Trade Negotiations Key Issues

Background

In July 2013, the European Union and the United States started an ambitious process for a “Transatlantic Trade and Investment Partnership”, dubbed the Trans-Atlantic Free Trade Agreement by some.

The negotiations aim to remove trade barriers (tariffs, unnecessary regulations, restrictions on investment etc.) in a wide range of economic sectors to make it easier to buy and sell goods and services between the EU and the US. The EU and the US also want to make it easier for their companies to invest in each other's economy.

Some sectors included in the TTIP are highly regulated and show very little transatlantic integration. However in financial services the added value of trade liberalisation is expected to be very limited, as EU-US financial wholesale markets are largely already integrated. There are also specific risks from the perspective of non-industry financial services stakeholders, which is why we are keeping a close eye on these negotiations.

Key risks

One of the key mechanisms of enforcing transatlantic free trade rules would be the ability for a private party to seek damages compensation from “other” governments. In short it is called Investor-State Disputes (ISDs). This would mean that legitimate political decisions could be challenged in special arbitration tribunals, as foreign investors may argue that trade is unfairly restricted.

In addition, it will be very difficult for civil society to effectively provide a counter-weight to industry suing governments, due to the nature of the arbitration courts where such cases take place (as opposed to direct litigation in the jurisdiction of the relevant government).

Many of the current legislative debates in the EU are covered by prudential standards on international level which allow the EU to issue prudential regulation, e.g. leverage limits, restrictions on short selling, position limits on derivative markets or a change in banking structure (see related dossiers: CRD IV, MiFID II, PRIPs/KID, Bank structure).

The TTIP mandate recognizes the international objectives, but favours free trade above regulation. Essentially, this puts the legislator in a defensive position against those who claim that prudential regulation restricts free trade.

We are therefore concerned that TTIP will prejudice the EU’s right to regulate financial services.