the European Commission presented in September 2015 plans for a new Investment Court System (ICS) in TTIP. However, this ICS, which to date has been rejected by the US, is still essentially a mechanism enabling investors to litigate against states in special arbitration tribunals. Furthermore, the Commission proposals do not apply to the ISDS system in CETA. CETA, the Comprehensive Economic and Trade Agreement, has already been negotiated between the EU and Canada and only awaits ratification; financial services are included in it, it has an ISDS mechanism and the Seattle to Brussels Network point out that “because of the close connection of the US and Canadian economies, 4 out of 5 companies operating in Europe would already be covered by ISDS in CETA with the help of their Canadian subsidiaries.”
We are still learning the lessons of the Global Financial Crisis, and governments must maintain their ability to introduce necessary measures of financial regulation, including the FTT, without risking the threat of an ISDS challenge. Instead of using them to liberalise financial regulation, the European Trade Union Confederation, ETUC, has suggested that negotiations could be used to co-ordinate action on tax avoidance, abolish tax havens and create a global FTT.
There is strong support in the US for such a tax, and much opposition to TTIP as it stands. Civil society on both sides of the Atlantic must defend the same vision.