This article was published in DER SPIEGEL, June 08, 2015

http://www.spiegel.de/international/world/how-ttip-and-an-eu-us-free-trade-deal-can-be-fixed-a-1036831.html

The European Commission is hoping that a major trade agreement with the US will stimulate the EU economy. But many in Europe fear adverse impacts on the environment and democracy. Negotiators ought to consider a third approach. By Spiegel Staff

The branch of Kaiser’s in Düsseldorf’s Vennhausen neighborhood is a supermarket like many others in Germany. It is open until 10 p.m. on weekdays, farmer’s ham sells for €1.49 a pound and Landliebe yogurt for 88 cents a cup.

Nevertheless, there is something special about the supermarket. Once a week, usually on Saturdays, Klaus Müller, the executive director of the Federation of German Consumer Organizations, essentially the top advocate for German consumers, buys a cart full of groceries at the Düsseldorf store.
More than anything else, Müller is currently concerned about the European Commission’s plan to conclude a major trade agreement with the United States. These days Müller, an economist, often strolls around his supermarket with a different look in his eyes: as if the agreement already existed.

If it did, Wiesenhof brand chickens from Lower Saxony would be displayed at the meat counter alongside chicken parts from South Carolina and beef from Iowa. The required European certification mark wouldn’t be affixed to a drill on sale, but rather a certificate from the applicable US agency. And Müller might even wonder, more often than he does today, whether the canned corn was genetically modified (GM) or the Black Forest ham might be from Virginia instead of Germany.

The negotiations currently underway in Brussels and Washington affect “a broad range of consumer products,” says Müller, noting that more competition could mean that “products become cheaper.” At the same time, he adds, it will make things more “confusing for the consumer.” Europe is about to see changes as serious as when the European Single Market was created more than 20 years ago.

Four letters are dividing Germany. The planned Transatlantic Trade and Investment Partnership with the United States, or TTIP, is intended to create a uniform economic zone for about 800 million consumers and eliminate many of the hurdles that obstruct trade across the Atlantic today. It sounds like a subject for association officials and standardization experts, but judging by the controversy the plan has unleashed, it could just as well involve the deployment of medium-range missiles or the construction of new nuclear power plants.
A Needed Counterweight to Asia?

On the one side are the lawmakers in Brussels, Berlin and Washington who see the deal as a chance to revive the economy and create a counterweight to nascent trade alliances in Asia. They face a powerful protest movement made up of environmental and social organizations, church representatives, lawyers and local politicians, who view the agreement as a giant fraud. The anti-TTIP network claims that free trade is being used as a cover to “facilitate privatization,” pave the way “for genetically modified food and meat laced with hormones” and “erode democracy.” Protests against TTIP were also planned to coincide with this week’s G7 meeting in Germany.

There is much at stake. Unlike earlier trade agreements, which consisted primarily of reducing tariffs, the goal of TTIP is to create a common market for European and American companies. The negotiators are discussing whether drugs licensed in the United States should be approved for sale in Europe, for example. The agreement would make it easier for companies that felt unfairly treated by laws in the United States or Europe to litigate against the regulations. A regulatory body that would enable governments to coordinate proposed legislation is also in the works. And for a large number of products, from car headlights to frozen pizzas, the same standards and rules would apply on both sides of the Atlantic in the future.

In many cases, what economists call “non-tariff trade barriers” are in fact regulations intended to protect health, the environment and consumer interests. Critics suspect that the seemingly harmless rhetoric about harmonization is nothing but a cover for a project that would weaken democratic decisions for the benefit of multinational corporations. Thilo Bode, the former director of Greenpeace Germany and the current head of the consumer organization Foodwatch, calls the agreement a “free trade lie.”

Economy Minister Sigmar Gabriel, on the other hand, says the deal will “influence world trade for the next 20 to 30 years.” If TTIP fails, he says, “consumer safety and workers’ rights will certainly garner less attention” in global markets in the future.

A War of Opinions

Opponents and supporters of the treaty are locked in a war of opinions made all the more acute by the fact that both sides see themselves as defenders of Western values. One side invokes economic common sense while the other insists on the primacy of the political sphere, and both sides are not afraid to use questionable figures and arguments to support their respective causes. Pro-trade industry associations, for example, say Europeans will enjoy growth effects that are not even anticipated by the economic opinions they commission. And in the anti-TTIP movement, many still capitalize on Germans’ fear of so-called “chlorine chickens,” or birds disinfected with chlorine, even though the European Commission has already made it clear that European hygiene rules will not be modified.

The only question is whether the highly emotional dispute is truly in the interest of consumers. Do Europeans really have to decide between free trade and democracy, or could an agreement be reached that does justice to both principles? Exactly how big are the economic benefits of the project, and how does it threaten health and consumer protection? And, finally, is Europe even in a position to assert its own ideas against the United States, with its improved economic position?

There is great skepticism among Germans. According to a recent poll conducted for SPIEGEL by the TNS Forschung research institute, only 18 percent of Germans support TTIP, while 33 percent are opposed to it. Of course, there is an even greater level of uncertainty, with close to 50 percent of respondents saying that they were “unable to evaluate” the project.

The machines that Carl Martin Welcker sells are true miracles of German engineering. They are the size of a truck trailer and cost several million euros apiece. Welcker opens a sliding door to demonstrate their inner workings: rotating bogies, mechanical gripper arms and a tangle of multicolored cables.

Welcker thrusts his hand into the complex interior and pulls out a spark plug. “The machine spits out one of these every 0.9 seconds,” says Welcker, a tall man with a youthful face and white hair.

Welcker is the owner of Alfred-H.-Schütte-Werke in Cologne, a medium-sized manufacturer of metal tools and objects located on the banks of the Rhine River. Spark plugs, injection pumps, artificial knee joins and dentures — all of these are items made in equipment developed by his company. The 600 employees manufacture machines most notable for their precision. “This socket,” says Welcker, “cannot exhibit a variance of more than a hundredth of a millimeter.”

Welcker sells his machines around the world, but an invisible boundary passes through his export markets. “Asia isn’t a problem,” says Welcker. We Germans serve as a barometer for them in every respect.” But things become more complicated in the United States where, for example, any safety-related threats in machines are dimensioned in inches, which means more work for his engineers. His machines must also undergo expensive testing to conform to the requirements of individual US states.

Eliminating Drawbacks

If the TTIP strategists have their way, these kinds of drawbacks will be eliminated in the future. The negotiators want to drastically simplify import regulations on both sides of the Atlantic, not just for machines. In virtually every industrial sector today, a large number of different test procedures, certification rules and documentation requirements complicate trans-Atlantic trade. European textile manufacturers often sew their labels into the side seam of shirts, while the “Made in” label has to be in the middle of the collar seam in the United States. Engineering firms that wish to offer their services in the United States must first register in each individual state. Piano makers are required to provide the authorities with detailed lists of the types of wood they use.

If the list of regulations and requirements were purged, promise TTIP proponents, it would be especially beneficial to small and medium-sized businesses. The smaller a production series, the greater the relative cost of adjusting it to conform to US regulations. “When we sell a machine in the United States,” says company owner Welcker, “it costs 15 to 20 percent more than it does here.”

Chlorine chickens? Chicken farmer Georg Heitlinger can only laugh. Chickens disinfected in a chlorine bath, as they are produced in the United States, represent the least of his fears over TTIP. The farmer from Eppingen in southwestern Germany takes us on a tour of his barns to demonstrate the real threat.

The barns, each 90 meters (295 feet) long, are swarming with 28,000 chickens, while another 12,000 birds have access to five hectares (12.4 acres) outside, complete with trees, grass and a lot of sand where they can scratch and peck at things. According to European Union regulations, there can be no more than nine hens per square meter on free-run or free-range chicken farms. In the United States, however, 95 percent of hens are kept in traditional laying batteries. With individual cages stacked up to the ceiling in giant buildings, 23 hens are crowded onto each square meter of space.

This translates into lower-cost production. “We can’t compete, given our livestock farming laws,” says Heitlinger. Another reason is that most German chicken farmers voluntarily refrain from using genetically modified feed, in contrast to the United States, where chickens are fed cheap, genetically modified soybeans.

Heitlinger isn’t worried about the market for fresh eggs at the moment, because German consumers reject eggs from caged chickens and genetically modified feed. Almost half of all eggs are used in the food business and industry, and EU law has no labeling requirements for these eggs. This could mean that German customers will unknowingly be eating pasta or cookies made with eggs from US factory farms, with their inhumane conditions.

As in chicken farming, standards vary widely in all key areas of agriculture. US farmers are allowed to use pesticides that are banned in the EU. Hormones are administered to cattle and pigs in the United States to accelerate growth, a practice banned in Europe. In many areas of agriculture, Europe has stricter environmental regulations than the United States.

Disastrous Consequences?

Ingrid Jansen, head of the Dutch pig farmers’ association, predicts disastrous consequences for her industry if TTIP is approved. She suspects that the agreement will facilitate the export of US products to the EU that were not produced in accordance with legal requirements in Europe.

Despite all claims to the contrary, many experts fear the same thing if TTIP results in the “mutual recognition of equivalent standards,” and not just in agriculture. According to the EU mandate, the negotiators are mainly searching for “more compatible regulations” to allow industry to reduce costs.

Still, the negotiations have been much tougher than anticipated. In the latest round, held in April in New York, the two sides hardly came any closer to an agreement. The legal and cultural traditions on both sides of the Atlantic are simply too different. The biggest sticking point is what is known in Europe as the precautionary principle, whereby materials and processes can only be used once proven harmless.

What might be termed the aftercare principle applies in the United States: Any products can be placed on the market, as long as they pose no scientifically proven danger. If something goes wrong, producers face the prospect of paying substantial damages to injured parties.

For instance, the Americans feel that significant parts of the European food standard, such as the ban on GM technology, meat from animals injected with hormones, meat from cloned animals and the use of chlorine to sterilize poultry, are not scientifically supported and therefore an inadmissible barrier to trade. Animal welfare, according to the US negotiators, is a “moral issue” and “not scientifically supported.”

In other words, as long as the mistreated chicken that spends its life in laying batteries doesn’t commit suicide, there is no evidence that it is suffering.

A ‘Race to the Bottom?’

Dutch pig farmers’ association head Jansen puts it like this: The TTIP mechanism of mutual recognition creates incentives to enter EU production standards into a “race to the bottom.” This is the risk that TTIP critics see on the horizon in many sectors, from cosmetics to food to healthcare.

A report by the organization Corporate Europe Observatory, which is critical of industry, and by journalist Stephane Horel, shows how successful many industries are today in using TTIP as a political tool. According to the report, the European Parliament decided in 2009 that chemicals that disrupt human hormone balance (endocrine disruptors) needed to be regulated by the end of 2013.

But the industry lobby in question, which included chemical companies BASF and Bayer, managed to keep postponing the European Parliament’s orders, partly by applying the TTIP argument. European and US industry groups argued that the planned reform would jeopardize the talks.

The slapdash manner in which Brussels approved 17 genetically modified food and feed products for the European market in late April also seems suspicious, in light of TTIP. For Martin Häusling, a Green Party member of the European Parliament, it is a clear case of submission. “Apparently the European Commission feels it has to offer the Americans a few enticements in the ongoing TTIP negotiations.”

The case is also clear-cut for chicken farmer Heitlinger. “As a farmer, you can’t be in favor of TTIP,” he says. One reason, he explains, is because customers now value locally produced, high-quality products once again. “For that reason, it makes no sense to drag steaks across the big pond.”

Investor Protection

Judd Kessler, a lawyer, owes his job to a coincidence. In the early 1970s, Kessler was working for the US Agency for International Development in Chile when the country’s socialist president, Salvador Allende, nationalized copper mines and subsidiaries of US companies. “At the time, no one at the US Embassy knew anything about international law,” says Kessler.

Working on behalf of the US government, he tried to win damages for the expropriations — before Augusto Pinochet came to power, with help from the Americans, and reversed the expropriations.

Kessler’s office is in a darkened mansion in Washington. The 77-year-old partner in the prestigious law firm of Porter Wright Morris & Arthur works as an arbitrator for the International Center for Settlement of Investment Disputes (ICSID), which is part of the Washington-based World Bank. If the United States has its way, TTIP will enable lawyers like Kessler to monitor both European and American laws in the future.

No other issue has fueled the debate over the European-American trade agreement as much as the question of investor protection. Brussels and Washington want to grant foreign companies the right to resolve disputes in an international court of arbitration.

Whenever a country that is part of the planned Atlantic trade agreement enacts an environmental law or a consumer protection regulation, it will likely face litigation by private investors, which could assert their rights in private courts. The plan has been met with outrage, especially in Germany.

Ironically, it was the Germans who came up with the procedure in the first place. To safeguard exports and investments in developing countries without reliable legal systems, the German government has concluded close to 130 investor protection agreements with other countries since the 1960s. But the concept has long since turned against its creators. For instance, Swedish energy company Vattenfall is suing Germany for €4.7 billion in damages as a result of the German government’s decision to phase out nuclear energy. US companies and their subsidiaries are even more prone to litigation and, therefore, pose a greater threat. Philip Morris Asia appeared before an arbitration court after the Australian government tried to require tougher warnings on cigarette packages.

Arbitrator Kessler is also being kept busy. In an upcoming case, he will be one of three arbitrators who will decide whether Essen-based energy utility RWE is entitled to compensation after Spain’s recent decision to cancel planned subsidies for green energy.

A Chilling Effect

An international litigation industry has developed that sounds out national laws to determine whether they provide suitable ammunition to bring suits. The number of cases has multiplied, warns Canadian international law expert Gus van Harten. The wave of litigation has had a chilling effect in his country, even on politicians at the provincial level, who hardly dare to introduce new environmental laws anymore.

In addition, the arbitration courts usually meet behind closed doors. The public is kept in the dark when Kessler and his colleagues meet in a World Bank building in Washington to question witnesses or award damages. Even the court’s rulings remain confidential if this is requested by one of the parties. And appeals are usually not part of the process.

There was a significant outcry when it was revealed that the TTIP negotiators were trying to expand the ability to sue governments. Austrian Chancellor Werner Faymann described the plan as creating “dangerous special rights for corporations.”

Together with other social democratic party and national leaders, including Sigmar Gabriel, the chairman of Germany’s center-left Social Democratic Party (SPD), Faymann is demanding reforms to the controversial procedures under the principles of constitutional law. They are proposing the establishment of a bilateral commercial court with independent, professional judges. They also want the negotiations to be open to the public and to include the right to appeal the court’s decisions.

The European Commission reacted by releasing a reform document in early May. It states that appeals against rulings should be possible, and that all documents and proceedings should be public. The proposal also calls for a fixed list of arbitrators who would have to demonstrate certain qualifications and could not act as attorneys or arbitrators in multiple proceedings, as is the case today.

But this isn’t enough for the European Parliament, which will hold a debate on TTIP next week in Strasbourg. The lawmakers are only willing to approve the trade agreement if the Americans agree to the establishment of an international commercial court and the possibility of appeal. The judges presiding over this court would no longer be attorneys, who are often motivated by special interests, but professional judges.

If the members of the European Parliament and Gabriel’s supporters stick to their guns in the negotiations, a new standard could develop on both sides of the Atlantic that would be an improvement over the old standard in several ways. It would be a reform that would take investor protection back to its roots. “Countries can regulate,” says Kessler, “but they cannot disadvantage foreigners.”

A Threat Against Democracy?

The trade negotiators from Brussels and Washington have many adversaries, but the most formidable of them all is a soft-spoken, petite woman with short, dark hair. Pia Eberhardt is the face and brain of the anti-TTIP movement.

As the author of a highly respected study on investor protection in 2013, the 36-year-old political scientist with Corporate Europe Observatory shone a spotlight on the clandestine negotiations. She formed alliances with other non-governmental organizations and, together with her team, ensured that at least a few draft agreements or working documents from the negotiations reached the public. “A small group of unelected representatives of government agencies is being given enormous power to stop regulations even before they are submitted to parliaments for a vote,” she says. “This undermines the democratic system.”

The mechanism Eberhardt is attacking has an innocuous-sounding name: regulatory cooperation. It suggests an atmosphere of friendship, cooperation and reasonable agreement.

The plans call for a body that would include representatives of the US government and EU agencies. Draft legislation would be submitted to this so-called regulatory council before being put to a vote in national parliaments, to ensure that it is in conformity with TTIP. At first glance, this resembles the way laws are passed in Germany, with the involvement of a wide range of social forces, from environmental organizations to the pharmaceutical lobby. But the difference is that the regulatory council is not a body in which the interests of the public are weighed against those of industry. Its sole purpose is to eliminate existing trade barriers and avert the creation of new trade barriers.

The regulatory council cannot directly obstruct national legislative power. But merely the threat that a law could potentially be used by companies as grounds for damage suits could lead to its being put on hold, fear TTIP opponents. The European Commission, on the other hand, stresses that will still be able to establish rules for business. According to the Commission, it is merely a question of “informing all interest groups.”

But the procedure isn’t nearly as harmless as Brussels is claiming. Even German Chancellor Angela Merkel has now conceded that the TTIP regulators’ role goes beyond simply reading draft legislation. The policy discretion of the EU and its member states could be “somewhat restricted” by the planned regulatory cooperation, according to a letter from Merkel’s office to Foodwatch.

The European Parliament also has its reservations. Its members insist on preserving the principle that European institutions alone have to right to enact laws and ordinances. “It must be clearly stated in the TTIP that legislative power cannot be undermined or delayed,” says Bernd Lange, chairman of the Committee on International Trade in the European Parliament.

‘I Try to Listen to the Opponents’

European Commissioner for Trade Cecilia Malmström, 47, isn’t easily flustered. Even when she is sharply attacked by TTIP opponents, the Swedish politician simply smiles and calms the waves, speaking in fluent English, French or Spanish. “I try to listen to the TTIP opponents,” she says. “Sometimes they are just worried that they will have to give up their European way of life.”

What a difference there is between Malmström and her crusty predecessor, Flemish politician Karel De Gucht, who had difficulty concealing his view of most TTIP opponents as misguided ideologues. Malmström is pursuing the same goals, but she does so with greater sensitivity and persuasiveness, especially in Germany, where her job of campaigning for the trade agreement is especially challenging. “If we don’t set the standards,” she says, “they will be set by others, who care less about consumer rights.”

The others she is referring to are the rising industrial powers in Asia and Latin America, which have fundamentally changed world trade in the last two decades. In the past, trade was shaped by global treaties in which well over 100 countries were involved. But since the mid-1990s, countries are increasingly forming regional economic blocs to promote trade.

The most successful of these alliances is the European Union, which has promoted its domestic market initiative for the last two decades. In Asia, countries like Indonesia, Thailand and Malaysia banded together to form the ASEAN group, and in the mid-1990s the United States, Mexico and Canada formed the NAFTA alliance. About two dozen extensive trade agreements have been added since the turn of the millennium, usually with positive results. Studies by economists show that the deals have promoted trade, led to more competition and lower prices, and increased the average income of citizens.

Undisputed Advantages for Companies

This is what most economists also expect from a TTIP agreement, even though their opinions differ on the extent of the benefits. The advantages for European companies, however, are undisputed. From Siemens to Volkswagen, the agreement would help many large industrial corporations to offset the potential disadvantages that threaten to emerge on the other side of the globe.

While Brussels and Washington negotiate a deal for the Atlantic, nations bordering the Pacific are planning even more powerful alliances. The United States and Japan, Australia and Vietnam are discussing a Trans-Pacific Partnership (TPP), a giant free trade zone for 800 million consumers. China has formed a trade bloc with the ASEAN nations and now wants to join the Pacific union.

If the agreements come about, Europe’s industry will be left with nothing. It would have to pay higher duties, while its competitors in large parts of Asia could deliver products at much lower costs. Italian leather producers, for example, would immediately be subject to a price differential of up to 18 percent when selling wallets or belts in Japan.

Europe’s chances of shaping the markets of the future would also fade. German industrial companies still dominate production in many parts of the world today. In the future, this will only be the case if Europe and the United States form an alliance, as they did in aircraft manufacturing four years ago. In an extensive agreement reached at the time, Brussels and Washington established technical norms that have become the standard for manufacturers from Canada, Brazil and China. If TTIP is a success, this could also be achieved in other industries.

A World of Trade Alliances

The world of the 21st century is a world of trade alliances. The countries that are members of the largest number of alliances and manage to align themselves with the strongest nations will enjoy the greatest benefits.

As such, the most important question is the direction in which the United States will turn in the future — toward the rising countries along the Pacific or its traditional allies on the old continent?

If Washington decides against Brussels, the “global equilibrium will tilt heavily toward Asia,” says former Swedish Prime Minister Carl Bildt. In contrast, Europe’s influence would diminish considerably.

Bildt’s fellow Swede, EU Trade Commissioner Malmström, holds a similar view. Last week, she traveled to Berlin to draw conclusions with American chief negotiator Michael Froman. The fact that they met in Berlin was ironic, because it was Chancellor Merkel who helped initiate the TTIP project in the first place. But with growing reservations among Germans, she is now passing the ball to Brussels.

The Swedish EU official sometimes feels abandoned by German politicians. “It isn’t my job to explain to the Germans why we need TTIP,” she says.

The Third Way

When consumer advocate Müller is asked how he feels about the United States, he thinks of ice cream. As a teenager, he spent two years in the US states of Indiana and Connecticut, and he was amazed by the 33 flavors available at a local ice cream parlor. “The United States is a great country for a young person,” he says.

This helps to explain why the head of the Federation of German Consumer Organizations has little understanding for the undercurrent of anti-Americanism some TTIP critics have injected into the current debate. A native of Wuppertal in western Germany, he has been a member of the Green Party for 25 years. He was also environment minister of the northern state of Schleswig-Holstein and shares many of the concerns of the anti-TTIP movement. “When it comes to food or chemicals,” says Müller, “cultures in the United States and Europe are simply too different to be able to harmonize quickly or for them to be able to recognize each other.”

But Müller is no opponent of free trade — on the contrary. “As a consumer advocate, I am in favor of freedom of choice and low prices,” he says. “But this requires that consumers can clearly and truthfully recognize what they are choosing.” The supreme advocate of the interests of the German consumer argues for a third approach in the TTIP debate.

Brussels and Washington should quickly reach a deal on the issues on which they can readily agree, such as industry standards and tariffs. In contrast, the negotiators should set aside issues of food safety and health protection, because the respective legal cultures in Europe and the United States are too different.

His argument coincides with the public mood. According to the TNS survey for SPIEGEL, 42 percent of TTIP critics oppose the treaty because it could water down European environmental and consumer laws, along with labor rights. Only 27 percent fear that it would give corporations too much power.

The numbers show that what Müller calls a “TTIP light” could indeed create a new basis for the negotiations. At the same time, it would offer the Brussels negotiators a way to correct their mistakes of recent months: the lack of transparency and the downplaying of the threats to democracy and constitutional law. Hence, this is what a new TTIP strategy could look like.

To ensure as much openness as possible, the EU needs to make all relevant documents accessible and include all social groups in the conversation.

The EU needs to create a two-sided commercial court for the controversial investor suits. It must also be possible to appeal rulings.

The regulatory cooperation currently envisioned is unnecessary. Mutual information about cooperation, as it exists in conventional trade agreements, is sufficient.

Reestablishing Trust

A TTIP process that is reformed in this manner could not only reestablish the trust the EU has gambled away with its current negotiating strategy. It would also secure the benefits of free trade without jeopardizing democracy.

The TTIP light idea has found many supporters in the professional world. One of them is Gabriel Felbermayr, a trade expert with the Munich-based Ifo Institute for Economic Research, who still believes that a slimmed down TTIP deal will provide substantial economic benefits. “A TTIP light would secure 80 to 90 percent of the expected benefits to trade,” he says.

European leaders are also flirting with the idea of a slimmed down agreement. Italian Prime Minister Matteo Renzi proposes an agreement that focuses on less controversial trade issues but is adopted as quickly as possible.
The anti-TTIP movement has achieved a great deal. It has made Europeans aware of the important issues that are being negotiated behind closed doors in Washington and Brussels. It has also shown how dangerous TTIP could become for consumer protection and civil liberties.

Many things have gone wrong, but there is still time to correct the mistakes.

By Christoph Pauly, Michael Sauga, Michaela Schiessl and Gerald Traufetter

Translated from the German by Christopher Sultan