TTIP and democracy - where is the problem?

Dr. Michael Efler, Roman Huber (Mehr Demokratie) - 11/04/2014

TTIP and democracy - where is the problem?
The planned Transatlantic Trade and Investment Partnership (TTIP) between the European Union and the US has an enormous economic and democratic-political dimension. The world’s two biggest trading blocks account for around a third of total global trade. US companies are the major foreign investors in the EU and the US is the major target country for foreign investments coming from EU countries. The free trade agreement would create binding rules for all state levels (EU, member states, in Germany also the federal states and municipalities) and would affect around 820 million citizens. It would include broad areas of trade policy - such as services, public procurement, farming and technical trade barriers - as well as regulations for the protection of investments and intellectual property.

The public debate has focused especially on the possible effect of the agreement on European standards of consumer protection. There are fears that European markets would be forced to accept chlorinated chickens, GMOs, hormone meat and other products not currently permitted in Europe. But these issues are not the main concern of Mehr Demokratie. Nor do we take a position on the economic and trade aspects of the agreement. This paper is not to be understood as a rejection of free trade. Our concerns are based on our view that the agreement presents considerable problems for democracy and the rule of law which we analyse in detail below.


The entire negotiation process is extraordinarily non-transparent. Negotiation documents, proposals from both sides, accompanying material, discussion agendas and other agendas exchanged in the context of the negotiations, are treated as confidential and withheld even from members of the European Parliament. Not even the mandate for the negotiations - issued by the Council, and which sets the framework for the negotiations and which is, of course, of the greatest interest to the public - has been published to date. And the names of the members of the “High Level Working Group on Jobs and Growth”, which has carried out important preliminary work on the agreement, have been kept secret. When questioned, the German government replied drily: “The government has no precise information on the composition [of the group]. The European Commission has decided not to publish any further information on this matter. The EU member states simply have to accept this decision”.1

In the meantime, the Commission has responded to the charge of lack of transparency and has organised a series of public discussions on the agreement and has also published a number of position papers. In addition, the section on the protection of investments is to be discussed in a three-month long dialogue process. Firstly, however, these measures were only adopted after pressure from civil society had been continually increasing and critical media reports were piling up. Secondly, all the negotiation texts remain unpublished. It seems clear that the agreement is meant to be shielded from the public gaze.

Regulatory cooperation - business (lobby) as co-author of the legislation

The texts of the TTIP agreement are believed to contain regulatory provisions that are extremely worrying from the point of view of democracy. The details are of course secret, but some elements have been leaked - such as proposals for a “gradual implementation of compatibility in regulatory regimes”. Regulatory cooperation was to be at an “ambitiously high level”. This was to refer not only to existing trade barriers, but was apparently meant to indicate that the way laws and regulations affecting the conditions for trade and investment on both sides of the Atlantic were passed would in future be changed. Whilst the draft negotiation mandate is written in extremely vague ‘officialese’ 2, US and EU lobby groups - such as the American Chamber of Commerce and Business Europe - don’t pull any punches: “Interest groups and regulators would sit together at a table to write laws”.3

Even if there were no changes to the legislative procedures in the EU and the US, there would nonetheless be a risk that democratically non-legitimate interest groups would, on a regular and semi-official basis, be brought into the legislative process at an early stage. Anyone who is there at the start naturally has the best opportunity to influence certain processes in their own interests - or even to prevent them from happening.

Investor-to-state dispute settlement mechanism gives special rights of appeal for big business

One of the most crucial and most widely discussed components of the agreement is the section on investment protection with the proposed Investor-to-State Dispute Settlement mechanism (ISDS), which already exists in many other agreements. It would grant foreign investors far-reaching protection rights - protecting them from ‘unjustified’ treatment, discrimination, limits on capital transfers, and direct and indirect expropriation. Originally introduced for states with an inadequate rule of law, the arbitration procedures are not subject to national jurisprudence. As a rule, three arbitrators nominated by the parties to the dispute reach binding and enforceable judgements in private proceedings. No appeals are possible. The claims are always for monetary compensation which can amount to billions - and which are paid by the state from public taxes. These agreements contain no right of appeal for states against investors.4

In recent years, ISDS processes have experienced a real boom. By the end of 2012 there had been 514 such cases - though the lack of transparency of the procedures means that this is merely an estimate.5 The appellants win in around 30 percent of all cases; a compromise is reached in another 30 percent; and in the remaining 40 percent of cases the state against which the appeal has been made wins.6 This means that in 60 percent or more of cases, the defendant (i.e. the state) loses, either in whole or in part. Germany now finds itself in the cross-hairs of the ISDS: the Swedish energy giant Vattenfall is appealing against Germany’s decision to pull out of nuclear energy and against what it claims are excessively high environmental quality standards being imposed on its construction of a coal-fired power plant in Hamburg-Moorburg.7 In most cases, however, ISDS is used by American or EU companies against developing and emerging nations. Thus, for example, Mexico, after the entry into force of the NAFTA agreement8, and Argentina as a result of its response to the financial crisis, were frequent targets of ISDS processes. Argentina alone is reputed to have paid out a billion US dollars. Investment arbitration is also being brought into the world of financial speculation: speculative financiers are funding disputes on the promise of a share of any future payout, whether full compensation or a compromise settlement.

Centralisation of EU investment policy

With the Lisbon Treaty, foreign investments (as well as many other policy areas) were placed under the sole competence of the EU. Only in Ireland was there a referendum on the treaty. They now constitute part of the general agreement on tariffs and trade, which has been within the exclusive competence of the EU for some time already. This means that the TTIP negotiations are carried out and concluded exclusively by the EU institutions. There is no requirement for their conclusions to be ratified by the member states and/or their parliaments - unless it relates to a so-called “mixed agreement” (cf. below). After the EU-Canada free trade agreement (CETA), the TTIP agreement is the first major instance of the application of European investment policy. Particularly in view of the lack of public interest in such matters - as evidenced by the results of the EU elections - the agreement of the European Parliament cannot compensate for the loss of influence of 28 national parliaments and a critical civil society.

Who ultimately decides?

Incredibly, it still remains unclear as to who ultimately decides on the agreement. The EU possesses the right of negotiation in the area of trade and investment policy. This applies both to matters which lie within the competence of the EU itself and to areas on which the member states decide. Where it concerns matters which are solely within the competence of the EU, approval by the Council and the European Parliament suffices. But if national competences are also involved, then it is termed a “mixed agreement”, which the member states must ratify. Currently, the area of portfolio investments remains within the sovereign powers of the member states. But according to the draft negotiating mandate, the TTIP negotiations will also cover these two points.9 It is no surprise, therefore, that the German federal government is working on the basis of a “mixed agreement” and ratification by the member states.10 However, the EU Commission refers solely to ratification by the Council and the EP.11 When asked, the explanation is given that no answer to this question can yet be provided, since there is as yet no formal text of the agreement. But this response has enormous consequences. If we are talking about a mixed agreement, there would have to be debates and decisions in more than two dozen national parliaments. There would then be an entirely different public perception of the issue. In some countries there could even be national citizens’ initiatives and referendums on the agreement - whereas so far the national parliaments have been even less involved than the European Parliament.

Weak role of the parliaments

In seeking to remove doubts about the democratic legitimacy of the TTIP agreement, the European Commission refers repeatedly to the requirement for the agreement to be approved by the European Parliament. But if one looks more closely at the decisionmaking process of international agreements, it becomes clear that one cannot speak of an effective parliamentary control - despite the proviso of parliamentary approval. The reason is that international agreements in the area of trade and investment are reached in a multi-step process, in which the Parliament only becomes involved at the very end - when amendments are no longer possible. It is the Commission which launches the negotiation process through a recommendation to the Council. The latter then agrees a negotiating mandate. Based on this mandate - which can be amended by the Council - it is the Commission which then deals exclusively with the representatives of the US. It also engages a special committee appointed by the Council. And it is ultimately the Council which decides on the conclusion of the agreement. The Parliament can only say “Yea” or “Nay” to a finished agreement; it cannot make changes to it. There is then enormous pressure on the MEPs to approve the agreement. The real sovereign power over the negotiation process is thus owned by the Commission and the Council.

Things are actually different in the US. Negotiated agreements can be amended by Congress and there is sufficient time to debate such agreements. Changes agreed by Congress would then lead to supplementary negotiations. In one current draft law case, certain members of Congress have been allowed to be present at the negotiations.12 Of course, this is a considerable nuisance for whoever happens to be president at the time, so Congress often sets up a “fast track” legislative process within which Congress can only vote to accept or reject the bill in total - and has only 90 days in which to do so. To date, President Obama has been granted no fast-track authorisation for the TTIP. This is likely to be difficult in any case in view of the approach of the November 2014 elections. Even friends of the party are being cautious.


The influence of interest and lobby group on political decision-making processes is in general a big problem in representative democracy. The problem is even more acute at the EU level, as the legislative process is in any case already heavily weighted in favour of the executive and there are as yet only the beginnings of a critical European public. 13 The influence of large companies and their lobby groups became apparent especially during the crucial preparatory phase of the agreement. Between January 2012 and April 2013, the EU Commission met business lobbyists behind closed doors on 119 occasions; meeting with trade unions and consumer protection organisations occurred only 11 times. These figures come from a list which the EU Commission itself published in response to a query by the Corporate Europe Observatory - an NGO critical of lobbying.14 The figures are in stark contrast to a Commission mantram that it is in dialogue with all relevant bodies. The role of the Bertelsmann Foundation is also interesting. On the one hand, it has commissioned a study which was to list the supposed economic benefits of TTIP. At the same time, it is being paid by the EU Commission to promote the agreement.15

Factual irreversibility

Once they have been agreed, international agreements in general - and free trade agreements in particular - are virtually irreversible. Unless otherwise agreed, amendments can only be made with the consent of all the partners to the agreement. The eventual successful entry into force of an agreement represents the conclusion of years of often arduous negotiations. The negotiating parties are normally extremely reluctant to endanger their “success”. In addition, representatives of lobby groups pay especial attention to ensuring that provisions and rulings favourable to them and their clients are not altered or undermined. It is even more difficult to abrogate international treaties. There is nothing at all on this subject in the EU Treaty - with the result that either the general rules for international treaties apply, or specific provisions within the treat itself. Responsibility for abrogation would lie with the Council, at the suggestion of the Commission. The European Parliament would have to agree.16 In addition, there is the fact that investment agreements generally trigger long-term commitments. Many bilateral agreements on investment, and the draft Multilateral Agreement on Investment (MAI) - which failed in 1998 - cannot be terminated before at least 5 years have elapsed. For investments which were activated before termination, the provisions of the agreement apply for a further 15 years. In effect, therefore, the provisions apply for 20 years - a period of time within which many parliaments will have been re-elected four or five times.

But isn’t the agreement good for jobs and economic growth?

Supporters of the agreement like to point to studies which claim to identify positive effects on economic growth and employment. Certain statistics, thought to make very clear for everyone the benefits the agreement will bring to Europe, appear again and again like spectres in certain media. In June 2013, for example, the magazine Der Spiegel announced that the TTIP agreement could generate 181,000 new jobs in Germany17 - based on the findings of a study by the Munich-based IFO Institute commissioned by the Bertelsmann Foundation18. Only a few days before the Spiegel article appeared, the Frankfurter Allgemeine newspaper reported that free trade with the US would net every European household an extra 545 Euros a year.19 However, if one takes a closer look at the (rather few) studies, they are seen to contain numerous qualifying assumptions.

To begin with, the figures apply to the so-called “liberalisation scenario”. This assumes that all tariffs and import duties between the US and the EU will be abolished, as well as all non-tariff trade barriers (technical specifications, product standards etc.). This is unrealistic as trade agreements never achieve a level of total liberalisation; quite frequently, whole sectors of the economy are excluded. This happened at quite an early stage of the TTIP negotiations with the exclusion of audio-visual services. Secondly, the timeline has to be taken into account, since the promised effects would only materialise in the longer term. One study gives 2027 as the date by which all the positive effects of the agreement would have come to fruition. Another study reckons with anything from 10 to 20 years. Thus, if one takes 15 years as a realistic timeframe within which 181,000 jobs are supposed to materialise, employment in Germany would increase by roughly 12,000 jobs a year - equivalent to economic growth of only 0.028 percent per annum. The extra 545 Euro a year in ones purse or wallet are, of course, also only a long-term effect - and only apply to a four-person household. Thirdly, it is assumed that the agreement would bring about an 80 percent increase in the volume of trade between the EU and the US. This is extremely optimistic, to say the least, and relies on a simple (simplistic) adoption of similar (controversial) figures in relation to NAFTA and the EU internal market.

But even if the studies and their forecasts are correct and the agreement would bring certain positive economic effects, the question remains as to whether we think these economic benefits are worth the clear infringements on democracy and the rule of law that we have described above. Mehr Demokratie, at any rate, will continue to assert that the primacy of politics should not be subverted by free trade agreements.

Dr. Michael Efler, Roman Huber
Mehr Demokratie e. V
(status as of Feb 18, 2014)