Both Germany and the United Kingdom have a crucial role to play in the future of the Transatlantic Trade and Investment Partnership deal.
When José Manuel Barroso and Herman van Rompuy signed the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union in Ottawa on September 26, the lack of buzz around the signing of the document was remarkable.
The EU-Canada free trade deal has been a long time in the making, with issues halting the process along the way, like the Canadian seal hunt and the controversial investor-state dispute settlement (ISDS) clause. The investor-state dispute settlement is a mechanism that allows for independent arbitration to protect investors’ interests, but it is controversial because it curtails states’ freedom to enact new social and environmental legislation when it harms existing firms.
Although CETA still needs to be ratified by the European Commission and European Council (under their former heads, Barroso and Van Rompuy), it stands as a test case for a much larger trade negotiation process. The Transatlantic Trade and Investment Partnership (TTIP) is the burgeoning free trade deal between the European Union and the United States. And if anything, several issues around the finalization of CETA should give us pause.
Germany almost sabotages CETA deal
Germany’s main concern with the CETA agreement was first and foremost the ISDS, a mechanism that would protect investors from changes in states’ social and environmental regulation. The German minister of economics, Sigmar Gabriel, warned in March 2014 that the Canadian insistence on maintaining investor-state dispute settlement could become a “sensitive core point” for Germany in approving a final deal.
Since then, a parliamentary debate broke out in the German Bundestag as late as the day before the signing of the agreement, and Mr. Gabriel, speaking for the coalition, insisted the CETA in its current form was “not acceptable.”
Germany’s culture of consumer protection, high levels of social regulation, and commitment to principles of stakeholder, or ‘Rhineland’, capitalism, make it likely that the country will focus on transparency measures in a final deal. This is because, for all its aversion to dispute arbitration, Germany is the largest economy in Europe, not to mention the number one country worldwide in terms of its membership in bilateral treaties on dispute arbitration. ISDS therefore will not necessarily make or break a deal for Germany.
As described by Damien Levie, the EU deputy chief negotiator for TTIP, the long-term goal for the European Union is “is to anchor more the emerging economies in a global rules-based system…a market economy that is rules-based, where we have independent regulators, and independent judiciary. That’s our objective, globally.” Clearly, the idea that TTIP could become a model for outside powers, like Turkey (a member of the customs union), but also Russia and China, is a major selling point for the German economy.
Robert Basedow, a political economist based at the London School of Economics, recently suggested Germany could implement several measures to facilitate the participation of stakeholders, including members of civil society, in the often secret dispute settlement process, as a way of ‘softening’ the blow of ISDS clauses included in a final deal.
These measures include the possibility of restricting investors in their ability to switch between state and non-state arbitration courts in ongoing trials, or improving the transparency of the arbitration courts by implementing the UN draft convention on transparency in international dispute arbitration.
Although the chance of a takeover of the German political process by the fringe protectionist party AfD, which has made gains at the state level, is unlikely, it will be necessary for the CDU-SPD coalition to keep an open line of communication with the wider public, and the parliamentary opposition.
There is a moderate level of risk related to the rise of protectionist voices in the German political landscape. Observers will also have to keep an eye on the steady shift of the SPD towards the political centre, and its working relationship with its partner in the coalition, the CDU.
Rising Euroscepticism in the United Kingdom
The declining approval ratings of the traditional parties in opposition in Britain, as well as the debate on a British exit from the European Union, have provided the backdrop for the rise of the protectionist UK Independence Party. The relationship between the UK and Juncker is strained, as Juncker has, for example, rejected a UK proposal for independent scrutiny of EU laws.
However, as Britain plans on taking on financial regulator roles in the European Commission in mid-October, and similarly liberal Sweden takes on responsibility for TTIP, the ability of the current government to shape a future deal will increase.
In some ways, investor-state dispute settlement has overshadowed the general debate about TTIP, to the detriment of understanding how the free-trade deal could take shape. However, both Germany and the United Kingdom (but also France) will have to be watched closely for their roles in a future deal.