TTIP is no reason to leave the EU

Opinion piece (EurActiv)
Rem Korteweg
23 May 2016

Opposition to TTIP has become a rallying cry for supporters of Brexit. Its critics are relying on myths about trade agreements in general, and about TTIP and the NHS in particular, writes Rem Korteweg.

Britain’s Eurosceptics on the left and right have found common cause in objecting to the Transatlantic Trade and Investment Partnership (TTIP).

Libertarians claim TTIP is bad because it would create a new system of regulations. Traditional Eurosceptics, like former Tory leader Iain Duncan Smith, say TTIP’s slow progress is evidence that negotiating free trade agreements on behalf of 28 countries does not make sense. Last week, Boris Johnson ridiculed the EU’s negotiations as “trying to ride a vast pantomime horse, with 28 people blindly pulling in different directions”.

On the left, TTIP has fuelled anti-EU sentiment, too. Critics say TTIP is a corporate power grab that threatens the National Health Service (NHS). John McDonnell, the shadow chancellor has said TTIP will “enable the corporations to steal from us even more”. Though he has not followed this up with a call to leave the EU, one of his economic advisors, Nobel laureate Joseph Stiglitz, has done so. Former Labour Foreign Secretary, David Owen, simply says that Brexit is necessary to save the NHS. These views are flawed for a number of reasons.

For Brexiters on the right, being outside the EU promises the ability to make free trade deals without being held back by protectionist EU member states, and without being bound by Brussels’ red tape. But once outside, the UK would be unable to stop or shape TTIP, while still being affected by it.

Whatever the future arrangement between the EU and the UK, British firms will be required to adopt EU rules and regulations if they want to sell into the single market. TTIP would have a similar regulatory pull. TTIP’s ambition, among other things, is to remove non-tariff barriers by aligning regulation in the US and EU – either through the mutual recognition of standards or through harmonising them. Due to the sheer size and attraction of the resulting transatlantic market, these standards would become benchmarks for others to follow.

The incentive to abide by TTIP standards would be particularly strong in those countries that trade a lot with either the US or the EU, or both. In 2015, 63% of British trade (imports and exports) was with the EU and the US. British exporters, keen to adopt newly agreed transatlantic standards, would put pressure on UK regulators to implement the same rules at home, in an attempt to avoid the cost of meeting multiple different ones. As a result, standards agreed in TTIP, on issues like health, environment or labour, would percolate into the UK. But, crucially, the British government would have no say in the shaping of these standards, as it does now.

What is more, in bilateral US-UK trade talks, the US would almost certainly use standards agreed with the rest of the EU in TTIP as a template, rather than seek to negotiate a separate system of standards with the UK. Only if the UK stopped trading with both the EU and the US would Britain be completely insulated against TTIP’s regulations.

Right-wing Brexiters also complain about the EU’s sloth in negotiating trade agreements. One reason, however, why TTIP is taking so much time is that the US and EU are of roughly equal size; neither bloc has the upper hand in the talks. While the European Commission is able to negotiate with the US on the basis of parity, the UK would clearly be the junior partner in bilateral talks with Washington. As any trade negotiator will confirm, size and economic clout matter in the bargaining process. Britain might be able negotiate trade deals faster, but nothing suggests that British interests and standards would be better protected if it negotiated by itself instead of through the European Commission. On the contrary, the US would push Britain hard to open its markets and would advance its own regulatory model. Negotiating with a country one-fifth its size would make it easier for the US to get its way. Libertarians might not see a problem with this, but other conservatives would.

For their part, left-wing Brexiters fear that TTIP will lead to a large-scale transfer of democratic power to multinational corporations. Leftist critics pay special attention to its alleged effect on the NHS. They argue that the deal promotes the privatisation of the NHS, and that leaving the EU would mean avoiding TTIP and hence would save Britain’s public healthcare system. This criticism has two dimensions: opponents say TTIP would lead to more privatisation in the NHS, and it would make existing privatisation difficult to undo. Both claims warrant a closer look.

To its credit, the Commission has made many negotiating texts available. But because they are difficult for the non-expert to understand, people remain suspicious. The European Commission has done itself no favours by making its TTIP negotiating texts so complicated. Yet the EU’s proposal on market access is clear: TTIP does not threaten the NHS in its current form. Health services that “receive public funding or state support in any form” are excluded from the deal. This exclusion covers circumstances when the NHS itself is the care provider, as well as those where the NHS contracts with a private operator to provide services. The proposal later reiterates that the EU’s offer to liberalise only covers “privately-funded services”. On top of that, it is clear from the negotiating document that the UK has demanded that privately funded ambulance and residential health services should be excluded from US competition too. All other private healthcare in the UK, however, would be opened up to US firms and investment. US healthcare providers would be able to set up facilities in the UK and compete with other private hospitals. But this would not undermine the NHS, it would just increase competition in the British private healthcare market. Nothing in the EU proposal suggests that the NHS will be forced to open up further.

Surely the United States might persuade the Commission to trade away the NHS during the negotiations? Aside from repeated assurances to the contrary by the EU’s trade Commissioner, Cecilia Malmström, this is highly unlikely. For one thing, US negotiators know that the issue of the NHS is neuralgic for the UK and hence could jeopardise TTIP in its entirety. But more significantly, in its recent agreement with 11 Pacific countries – the transpacific partnership (TPP) – the US negotiated an exemption of its own for “social services established or maintained for a public purpose”. That exemption includes social security, public education and health. It takes a stretch of the imagination to believe that the same administration that created a federal system of public healthcare – Obamacare – would seek to actively undermine it in the UK.

The second concern is that TTIP makes it difficult to renationalise parts of the NHS, if a future UK government wanted to. The Commission’s negotiating offer makes clear that the UK, like any other EU member state, could abolish private healthcare altogether if the government considered it a public utility. The EU offer allows the creation of new public monopolies. But the situation becomes less clear-cut if a British government were to consider renationalising part of the healthcare system, while leaving other privatised parts intact. Here, expropriation could be viewed as discrimination against a US firm or investor, who could thus sue for compensation, which in international arbitration can be very generous. Even if the UK government were to win these cases, the legal costs would add up. The fear of losing and having to pay compensation could induce so-called ‘regulatory chill’, deterring a government from renationalising services. Legal critics also point to the unclear definition of ‘indirect expropriation’ in international trade agreements, which could create an incentive for investors to sue. In TTIP, the Commission should push for as strict a definition as possible.

But those that feel NHS privatisation has gone too far and who cannot shake off their fears about US litigiousness should know that voting to leave the EU is not the answer. Outside the EU, a British Conservative government would probably seek to sign a deal of its own with the US based on the same liberal principles leftists now worry about. That deal would contain many of the same elements that the Commission is now negotiating on London’s behalf.

The inconvenient truth for Brexiters from both camps is that the only way to make sure that TTIP does not impact Britain negatively is to ensure that it is a good deal. Rather than caricaturing the talks to scare voters in the forthcoming referendum, critical British politicians should engage with the rest of Europe and spend more time debating TTIP’s potential benefits and drawbacks.

Labour leader Jeremy Corbyn seems to understand this, albeit reluctantly. He disagrees with TTIP and is not known for his EU-enthusiasm, but he says that the UK should remain in the EU, either to improve the deal or to block it. In his Europe speech on 14 April he said TTIP is “a huge cause for concern, but we defeated a similar proposal before”. He also called upon the European Parliament to address Labour’s complaints about TTIP. Even the Trades Union Congress (TUC) union says that only by being a member of the EU can TTIP be changed.

Broader public acceptance of TTIP could help keep the UK in the EU. The European Commission is aware that European publics are increasingly sceptical about the talks, and it has taken some steps in response. Its new proposal for an investment court demonstrates that it is responsive to some of the criticism of TTIP’s investment clauses. Earlier proposals on investment protection were criticised for their lack of transparency and for being too advantageous to corporations. The new plan seeks to address these concerns by creating a permanent investment court, though it remains to be seen whether this agreement will make it into a final deal. But errors, misrepresentations and negative messaging continue to frame much of the public debate about TTIP. Few European leaders are making a solid and sustained case in favour of a deal, or countering popular ignorance and misconceptions.

As with the opposition to Britain’s continued membership of the EU, opposition to TTIP is well-organised and well-funded. It takes a campaign to defeat a campaign. But so far, this has been lacking. Proponents prefer to focus on the details of the negotiations now, and to worry about winning popular support and parliamentary ratification later.

This is a big mistake. A message of reassurance that tells citizens not to worry will be insufficient to claw back ground ceded to TTIP’s opponents. For some, the answer to TTIP will always be ‘no’, regardless of what a Commissioner says or does. However, a more concerted campaign is needed to debunk the myths and to persuade those that are open to argument that TTIP matters and would be good for Europe and its citizens.

A good transatlantic deal would preserve a country’s right to regulate its public services and would entail benefits going beyond a limited boost for European economies. But its advantages must be effectively communicated. If myths about TTIP are allowed to persist, British EU membership could be one of the casualties.

Rem Korteweg is a senior research fellow at the Centre for European Reform.