Charlotte McDonald-Gibson: Good for business or bad for democracy? The new US-EU free-trade talks are raising concerns

As the second round of negotiations wrapped up, dissenting voices were heard

Few deals being hammered out in Brussels come with such an impressive set of figures and breathless hype as the free-trade agreement between the United States and European Union. It would, officials on both sides of the Atlantic tell us, create the biggest free-trade area in the world, generate nearly £180bn a year in new revenue for the EU and the US.

When David Cameron fired the official starting gun to negotiations for the Transatlantic Trade and Investment Partnership (TTIP) at the G8 summit in June, he hailed a “once-in-a-generation” deal which would help boost Europe’s sluggish economies by removing tariffs, cutting red tape and harmonising regulation with the US on everything from cosmetics testing to car-safety standards.

But as the second round of negotiations wrapped up in Brussels yesterday, dissenting voices could be heard asking whether cheap trainers and standardised seatbelts were worth the blow to democracy they say the TTIP represents.

The proposed provision causing concern among consumer groups, transparency campaigners and some European politicians is the Investor-State Dispute Settlement (ISDS). This allows foreign companies to challenge government decisions through an independent arbitration process rather than national courts. The companies can petition a tribunal to order governments to compensate them for losses incurred as a result of a state’s actions or legislation. The idea is to protect foreign investors and give them recourse to compensation outside of any vested interests.

In one example currently winding its way through Australia’s justice system, Philip Morris is attempting to sue the Australian government using an ISDS clause in a bilateral agreement between Australia and Hong Kong. The tobacco giant argues that legislation stating the cigarettes must be sold in plain packing carrying health warnings will harm its profits.

To its critics, the ISDS is another example of big business being allowed to run roughshod over democracy, with the hearings taking place behind closed doors and a handful of trade arbitrators able to pass judgement and sentence on sovereign states.

“This is completely unacceptable for big business to wield this kind of behind-closed-door power,” says David Martin, a Labour MEP representing Scotland.

There is concern that companies could use it to challenge environmental laws, thus making governments think twice about such legislation under the threat of a billion euro lawsuit. And while many may concede a need to protect foreign investors in tinpot dictatorships where corruption is rife and judges can be bought, they are scratching their heads over quite why the United States and EU need to take such measures.

“It is not clear that ISDS are justified at all when the agreement will be struck between countries with some of the most advanced and stable legal systems in the world,” says John Healey, a Labour MP and chair of the All-Party Parliamentary Group on EU-US Trade and Investment.

Better safe than sorry, is the response from the EU.

“Mistakes can happen, biases can appear, it’s trying to take it to neutral ground,” explains John Clancy, an EU trade spokesman.

They take the point on transparency, and Mr Clancy says they will ensure TTIP follows best practice: “We agree that it is problematic that there has been in the past a system clouded in legal smog, so our approach will be all documents to be public, hearings to be open, interested parties all able to make submissions, so that can also be NGOs (non-governmental organisations) and others – we want it out front and in the open.”

In reality, given that both US and EU negotiators appear equally keen to include an ISDS clause, it will likely be other hurdles causing the inevitable delays to having the pact signed, sealed and delivered on target by 2014. The French have already put their foot down about their audiovisual industry, saying it must be exempt from the deal so they can carry on giving generous subsidies to Francophone film-makers without fearing anti-competition rules.

So far both sides are tiptoeing around harmonising their wildly-differing financial-services regulations. Another elephant in the room is genetically modified crops, a staple of US farmers but a product that the EU has strived to keep out.

But if the EU’s often-bickering 28 members can get over internal rifts and then bridge some considerable cross-Atlantic cultural differences, the potential benefits are huge for both governments and the consumer. The deal is forecast to put an extra €545 (£456) a year in the pockets of families in Europe, create millions of new jobs, and send Europe’s exports to the US soaring by up to 28 per cent.

None of these are unwelcome prospects for the EU, which on Thursday reported its third-quarter growth at a rather lacklustre 0.2 per cent.

Ukraine deal in the balance over Tymoshenko release

While the EU’s quest to open up its trade to the West is progressing without too many bumps in the road, attempts to forge new markets to the East are looking a little more shaky. In another deal, the EU wants to sign agreements promising closer ties with three former Soviet states at the end of this month.

So far so good, with Georgia and Moldova, two nations aiming for eventual EU membership. They have shrugged off retaliatory trade measures by Moscow, which banned imports of some of their wines to try and strong-arm them into entering a free-trade agreement with Russia instead.

The real prize, however, is Ukraine, with its population of 46 million people and a $340bn (£211bn) economy.

All was going well until earlier this week, when the Ukrainian parliament abruptly postponed passing a deal which would allow the jailed former prime minister, Yulia Tymoshenko, to be released to Germany for medical treatment.

Given this was the most highly-publicised condition the EU set for welcoming the Ukraine into the fold, the whole agreement now hangs in the balance with less than two weeks to go until the grand signing ceremony in Vilnius. If it does fall through, however, Kiev need not despair, there is always Moscow’s Customs Union waiting to welcome them.