Peter Lilley is a former Secretary of State for Trade & Industy and for Social Security, and is MP for Hitchin & Harpenden.
I believe in free trade. Always have, always will. As the only serving MP to have negotiated a successful free trade deal (the Uruguay Round – as Trade and Industry Secretary during the 1990s), I automatically supported the Transatlantic Trade and Investment Partnership (TTIP) deal currently being negotiated between the USA and EU, assuming it was a free trade agreement.
The more closely I look at it, the more parts of it worry me. Conservatives who believe in free trade should be very wary about endorsing TTIP. And both the Leave and Remain campaigns should look very carefully at its implications for our EU membership.
Let me explain why.
TTIP is not primarily about removing tariffs and quotas. The average tariff levied by the US on goods from Europe is just 2.5 per cent. Getting rid of them would be worthwhile – but no big deal.
It is mainly about harmonising product specifications and creating a special regime for investment. There is no objection to those things in principle. Insofar as product harmonisation means removing rules introduced as hidden protection of a domestic producer, that is fine. But we should not sign away Parliament’s right to protect our citizens from harmful additives, and so forth.
My three main concerns relate to the Investor-State Dispute Settlement System (ISDS). This creates a system of tribunals – special courts – in which large foreign companies can sue governments (but not vice-versa) for pursuing policies which harm their investments.
- US companies could sue the UK government should it want to take back into the public sector privately provided services in the NHS, education, and so forth – or open fewer services to private provision. The EU and UK government have denied that this is possible. But a cogent Counsel’s Opinion argues that because these tribunals can award unlimited fines they could exert “a chilling effect” on government decision making. The Left have been particularly irate about this but Conservatives too should be worried. I and other local MPs – all Tories – lobbied successfully to reincorporate into the NHS a disastrously run private Surgicentre (set up by Tony Blair’s Government) serving our constituencies. Under TTIP, a foreign operator could have sued for massive compensation at the expense of our local NHS. Conservatives have rightly been cautious and pragmatic about the extent of private provision particularly in health. It would be electorally disastrous if we back a system which turns out to bring in privatisation by the back door.
- These tribunals give foreign multinationals their own privileged legal system, too costly for smaller foreign companies (since the average case costs $8 million), and from which UK companies are excluded. Moreover, the ‘judges’ are commercial lawyers who, when not serving on a Tribunal, work for, and are therefore sympathetic to, big companies. Cases are heard largely in secret.
- The “Stabilisation Clause” protects all investments made under the treaty for at least 20 years. A recent legal treatise explains how this undermines parliamentary democracy by binding future parliaments. Of course, the UK enters into other long term treaties and contracts – but our government can always renegotiate or, in the last resort, resile from them. Exceptional circumstances may make that necessary: I had to nationalise without compensation all Iraqi-owned companies when Saddam Husain invaded Kuwait. A future parliament might object to letting foreign multinationals have their own courts – especially if those courts expand their remit beyond that originally envisaged. The UK might decide the protection of our common law courts is sufficient. But if we are still in the EU when TTIP and CETA are ratified, we will be bound ‘jointly and severally’. We could not renegotiate these treaties without the consent of every EU state and the Commission – even if we subsequently left the EU. So we would still be bound by the Stabilisation Clause for 20 years.
The EU and UK government respond to these criticisms by saying: the UK is party to a large number of treaties with similar tribunals; only twice have cases been brought against the UK, neither succeeded; if the tribunals did not exist, UK courts would impose similar verdicts and fines; arbitrators cannot rule on companies for whom they work; TTIP negotiators now propose a permanent judicial panel instead of using ad hoc arbitrators; also, the proceedings may in future be made public. In particular, they deny that the tribunals could affect the NHS at all – let alone force it to put out services to contract or prevent it taking back private services into the public sector.
In short, the Government argues (not entirely convincingly) that TTIP tribunals will probably do no harm. No one claims that they will actually do any good – i.e. attract more US investment to the UK or vice versa. The idea that any American companies are afraid to invest here because they do not trust the British legal system or fear expropriation is not credible. Businesses from across the globe choose to make their contracts subject to British law precisely because it is the most trusted. If, as the Government claims, these ISDS tribunals will give the same outcome as British courts they are completely unnecessary. In fact, they have the power to levy far larger fines, they may extend their own jurisdiction in unpredictable ways and there is no guarantee that they will not require the public sector to contract out services.
These tribunals were originally invented to give private companies which invested in countries with unreliable or corrupt legal systems a fair arbitration system should their assets be nationalised. Those countries were willing to accept these transnational tribunals in order to attract foreign investment. British companies have had recourse to tribunals under such treaties with developing countries. However, in recent years corporate lawyers have persuaded tribunals to classify an ever wider range of environmental, health and other regulation as partial expropriation. Developing countries do not invest in the UK, but TTIP and CETA would, for the first time, expose British governments to litigation by American multinationals.
Why do these courts feature in a treaty between the USA and EU? The EU Commission which negotiates on behalf of member states may have been sympathetic to them because of their supranational nature. By contrast, the US usually opposes supranational courts but has been the main protagonist of ISDS – maybe because it has doubts about the governance of some newer EU member states. Also, the US has apparently never lost a case in one of these courts, whereas American multinationals are the main beneficiaries in cases against other governments.
In or out of the EU, we should question whether ISDS tribunals are necessary, reject the 20-year stabilisation clause and insist on excluding the NHS from the treaty (as France has excluded movies). That would be less difficult if Britain leaves the EU and negotiates a parallel treaty – though the simplest thing would be to negotiate a pure free trade agreement restricted to abolishing remaining tariffs.