Entrepreneurs wishing to expand their business into a country with a political dictatorship have a problem: they can depend neither on the rule of law nor on laws being upheld. Theoretically, large corporations could avoid such countries and do business in "safe" states. However, they rarely do. Instead, they encourage the dictator to enact laws of their own design, which then apply solely to the state and businesses. The dictator agrees, as he needs the additional tax income. Armed with security, the entrepreneur then invests.
The first investor security agreements were thus born, opening the door for international corporations to also pursue operations in undemocratic states. The planned free trade agreement (TTIP) between the United States and the European Union, likewise, aims to create its own, exceptional legal parameters. To what end, however, do businesses need this agreement, when they can depend on the legal system in their countries of origin? The states of the European Union and the United States are fully-fledged democracies founded on the principles of liberalism. Their well-functioning legal systems regularly receive the highest praise from experts.1
The TTIP is clearly not aimed at protecting against the whims of a dictator. On the contrary, it would make political change generally more difficult. Legal changes always create winners and losers. The new system of arbitration will allow future losers to seek restitution for losses. The state will then have to cover these losses and will be forced to compensate all those businesses, whose profits are reduced by its new legislation. The result: either a political standstill or debt.
A free trade agreement can thus have an effect even when no one takes legal action, for the basic reason that law makers know that businesses have the right to go to court.
Existing free trade agreements already work against political change. Anticipating a legal battle with large corporations, the Canadian Government retracted a ban on poisonous fuel additives in the oil industry. A free trade agreement can thus have an effect even when no one takes legal action, for the basic reason that law makers know that businesses have the right to go to court. Even if an arbitration court decides against restitution for the affected industry, in most cases the state is left to pay legal fees.
Vattenfall is currently suing Germany over its decision to walk away from nuclear energy. Philip Morris launched an arbitration case against Uruguay and Australia over new anti-smoking legislation. In Egypt, legal action is being taken against a high minimum wage and American oil companies are taking Canada to arbitration court over a ban on fracking. Particularly active, it seems, are the largest companies in the world - and particularly active are businesses from England, Germany and the United States.
Serge Halimi opens his recent article in "Le Monde Diplomatique" by observing: "An American free-trade eagle is crossing the Atlantic to ravage a poorly-protected herd of European lambs."2 Here, Mr. Halami fails to note that European companies also want to sell America's different, but similarly, dangerous products. This applies particularly to the financial sector, but in many other areas the EU and the US also appear to have different conceptions about what constitutes free trade:
1. Guaranteed employment
The EU states that a person's citizenship should not be a decisive factor in the granting of employment. Europeans and Americans are to be hired on the basis of their qualifications, independent of their citizenship. The United States, by contrast, favours the idea of regulation that would prioritise its own population. Americans should be given preference in hiring decisions in their own sovereign territory.
2. Personal rights
In the EU, citizens possess rights that protect them from government incursions into their personal sphere and freedom. This applies to diverse areas, including an individual's private, confidential and intimate life, rights over one's own image, rights over one’s own written and speech, and rights to determine what personal information should be provided to the state. All of this should apply equally on a digital level. In Germany, this legal protection is guaranteed in Article 1, Paragraph 2 of the German Constitution (human dignity) and connected with Article 2, Paragraph 1 (self-fulfilment). Comparatively speaking, US citizens possess a less robust set of personal rights. A particularly high potential for conflict, resides in the basic right to privacy online regarding personal data, found in many European countries.3
In 2001, the United States and some fifty other countries banned the importation of European meat products. The reason: BSE.4 Even today, many Americans have doubts about meat and cheese products from Europe. European fears, in turn, hinge on the use of chlorine dioxide to disinfect poultry, the use of hormones in livestock breeding and genetically-modified staple foods. Agriculture could thus prove to be a decisive point in the TTIP negotiations. The US Secretary of Agriculture, Tom Vilsack, has already emphasised that the Americans will not compromise in this area, and that the agreement will fail without European concessions.
European pharmaceutical companies are striving to have their products automatically approved for the American market. The American pharmaceutical lobby wants less government control on pricing.
5. Banking regulations
In the wake of the financial crisis, the Obama government issued more stringent regulations on the banking sector. US Banks wishing to pursue risky financial transactions, must possess their own capital and limit debt (the 'Volcker-Rule'). Following a delay, foreign banks were also included under this legislation, which European banks, for their part, were keen to avoid. The reason: in the EU, financial institutions were able to pursue business after the crisis much as they had done before it. While it was debated, banking regulation in Europe was never put in place. Led by the British and the Germans, European banks are seeking within the TTIP negotiations, to continue doing their risky business in the United States. Since the crisis, American politics has begun to come down harder on the financial sector. Nearly all of the world’s large banks are currently being investigated and/or sued for damages by the US, such as: Société General, Crédit Agricole, JP Morgan Chase, Bank of America, Deutsche Bank, ING, and HSBC. These banks have either already been ordered to pay hefty fines or still find themselves in a legal battle with the US.
6. Labour legislation
In Europe, workers possess more rights vis-à-vis their employers than their American counterparts. Unions in Europe fear that their rights will be eroded to match the lower standards in the United States. There are, however, other interest groups in Europe. The European Employers' Association agrees with such a scaling back of workers' rights.
7. Standards for toys
The American negotiators fear that European standards in the area of toy production are too lax. In the US, the guidelines for the use of chemical products in toys are far more stringent than in the EU.
8. The environment
The EU wants to continue with emissions trading, whereas the US does not want to go down this path. Here, the different orientations of the two political economies are particularly evident. The US lacks a strong lobby for alternative energy sources. Both parties are also at odds over fracking. While the Europeans have yet to come to a final decision, and tend to oppose fracking, this method of oil and gas extraction is already employed in the US.
The project could become a reality if France plays along
Information about the free trade agreement which has inadvertently leaked out, touches on virtually every area of politics. Preliminary negotiations normally fall under the aegis of ministries of trade. In the case of the TTIP agreement, some 600 representatives of large companies from both sides are also involved in the negotiations. Karel de Gucht, the European Commissioner for Trade, is in charge of the political negotiations. He is in favour of free trade and has criticised all those countries (especially France) that are less convinced. It would only take one large national parliament to vote against the agreement and it would be rejected as a whole. France is currently the leading candidate in this regard.
This is another way of saying: if France plays along, the project could become a reality. Angela Merkel, Barack Obama, David Cameron – all of them, and even Sigmar Gabriel, are in favour of the agreement. The obstacle to realizing the project may reside instead, in industry itself. Large corporations have yet to reach a consensus on the aforementioned points of contention. Americans are just as reticent to compromise on agricultural issues, as European banks are to accept stricter regulation.