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In July 2013, the European Union and the United States started an ambitious process for a “Transatlantic Trade and Investment Partnership” (TTIP), dubbed the Trans-Atlantic Free Trade Agreement by some. EU Member States gave the Commission a mandate on 14 June 2013 to begin trade talks with the US.
The negotiation includes three chapters: market access (about market liberalisation), regulatory cooperation, and rules – which include an Investor-State Dispute Settlements mechanism (ISDS). As far as financial services are concerned, the US and the EU have divergent views: while both agree on the need to include financial services in the agreement, the US opposes the EC push for a cooperation mechanism on financial regulation to be included in the TTIP.
The call from the European Commission to include financial services in the regulatory cooperation chapter of TTIP has been formalised partially with the publication of their textual proposal for initial provisions on Regulatory Cooperation as tabled in the April 2015 negotiation round and published in May 2015.
Given mounting awareness and concerns among citizens about the TTIP, the European Parliament – which must ratify but cannot amend any agreement of this kind – initiated an own-initiative report to express Parliaments’ views on the agreement. The report was voted in July 2015.
In July 2015, we made a statement on Regulatory cooperation and Financial serviceson the occasion of a conference organised by the European Social and Economic Committee. We also published a cartoon that illustrates why regulatory cooperation in TTIP risks a regulatory ‘race-to- the-bottom’ (convergence towards a lower level of regulation).
In October 2014, we published a multimedia, educational unit on TTIP on, “Understanding Finance #2 – Financial services in TTIP?”, which is available in German, French and English. Its aim is to help explain to the public why we oppose the inclusion of financial services in TTIP in any of the three chapters.
In July 2014, Finance Watch responded to a consultation on modalities for investment protection and ISDS, opposing the introduction of ISDS into TTIP in all its modalities. Our Expertise and Campaigns coordinator, Aline Fares, warned in her blog about the possible dangers of ISDS: TTIP – a consultation that misses the key question. We also supported our members in encouraging the general public to respond to the European Commission’s consultation on ISDS in mid-2014. In the end, the consultation drew responses from 450 organisations (including Finance Watch), individual replies from more than 3,000 citizens and 145,000 responses from citizens using several online platforms (such as “No 2 ISDS”, developed by Friends of the Earth Europe and the Austrian Chamber of Labor).
The European Parliament, which must ratify but cannot amend any agreement, held a public hearing in the Economic and Monetary Affairs (ECON) Committee on 18 March 2014 with Finance Watch being one of the speakers: “The Transatlantic Trade and Investment Partnership (TTIP) and Financial Services Regulation“. We commented on regulatory convergence, supervision and transparency, and warned of a “race to the bottom” caused by regulatory convergence and a “regulatory chill” if governments act to avoid the threat of sanctions under the ISDS. At EU level, this has been used as an argument against tough rules in legislation such as MiFID II.
TTIP aims to move beyond a classic free trade agreement to a regulatory cooperation “partnership” while removing “unnecessary barriers to trade”. Finance Watch’s view is that it is precisely the excessive deregulation of finance that led to the crisis, and that the post-crisis regulatory agenda is far from being closed, with several crucial pieces of regulation still needed to protect citizens from future financial crises.
The main argument in favour of including financial services in TTIP is that it could help to make financial regulation on both sides of the Atlantic converge. However, using a free trade agreement to achieve this goal risks a regulatory “race-to-the-bottom” (convergence towards a lower level of regulation) while putting public interest behind trade objectives, which might lead to increased contagion risks in case of financial crisis or undermine consumer protection.
Also, regulatory convergence tends to benefit private interests while the benefits for citizens are less certain. In any case, international regulatory convergence is best achieved in multilateral forums.
As far as the ISDS mechanism is concerned, it would allow companies to sue national governments that adopt rules that are considered as a threat to the profitability of investments. While this is a standard feature in many trade agreements, its inclusion in TTIP could undermine European and national rules that are needed to protect citizens and taxpayers, in particular in financial services. It is essential that legislators have the freedom to put the public interest first and to regulate the financial system effectively, without being threatened by claims potentially mounting to billions of euros.
Doubts have also been raised about the true economic value of claimed TTIP benefits as a whole, and about its probable harmful effects on the democratic process, as it would take regulation further away from the public debate.
Finance Watch wants financial services in their entirety to be removed from the TTIP. More specifically, we call for (1) a moratorium on the liberalization of financial services, (2) regulatory cooperation to be handled outside of TTIP, and (3) a removal of ISDS provisions.
- Statement on Regulatory cooperation and Financial services on the occasion of a conference organised by the European Social and Economic Committee (July 2015)
- “Regulatory cooperation in TTIP : Where lobbyists dreams come through” (Cartoon, June 2015)
- “Understanding Finance #2 – Financial services in TTIP?“ (Multimedia Dossier with explanations, videos, cartoons etc., October 2014)
- Response to consultation on modalities for investment protection and ISDS in TTIP (July 2014)
- “TTIP – a consultation that misses the key question“ (blog article about the possible dangers of ISDS, July 2014)
- Speech at ECON hearing on TTIP and Financial Services Regulation (March 2014)
Publications
- 18 April 2017 Annual Report 2016
- 15 March 2017 Response to the EC’s public consultation on a multilateral reform of investment dispute resolution
- 24 May 2016 Annual Report 2015
Press releases
- Finance Watch publishes Annual Report 2016 18 April 2017
- Finance Watch publishes annual report 2015 24 May 2016
- Finance Watch says there is no proven case for including financial services in TTIP 19 March 2014
Notes:
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: 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.
