TTIP, Investment Protection, and Transatlantic Populism

Speaker: Dr. Greg Anderson, DAAD/AGI Research Fellow

In 2016, voters on both sides of the Atlantic rocked some of the foundational assumptions about transatlantic relations. Populist electoral revolts in Europe and the United States have amounted to hitting the “pause” button on a number of initiatives while the dust settles; among them, the Transatlantic Trade and Investment Partnership (TTIP). However, as we await a clearer sense of the implications of Brexit in Europe and the trajectory of Donald Trump’s administration, the “pause” for TTIP provides an opportunity to do some stock-taking of the politics of trade liberalization. This seminar focused narrowly on the recent politics of investment protection on both sides of the Atlantic.

Prior to 2016, investment protection was poised to be a major point of contention in the TTIP. Yet, Europe and the United States have separately evolved on investment such that if and when TTIP negotiations are re-invigorated, investment may not be the point of contention everyone has presumed it to be.

Key takeaways:

• Experiences with investor-state dispute settlements (ISDS, a system through which individual companies can sue countries for alleged discriminatory practices) in the United States and European Union parallel each other. Both originated in 1994, with NAFTA for the U.S. and the Energy Charter for the EU.
• Experiences have prompted important reforms to their bilateral investment treaties (BIT, agreements that lay the groundwork for private investment by people and companies of one country in a different country) Models that amount to a convergence of views and might have made investment in TTIP less of a sticking point than many believe.
• Customary International Law is really about traditional practice between states; non-state actors have historically had no standing. BITs have established rules under which firms can bind themselves contractually to their sovereign hosts.
• Benefits of BITs: capital formation, skill-enhancing tech transfer, higher wages, increased local product quality, protection with the rule of law, and introduction of competition
• Problems of BITs: too few domestic spin-offs, costs to local firms can be too great causing them to exit the market a general loss of policy sovereignty, and environmental and labor concerns
• The U.S. and the EU invest heavily into each other—the U.S. invests almost 60 percent of all foreign investment into the EU and the EU invests almost 70 percent of all foreign investment into the United States. Germany has over 200 BITs and the United States has 114.
• Even though Germany has a history of BITs, there had not been such public outrage until the introduction of the Transatlantic Trade and Investment Partnership (TTIP) agreement.
• ISDS could be used to challenge state legal/regulatory decisions based on lawyers and firms exploiting the ambiguity introduced by NAFTA and Energy Charter Treaty. To counteract this with future trade relations, the EU launched a public consultation in March 2014 to improve existing U.S. BIT models.
• The EU should seek to enshrine ISDS to counteract interventionism and stabilize strong trade relations with the United States in the future.