- TTIP risks ‘race to the bottom’ in financial services regulation
- Failure to publish key documents undermines the legitimacy of negotiations
Finance Watch’s Secretary General, Thierry Philipponnat, spoke yesterday at a hearing of the ECON Committee of the European Parliament (download speech).
It is difficult to see how the inclusion of financial services in the EU-US free trade agreement negotiations, and especially the parts on regulatory cooperation, will not lead to a ‘race to the bottom’ in financial services regulation.
In addition, the failure to publish details of what the EU hopes to achieve in these negotiations undermines the legitimacy of the TTIP process.
Mr Philipponnat said:
“The public is right to be suspicious about TTIP simply because we do not know what is at stake. It is not right that the public must rely on leaked documents to know what is being negotiated in their name. Public commitments on transparency must be matched by meaningful disclosures about what, in detail, is being negotiated.”
A widely leaked document indicates that the Council’s negotiating mandate for TTIP has the objective of locking in the “highest level of liberalisation captured in existing FTAs” and states that the results will be binding on all regulators.
“We are concerned that the EU’s approach to regulatory cooperation (equivalence, mutual recognition and/or substituted compliance) will encourage convergence around the lowest common standards, not the highest,” said Mr Philipponnat.
Based on the leaked document, specific aspects of the negotiations seem likely to weaken the ability of policymakers to put the public interest ahead of private interests, including Point 22 (investor-to-state dispute settlement, or ISDS) and Point 27 (agreement to be binding on all regulators).
“This reverses the normal order of priorities, in which the public interest comes before private interests,” said Mr Philipponnat.
As well as providing access to negotiating documents, including offers made by the EU and US, Finance Watch urges policymakers to publish a sector-by-sector break-down of the claimed benefits of TTIP to demonstrate why the planned inclusion of financial services in both the market access and regulatory chapters would bring benefits for the general public.
“The aim of including financial services is to increase trade in financial services. We question whether this is the right goal: recent studies* show that increasing financial services as a proportion of GDP too much can be harmful for economic development. We are happy to be proven wrong, but without evidence we are sceptical about the benefits of including financial services in TTIP and concerned about the costs for the public if it leads to weaker financial regulation,” said Mr Philipponnat.
Mr Philipponnat also said that a free trade agreement is not the right place to pursue regulatory convergence.
“Convergence in financial regulation is a good objective but a free trade agreement seems to us the wrong place to pursue this goal. There are already international bodies with mandates that include regulatory convergence, such as the FSB, BCBS and IOSCO. We should not allow TTIP to undermine their efforts,” he said.
* BIS “Financial Structure and Growth” (March 2014) – Leonardo Gambacorta, Jing Yang and Kostas Tsatsaronis https://www.bis.org/publ/qtrpdf/r_qt1403e.htm”; BIS Working Papers 381 “Reassessing the impact of finance on growth” (July 2012) – Cecchetti, S andE Kharroubi http://www.bis.org/publ/work381.pdf