Oireachtas Joint and Select Committees
Thursday, 11 June 2015
Joint Oireachtas Committee on European Union Affairs
Transatlantic Trade and Investment Partnership: Discussion
I remind everyone to ensure their mobile telephones are switched off. It is not enough to put them on silent because they can interfere with the sound equipment. I welcome the witnesses to the meeting and I ask them to keep their opening remarks to five minutes or less. We are joined by Mr. Colin Brown, European Commission; Dr. Tom Healy, director, Nevin Economic Research Institute; Mr. Mark O'Mahoney, director of policy and communications, Chambers Ireland; and Ms Patricia King, general secretary ICTU.
Before we begin I remind members of the long-standing parliamentary practice to the effect that they should not make charges, criticise or comment on a person outside the House or an official either by name or in such a way as to make him or her identifiable. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they give to the committee. If they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of the evidence they give. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that they should not criticise or make charges against an entity or individual either by name or in such a way as to make him, her or it identifiable.
I invite Mr. Brown to make his opening statement.
Mr. Colin Brown:
I thank the committee for the invitation to make these comments and I thank it for the extensive work it has done on the TTIP negotiations. Commissioner Malmström has appeared before the committee. Investor-to-state dispute settlement, ISDS, is an important matter and I am happy to address that. I will make introductory remarks and then give an overview of the current state of play on this part of the negotiations.
First, I should recall what is investment protection and ISDS. Investment protection is a set of basic substantive rules comprising protection against discrimination, expropriation without compensation and unfair or inequitable treatment. These types of rules are commonplace in international economic law. The foundation, for example, of the World Trade Organisation, WTO, is its rules preventing discrimination. ISDS is a dispute settlement mechanism which allows the effective enforcement of these rules and it only applies to these limited rules. Investment protection and ISDS is not a new feature of international agreements. There are at least 3,200 agreements in existence which have these features. Some are larger agreements, where this forms a chapter and others are narrower agreements only dealing with this issue. EU member states are party to approximately half of these agreements. Ireland itself is party, via its membership of the EU, to one such agreement – the energy charter treaty.
Modern free trade agreements extend beyond border tariffs and include such behind the border disciplines. If members look around the world today at the ongoing negotiations, they will see similar disciplines being negotiated in many international agreements. When it came to TTIP, member state governments agreed with the Commission that the negotiations should also cover these matters. Investment protection and ISDS was thus included in list of subjects mentioned in the negotiating directives handed to the Commission in June 2013.
Negotiations are currently suspended on this part of the agreement. Concerns have been raised by the public regarding ISDS tribunals on the states’ right to regulate. As a result of these concerns, the Commission suspended the negotiations on investment protection with the US in January 2014 and organised in 2014 a public consultation to collect views from the wider public on how the EU could further improve its policy approach. In the consultation, the Commission presented the approach on investment protection and ISDS taken in the Comprehensive Economic and Trade Agreement with Canada, CETA. Negotiations there are complete. This agreement introduced significant reforms on investment protection, which tackled a number of the problems which have been raised. For instance, we clarified key legal concepts and made significant changes to the operation of tribunals. We required full transparency, a mandatory code of conduct and other procedural changes, which are designed to ensure that the ISDS procedure is not abused.
The consultation brought to light four areas where further clarifications could be explored.
On 5 May 2015, Commissioner Malmström, made public a concept paper on investment protection and investor-to-state dispute settlement, ISDS, in TTIP and beyond. The concept paper outlines concrete ideas on how to reform investment protection and ISDS in TTIP and in other EU trade agreements. The orientations set out in the concept paper respond to the four areas for further reflection identified by the public consultation and incorporates many of the views on this issue conveyed in recent months by the European Parliament, member states and EU stakeholders. The paper sets out how the Commission will provide clarity on how the right to regulate is not undermined by these rules. It will ensure a move away from the current ad hocarbitration system to a more court-like system by assimilating the qualifications of the arbitrators under TTIP to those of national judges and the creation of an appellate mechanism in TTIP. Commissioner Malmström has also put forward the concrete proposal that the EU should work towards the establishment of a multilateral investment court and appellate mechanism.
The Commission’s goal for TTIP and beyond is a reformed investment policy which ensures that the goal of protecting and encouraging investment does not affect the ability of the EU and its member states to continue to pursue public policy objectives. The Commission is now discussing these proposals with EU member states and the European Parliament. Following these discussions, the Commission hopes to be able to resume negotiations with the US on this matter.
I thank members of the committee for their attention. The Commission very much welcomes the input of national parliaments on these matters. I am aware that the committee is also working on a paper on ISDS.
Dr. Tom Healy:
I thank the committee for providing the Nevin Economic Research Institute, NERI, with this opportunity make an input on this issue. From our point of view, the economic research aspects are paramount. Clearly, the debate around ISDS is very significant, particularly in light of yesterday's developments in the European Parliament which, I understand, will entail some delay in terms of deliberations on the entire TTIP situation.
Before dealing specifically with ISDS, I would like to highlight the context in which this discussion is happening. It is significant that the results of research by Copenhagen Economics, CE, is positive in regard to the impact of TTIP but uncertain with respect to the scale of impact, particularly on jobs, GDP, wages and investment. Another approach to measuring the impact of TTIP adopted by other researchers, including Jeronim Capaldo of Tufts University in the USA, using a different macroeconomic model found different scale of impact at the European level. It is very likely, in the Irish case, that the relatively modest positive impact of TTIP claimed in the Copenhagen study would be negative, depending on the overall impact. I must emphasise that because of the degree of uncertainty about TTIP, in particular in terms of what may be at stake in other areas that have social, environmental and labour law implications, it is important all of these factors are carefully assessed and weighed up.
In regard to ISDS, which is the focus of today's discussion and consideration, this is a complex area. It is important that the interaction between national European and external arbitration is carefully considered because there is no experience of ISDS in this jurisdiction. We are unique in that regard, which may very well reflect a reality in terms of the way property rights and investments are secured by national policy and legal interpretation. In any case, this matter does raise complex questions in terms of the way that the Irish Constitution would operate and, possibly, also in terms of the jurisdiction of Irish courts vis-á-visany external tribunal or mechanism. A note of caution needs to be entered there.
The other consideration is the practice of ISDS. The concern expressed at many quarters and at many levels is that because the "I" in ISDS stands for investor there is, in that sense, an imbalance in terms of concerns, rights and interests, particularly those reflecting, broadly, of citizens, workers and various components of civil society. It is opportune to return to the drawing board in terms of ISDS because this does appear to be the key issue in terms of amendments and concerns expressed in the European Parliament, leading up to yesterday's decision to postpone the vote.
The key concern raised is in relation to public services provision in the areas of, for example, education, health and local government services. Where these activities are carried out on a commercial basis, there is every reason to think that they could be liable to oversight in the way that ISDS operates. In simple terms what this means is that unless an activity is listed there is a risk that it may be lost in terms of protection from challenge at international level. The guarantees and reassurances in relation to various general economic interests and activities, particularly in the areas of education and health, failed to convince many commentators that the adoption of a negative list approach will not expose existing activities in local authorities, including water services, health services, education services to challenge in the future. Those are areas that need to be addressed before there is a wider acceptance and comfort with the whole TTIP framework.
Mr. Mark Redmond:
I thank the Vice Chairman and committee for the invitation to attend today's meeting. It is important this committee and others provide opportunities for discussion on the key issues around the EU-US trade deal.
The American Chamber of Commerce Ireland is an Irish organisation. It is the voice of US companies in Ireland and, increasingly, the voice of Irish companies who have invested and are trading in the United States. The chamber supports a satisfactory and robust EU-US trade deal for a number of reasons. The European Union and the United States are the two largest trading partners in the world. Ireland is at the heart of that key trading relationship. We think it makes sense that an examination would be carried out to ensure any unnecessary barriers to trade between those two huge trading partners are mitigated or removed in a robust and effective manner.
It is true to say that the US business sector views Ireland as an exemplar in terms of trade and investment. In terms of the history of the trading relationship between the United States and Ireland, currently the US is the largest export destination in the world for Irish goods. US foreign direct investment in Ireland stands at $240 billion. It exceeds combined investment in the BRICS countries. US companies in Ireland employ 130,000 people directly and further support 100,000 indirect jobs. Those people, producing great products and services in Ireland, represent 26% of our country's GDP. This long relationship in some cases spans 100 years and in others spans 30, 40 or 50 years and has touched every community in our country. We know how trade and investment with the United States can benefit our people. This two-way relationship has never been as strong, which is very positive. Irish companies currently provide between 80,000 and 100,000 direct jobs in the United States. For the last year in respect of data is available, Irish US subsidiary companies generated $63 billion in sales and invested $2 billion in research and development in the United States. As I said, this is very much a two-way relationship.
As we meet today, the top ten ICT companies globally employ people in Ireland. The top ten data, or born on the Internet, and social media companies employ thousands of people here. Nine of the top ten pharmaceutical companies, 75% of the top global financial services companies and the top ten med-tech companies are located here. This is what trade and investment has meant to Ireland. This is not only about the data I have mentioned but about the impact on our physical and digital infrastructure and the impact on our social fabric as a country.
We would support an EU-US trade deal, but not at any cost. However, here will be a cost to our two economies if an effective deal cannot be done.
Mr. Mark O'Mahoney:
Chambers Ireland is the largest business network in the State. With members in every geographic region and economic sector in Ireland, we are well positioned to represent the views of SMEs on TTIP and trade.
The transatlantic trade and investment partnership is a negotiation between two of the largest trading economies in the world. There is tremendous potential here. My colleagues outlined some of the potential for Irish SMEs. I will speak about the benefit to Irish SMEs.
As a member of the European Chambers of Commerce, Eurochambres, we actively promote the interests of Irish SMEs at European level. The European chambers are recognised as being a strong voice for SMEs and that is why they have been nominated as the SME representative body on the TTIP advisory group, and that is where we feed in our input to the negotiation process.
The trade agreement is predicted to go a long way towards reducing the cost of exporting for the Irish businesses, particularly SMEs. Although tariffs between the EU and US are relatively low, Irish exporters still pay in excess of $300 million per year in tariffs to the US Treasury. Efforts to reduce it, from an average rate of 3% to a zero rate, will have a significant benefit for companies, especially SMEs. A relatively low tariff impacts larger companies much less than smaller companies. The material impact of a low tariff percentage on an SME can be an inhibitor to it investing in the US market.
Where we see the real benefit for Irish SMEs is in the non-tariff barriers. Regulatory divergence, such as complex certification procedures and duplication of standards, can be particularly burdensome to smaller firms. If one needs to complete 20 or 30 pages of documentation to get some goods through customs, it is the same amount of documentation that needs to be completed for a large company as for an SME. The resource strain on SMEs is considerable. This is one of the main barriers we see to SMEs looking beyond the domestic market and moving internationally.
The fixed cost of these regulatory complexities are easily borne by large companies. Our research shows that to get exports certified in both the EU and the US can cost between $5,000 and $10,000, depending on the product. A large company can absorb that cost; a small company cannot. Fundamentally, the benefits for us of TTIP will be on the mechanics of trade. It will be on synchronising rather than reducing legislation, ensuring SMEs can access it on an equal footing and opening up markets.
The following is what needs to be done to ensure SMEs can benefit from the agreement. We pushed fairly hard for a dedicated SME chapter within the negotiations that will set out how SMEs can access the benefits to be derived from the trade agreement. This needs to be apprehensible by a small company. It needs to stand out from the overall broader agreement.
There also needs to be serious motivation towards real regulatory co-operation. If there is some sort of half-baked effort at regulatory co-operation, the benefits to the SMEs will not materialise. The bigger companies can allocate the resources to meet a new standard, but if it is a halfway house, the SMEs will be left out again. There needs to be a comprehensive agreement reached on regulatory standards.
We would be very much in favour of ISDS, especially for SMEs. If such companies are taking a risk to invest or trade with another jurisdiction and if there is a change in policy of a particular US state, they will have no chance of pursuing that through the courts. They need an ISDS mechanism to have access to justice and to try to recoup their investment. We would have different views about how that ISDS might be structured but it is important, from the point of view of SMEs, that it includes an ISDS. I thank the committee for the opportunity to speak and I am happy to answer any questions.
Ms Patricia King:
I thank the Vice Chairman for the opportunity to share the Irish Congress of Trade Unions' view. Congress is very concerned about the introduction of rights for companies to launch a suit for financial compensation if a government introduces rules that could have an impact on the company's profits. We are also strongly opposed to the inclusion in TTIP, or indeed any trade agreement, of investor-to-state dispute settlement, ISDS, and we would want to see the Parliament send a clear and unequivocal message that it should be removed. This proposal is an affront to democracy in so far as it allows investors to sue governments in secret courts composed of corporate lawyers at which others do not have representation for compensation over national laws or rules that affect their activities. This quasi-legal process is not subject to judicial review. An increasing number of cases of this type are already in train and TTIP will give investors a clear and certain privilege over citizens. We believe that it is unacceptable in principle for foreign investors to have privileged access to a separate dispute resolution system from everyone else, and we believe that existing court systems in Europe and the USA are perfectly adequate. We also believe that the ISDS system would have a chill effect in relation to governments and could possibly delay, obstruct or impede policies being introduced in the public good because of fear of the ISDS system.
A careful consideration of the evidence and the issues at stake are of vital importance. The ISDS has been the subject of much controversy in the past year, not least in those member states that have unpleasant experiences of the workings of that system. We are not in a position to say whether ISDS or a similar type agreement would not be open to constitutional challenge in Ireland. In the Irish case, we have no experience of ISDS arrangements. We are seen as a golden pupil when it comes to such issues as investor-friendly conditions and tax treatment, and also because Irish courts have not been noted for their hostility to restrictive interpretations of the right of property and business interests generally. Our judgment is that we should do what they did in Australia, that is, delete it.
On public services, some have argued that education and health services are exempt from TTIP. Defining public services as an excise of governmental authority exempt from competition rules does not seem to apply here. The fact is that health and education services are already spread between public and private providers, often on a competitive basis. The risk is that TTIP could apply to existing arrangements and leave states and public service providers open to legal challenge via private tribunals. A positive list in regard to public services would be far superior to a negative list.
We believe that adherence to the fundamental human rights set out by the UN's tripartite body for work issues, the eight core conversations of the International Labour Organization setting out standards and conditions at work, should not only be a key part of the sustainable development chapter of TTIP but should also apply to all elements of the agreement, and that adherence to the sustainable development chapter should be binding and enforceable. Our fear is that multinational companies may be able to challenge collective agreements as barriers to trade and investment thereby accelerating a race to the bottom in employment standards. The public procurement chapter in the agreement must protect and promote the provisions of the new European Union procurement directives, including specific reference to the social employment and environmental protection provisions and the right of public authorities to decide how they deliver works and services, including the legitimate right to provide them through in-house provision or public co-operation.
I welcome our guests. I have a simple question. On the concern about TTIP expressed here and before the committee previously, what about a dispute resolution process? Could we hear a little more about multilateral investment courts to which reference was made? For example, we all would be concerned about the possibility of governments being sued. I am not sure that it is so easy to bypass the national constitutions and move straight into that area. I am not convinced that can happen. Where a group of governments enters into an agreement, the governments have their respective constitutions to adhere to.
It is presumed they will have regard to these constitutions before entering into the agreement, as we have done in the case of membership of the European Union. I seek clarification on that point.
To what extent can business and jobs in Ireland increase as a result of the TTIP? We would be most supportive of an agreement that was beneficial to Ireland. If, however, it was to transpire that some smaller industries or jobs would be displaced on a quid pro quobasis, we would have concerns about this. I would appreciate comments of the delegates on that point.
I welcome the delegates and thank them for their presentations. This week the President of the European Parliament announced that a key vote on a report and amendments to the TTIP would not take place as planned. This is seen as a minor victory for those who have genuine concerns about the proposed deal. What are the delegates’ views of the postponement? What do they believe will happen now? Do they agree that it shows the European Union is very divided on the issues involved and that public outrage has stirred politicians?
Ireland has never agreed to, or implemented, investor-to-state dispute settlement, ISDS, mechanisms in trade agreements. Why do the delegates who are in favour of them believe Ireland needs them now? Do they not believe giving businesses special courts to sue governments sets a dangerous precedent and undermines the ability of governments to regulate and pass laws in the public interest? Are they not worried that the ISDS is the means by which Canada has been sued because of its moratorium on fracking and by which Australia has been sued because of its public health measures on smoking and that in the 45 cases taken to date under this type of mechanism almost €5 billion in public funds has been paid to investors?
The lack of transparency surrounding the lobbying activity of corporate lobby groups based in Brussels is truly alarming. Private interest groups overwhelmingly dominated the European Commission’s TTIP consultations, nine of ten lobby contacts during the preparatory phase of the negotiations were with companies and corporate lobby groups. Do the delegates agree that more needs to be done to ensure transparency on the activities of lobbyists and that the public deserves transparency in respect of possible influence exerted over those who are supposed to act in our best interests?
I welcome our guests. We see this as a healthy and important exchange. I have only recently become a member of the committee.
Why do the delegates think we have not reached agreement on the TTIP?
Mr. Redmond referred to Ireland’s pharmaceutical industry, one of our stronger industries. I understand further testing needs to take place in the United States, which is very costly. Is it because there is a higher standard of testing in the United States than in the European Union?
Will Mr. Brown tell me, in respect of the ISDS, whether a member state can be sued on the basis of implementing an EU regulation or directive as required? What compensation, if any, is offered to a member state? Will he respond to Ms King’s comment that the ISDS is an affront to democracy because it allows investors sue governments?
Mr. Redmond and Mr. O’Mahony have highlighted many positive points. What are their concerns, if any, about the TTIP? They mentioned job creation opportunities, etc., but are there negative aspects?
Dr. Healy touched on issues regarding county councils. Will he expand on whether that is a real concern and what the solution might be?
Mr. Colin Brown:
I thank members for their questions and comments. I will answer them to the best of my ability.
In response to the comment that the TTIP is an affront to democracy, once such agreements are negotiated, they will have to be approved by the European Parliament and, we expect, national parliaments. There will be a democratic say at the end of negotiations on whether the agreements are acceptable. We take a great deal of care when designing and negotiating these treaties to make sure they are consistent with constitutional requirements and at the same time consistent with the basic right to regulate. The four substantive standards I mentioned in my presentation are written in such a way - the European Union intends in the TTIP context to further clarify this - that they will not undermine the right to regulate. Genuine legislation adopted to pursue a health or labour goal or to implement the concept of collective bargaining applied on a non-discriminatory basis cannot be undermined via an ISDS because we design the rules in such a way to make sure they will not be undermined. The cases mentioned by Deputy Sandra McLellan against Australia on plain packaging and Canada on fracking are pending and we will need to see how they play out. The European Union’s objective in drafting is to make sure we will be in a situation where the type of regulatory action taken, for example, on plain packaging, on which Ireland has also adopted legislation, draft language, in particular on the concept of expropriation, the key aspect here, will not be successful under the TTIP or our agreement with Canada and other such agreements. The right to regulate, ensuring there is no impact on democratically decided legislation, has been very carefully constructed by the Commission.
The Vice Chairman asked about the possibility of a member state being sued because of implementation of an EU directive. Legislation has been passed through the European Council and the Parliament in recent years which has put a framework in place for this. It has several levels of complication, but the basic manner in which it works is that if a member state was transposing an EU directive, the European Union would be the defendant and carry financial responsibility in the case, if any financial responsibility were to flow in that circumstance.
Deputy Bernard J. Durkan asked about the establishment of a multilateral court. The Commission views this as desirable and we want to work on the issue, but it will take some time to achieve. There are other countries which are interested in pursuing this issue and we need to build negotiations with them. In the meantime we want to make sure the improvements I mentioned in my presentation are already applicable. They will be via the TTIP and will be added to the other negotiations on this type of issue.
We would hope that within a certain period they would be replaced by a multilateral system.
Perhaps I can respond to Deputy McLellan on the issue of transparency. The Commission is very conscious of the importance of these negotiations and the concerns that arise. We make ourselves available to all interested parties. For example, oninvestor states, I have had more meetings with NGOs and other entities than with corporate lobbyists. We are subject to transparency requirements and citizens can request that we make public the records of all our meetings. I understand that many people are concerned about this but I can assure the Deputy the Commission is very careful in terms of ensuring that what it is negotiating is something that is ultimately for the public good. I will stop here but I am happy to take other questions.
Dr. Tom Healy:
First, to address what happened and why it happened yesterday, my understanding is that the European Parliament has the right to veto TTIP but not to change any parts of it. In the build-up to yesterday's planned discussion and vote, more than 100 amendments were proposed to a motion which would clarify the desired outcome from the point of view of the European Parliament in order for the European Parliament to endorse TTIP ultimately. It appears that the situation became far too complex and far too wide-ranging and consensus just was not possible. At the heart of that, it is certainly the case that ISDS was the major concern. That alone, perhaps, demonstrates that this is a complex issue. It is not quite so straightforward that certain things are off the table or certain things are impossible, because it is noticeable that there has been a shift in the debate in the past 12 months, particularly with the arrival of the new Commissioner. Certainly the emphasis is very much on claiming transparency and that the form of ISDS would be different, more analogous to the comprehensive economic trade agreement, CETA, involving the EU and Canada, and that therefore the concerns that were expressed are without foundation. The difficulty is that it is impossible to comment with finality or authority on any matter until we see the concrete final agreement and then subject that to various tests. At this point, it is far from certain that the concerns have been addressed. With regard to regulation on environmental standards and areas such as genetically modified organisms, for example, the assurances are in place but it is still not entirely clear what the final shape of any agreement will be. There is obviously trading, negotiating and bargaining to be done in a very complex environment with different laws and regulations on both sides of the Atlantic.
The Vice Chairman mentioned the local authorities and local services. That is an example of the uncertainty, because education and health are said to be excluded. That is also a reference to the 1994 GATT exemptions, which already provide for general economic services. Where a local authority is providing a service for which there is a charge, already there is a certain sense in which the market in a particular service or provision has been opened up in terms of commercial activity. I am not certain that would not be liable to a contest, using even some sort of arbitration mechanism. Many of those assurances that have been given in the case of the National Health Service in Britain have failed to convince, rightly or wrongly, many sectors of civil society in Britain. It is significant that German and British MEPs appear to be among those with some of the biggest concerns about the implications of TTIP.
Mr. Mark Redmond:
I will respond first to Deputy Keating's question on the pharmaceutical sector. He asked if there are different standards what will happen if the EU-US trade deal is successfully negotiated. In my opening comments I referred to one of the remarkable results of Ireland's US trading relationship, which is nearly 250,000 highly skilled jobs. We have tens of thousands of highly skilled people in the country who are working in pharmaceutical companies, med-tech companies and food and nutritional plants. In many of those plants what is produced has to be produced to two very high and exacting but separate standards - those of the United States and those of the European Union. EU-US trade is not saying that if one is higher than the other it will reduce the higher one or converge, because often the differences between the two sets of requirements are infinitesimal. Because they are not recognising each other, they both want separate sign-off, validation and audit. What the EU-US trade is seeking is to maintain those high standards but, where appropriate, that each would have recognition or due regard to the other standards. If we are happy that the US requirements satisfy our requirements, we do not have to separately go in and inspect or audit. That will mean that those Irish and US companies will have more money to invest elsewhere, rather than on unnecessary duplicate compliance.
The Vice Chairman asked what concerns the American Chamber of Commerce may have about the EU-US trade deal. In short, its concern is that it does not want a deal for the sake of it, so it should not be rushed, but that it wants a comprehensive deal. Last week, US research published by Pew Research indicated that the majority of the citizens of the US are in favour of a trade deal. I doubt that would be the case if European Union citizens were polled. We would like to see - which is what today is all about - a greater awareness among EU citizens of what, ultimately, this trade deal is meant to be about, which in our opinion is a better answer for consumers and the SME sector.
Mr. Mark O'Mahoney:
I will respond to the question on jobs. We are not saying we should advocate completely free trade for the sake of free trade. We are adopting this in terms of a strategic trade policy. It is somewhat trite, but we have to say that Ireland is a small open economy. We cannot rely on protectionist or isolationist measures. Our policy has to be to look to new markets and to open new markets. The reality is that the vast majority of growth will come from outside the EU in the next ten to 15 years. Therefore, we need to be looking for those markets and opening those markets for our companies. We cannot stay insular. There will be vulnerable sectors but it is important to remember that this trade deal will not be an overnight game changer as such. There will be a period of years in negotiation and a period of years on implementation, which should give the economy time to adjust.
In terms of ISDS, we have a very simple view on it. We believe that the Commission has been unequivocal in terms of its protection of the right to regulate in the public interest. Where we see the opportunity and the necessity for ISDS is when a company invests its resources overseas and, either through appropriation or change of policy, or whatever is the case, the contract terms are breached. It is a method of seeking recourse in the event of a breach of contract. The point is somewhat lost when talking about two developed economies such as the EU and the US. If we move to the next phase of investment in Asia or wherever else it might be, an ISDS provision will be needed in that contract to protect intellectual property and trade interests. This needs to be the standard set now for all future trade agreements. Similarly, we need to look below the federal level, the level of the State. Quinn Energy is a terrific opportunity for Irish companies. If an Irish company invests in any state and if in a couple of years there is a change in policy or there is a local election and suddenly the idea of keeping it local raises it head again, a large company may be able to go through the courts whereas a small company cannot. We think that an impartial arbitration mechanism has to be contained within the agreement. This relates to our concerns. Our concern is that we will get a TTIP-lite, that in another year people will get tired of it, political capital will be expended and it will be the larger companies which will benefit from a halfway-house measure. There has been so much invested in this that in order for it to benefit SMEs and smaller companies and to open markets, we have to go the whole way. We would also echo the sentiment that we need to take our time on it.
We should not rush it through for the sake of passing it because the decision would be regretted for years afterwards. A monitoring system should be put in place to ensure the provisions benefit SMEs. Transparency is always good and the transparency register at European level is a positive initiative in this regard. It suits policy makers, companies and small businesses to know who is lobbying on what issues.
Ms Patricia King:
I am not reassured at all. I have heard nothing to indicate that there should be an ISDS mechanism. In fact, I am even more scared by the response because it appears that somebody in a room somewhere will be deciding what goes into it. There is no need for it. Ireland has a perfectly good judicial system and we have the democratic mechanisms through the Oireachtas to make rules and regulations. If anybody has a problem with the rules, systems are in place to deal with them. I see no reason why one particular group would need a supra-national mechanism.
In my opinion, yesterday was a good day for democracy because it meant the parliamentarians in Europe had to listen and were not able to make a decision. Some will argue that they dithered rather than making a decision, because the general view prior to the meeting was that the decision would pass, but I welcome that it did not.
In respect of jobs, ICTU represents hundreds of thousands of workers in this State. We have every reason to be concerned about protecting jobs. In many cases we work positively with employers. Some of the best collective agreements operate in the chemical and pharmaceuticals industry. It is not a question of broad brush strokes or going into a negative space. The companies with which we negotiate include some of the best employers in this State. However, if Europe and the United States agrees this trade agreement it will impact on the food industry and the number of people who are currently involved in preparing meat for exports. Up to 90% of our beef is exported to Europe in one form or another. The agreement will open that trade to America, which will be able to flood the European market with beef. Ireland's exports will no longer be wanted and the jobs in those factories will be endangered. What will the ISDS do for the workers when they lose their jobs? I think the answer to that is "nothing".
The Copenhagen document is very sympathetic to TTIP but it does not hide the issue of displacement. As my colleague from the American Chamber of Commerce Ireland noted, foreign direct investment underpins 130,000 jobs in Ireland. When Bausch + Lomb got into difficulties, we had to take an adult approach to reaching an agreement that would save jobs. However, if this is opened to the rest of Europe, Ireland will no longer have preferential arrangements for FDI. These companies will be able to take advantage of the cheap labour options in Eastern European countries, and the result will be displacement. The Copenhagen response is that if we lose a factory employing 1,000 people in one region, we will make up the job losses somewhere else in the country. That level of displacement will be damaging to the workers who lose their jobs and to the country's economy. I would expect the SME sector to be concerned about that, given its linkages with larger companies in Ireland. We take no comfort from the documentation or the reports that have been prepared thus far. I remind the committee that the negotiations were conducted in secret until recently. The negotiators did not like people asking questions about the process. When we are asked in meetings of workers about whether the agreement will affect them, I cannot tell them there will be no displacement of employment and that an ISDS will look after them when they lose their jobs. That is the basis for ICTU's concerns.
I apologise for being unable to remain to hear all of the presentations fully, due to matters beyond my control. Ms King neatly leads me to the question I wish to raise. I do not have to remind her that during the recession, when construction went belly-up, the agricultural sector carried the economy through. Between those directly employed on farms and those who work in food processing plants and other agri-businesses, the agricultural sector employs a considerable number of people. Agricultural exports are at an all-time high and have played an important part in our current economic success. There is tremendous optimism for the future of the sector in terms of its potential for the development of innovative value-added products and opening new markets. Agriculture is vital for employment in this country and, while we have in many ways evolved from the pastoral society that existed in the 1950s and early 1960s, off-farm and related jobs in agriculture are at the core of our economy.
In what ways do the witnesses think TTIP will impact on Irish agriculture and how well are we equipped to deal with it? Will it create the appalling vista of job displacement described by Ms King? In my constituency of Cavan-Monaghan, 634 people work in Carton's chicken processing plant in Shercock. Lakelands Dairies, Glanbia, Monaghan Mushrooms and Combilift are also big employers. With few exceptions, all of these jobs are related to the agricultural sector. If those jobs are threatened or displaced, how do we attract replacement industries to the region? That is an appalling vista and I hope the witnesses can give me assurances to the contrary. How else might matters work out and how can Irish agriculture be protected or, alternatively, how would we cope with non-protection? Reference was made to the potential for gains in other areas, such as the car industry.
Would whatever gains accumulated there be greatly offset by the displacement of agri-related jobs? The witness will know the point I am trying to make and I would be very interested in the response to it.
I have a brief question to follow on from Deputy O'Reilly's question. To what extent has there been an evaluation by each of the organisations present of the benefits or negative aspects possibly accruing to the European Union and to this country in the event of this agreement proceeding? My other question relates to the extent to which the EU Parliament was influenced. What were the reasons behind yesterday's decision for deferral, in so far as we know now? Was it on the basis of information already in the public arena or on the basis of fear of the unknown? I fully accept, emphasise and support the need to ensure that whatever agreement is entered into, we fully know what it entails and that we do not buy something that will have a backlash.
My final question refers to multilateral investment courts. Is there any provision for bilateral dispute resolution? There was a suggestion in some previous trade arrangements between the European Union and the United States that some agencies fared better than others and that bargaining positions were adopted in the course of negotiations which seemed to disadvantage, to some extent, the very sectors referred to by my colleague, such as the agrifood sector. Given our dependency on that sector, we would have serious concerns. The reason for our concerns would be that Europe is a big place and a powerful economy in engineering and sciences, in which sectors we are improving, but it is hugely important that we recognise that in the event of there being some unseen or hidden agendas, we would have a serious price to pay because we are still a member of the European Union, bound by European Union laws. The extent to which that will be observed by negotiators on both sides of the Atlantic is hugely important to each of us.
I ask Mr. Brown why is there a need for an international dispute settlement system instead of the courts. I refer to Ms King's point about the courts. Dr. Healy referred to the Copenhagen reports. They would argue that agrifood benefits would be positive. Does Mr. Brown accept that they would argue that exports of processed foods, for example, would increase whereas primary agriculture might decrease but that there would be more value added processing for export? I ask Mr. Brown to comment and others to comment if they wish.
Mr. Colin Brown:
I thank Deputies for the questions. I am a legal expert and not an economist so I will do my best to respond to some of the points. However, I cannot promise to provide complete answers.
First, an important point about the issue of agriculture is that the Commission operates on the basis of negotiating directives given by the member states and which is often referred to as the mandate. We report every week to a committee of member states at different levels. The Irish Government is sitting at that committee. All the negotiating documents we prepare are discussed in advance with the member states in this committee. The proposals which are transmitted to the United States are then put on our website in order that everyone can see what we are working on and what we are proposing.
In the case of agricultural products, the mandate says that there should not be liberalisation of products which are regarded as sensitive. When the Commission is negotiating on agricultural tariffs, the negotiating mandate gives us instructions on how we should handle this and how we should pay more attention to and offer less in certain sectors as compared with other sectors. There is a balance to be struck. I can try to alleviate some of the concerns by saying it means that in terms of US imports of beef into the EU, they will be whatever is negotiated in the agreement. The Commission is aware of the sensitivity of this and therefore the actual access will be kept at a specific level. The scenario referred to of a huge increase of US imports of beef into the EU, is unlikely. I am not responsible for this sector but these are the issues that are very prominent in the minds of the EU's agricultural negotiators.
Deputy Durkan asked about the reasons for the deferral of the vote in the European Parliament. The Parliament was considering the whole range of issues that are subject to these negotiations. It has access to all the documents that are shared with the member states. The Commission and the Commissioner go very regularly to Strasbourg and the Commissioner was in Strasbourg this week to brief Members of the European Parliament. They are fully aware of all the issues which are well-known and are public. As another speaker touched upon, the reason for the deferral was largely that they were unable to reach a compromise which they thought they were in a position to put to the plenary session. They decided that rather than vote in the plenary session without having reached that compromise, they would rather have further discussions. The matter has been sent back to the relevant committee for further discussions. When that committee will decide to move forward is a matter of speculation and I cannot answer exactly when that will happen.
The Vice Chairman asked the reason for the need for an investor disputes resolution element. This is a very important question and it was also touched upon by Ms King. We need to be very clear that in the US legal system, international agreements like TTIP are not enforceable before the domestic courts. If a European investor or an Irish investor has a problem in the US, it cannot turn to the local court or to the US Federal Courts and ask for the application of the TTIP agreement. That is important because there are certain rules of non-discrimination which would be included in the TTIP agreement for the investment protection part that will not necessarily be found in US domestic law. Therefore, the investor will be left with no defence and no means to enforce the agreement because it is not enforceable in US domestic law.
The fact that the US has a highly developed legal system, just as is the case with the EU, is frankly not a guarantee that either country respects international law. For example, with regard to the World Trade Organization, there have been more complaints against the United States than against any other WTO member. There have been almost 130 complaints over the past 20 years against the United States. These complaints relate to allegations that the US has not respected its international obligations. To be honest, the EU and the member states have had approximately 110 to 115 complaints so it is not the case that the US is particularly worse than the EU as that the simple fact of international economic life is that problems of compliance arise with these agreements. This means that from our perspective if one wants to have these rules enforceable, if one wants to protect investment because of the sunk cost involved in investment which is different from trading goods, then one needs to have some form of international dispute settlement. There is a traditional form of dispute settlement that is used for ISDS cases.
However, the Commission does not believe that is the way forward. We must work much more on transparency in its work so that it can be more like a court, but we fundamentally believe that the international dispute settlement system is required. Otherwise the rules we are negotiating will not be enforceable and they will not bring the benefits that colleagues representing the SMEs are hoping for from this agreement.
Dr. Tom Healy:
With regard to the Copenhagen Economics study, at a sectoral level, it is interesting that in assessing the impact of any trade agreement there will be winners and losers. The expectation is that the gains will somehow outweigh the losses. This has been generally true with the huge expansion in world trade over recent decades and our experience with the European Union, originally the European Economic Community. Indeed, there were sectors and areas of the country that initially lost - fisheries would be an example - but somehow the aggregate gains were positive. In some cases, people moved job and in other cases they were retrained or activities were reorientated.
In this case, the Copenhagen study clearly identifies the Irish beef industry as the potential weak link. Notwithstanding the opening up of the US market in recent months, there are huge risks in terms of the imports Ms Patricia King mentioned coming from the US into the EU. It is quite likely that the beef industry would take a hit. On the other hand, dairy, and particularly products such as yogurt and cheese, could very well find an opening of new markets in the US. There are already opportunities in the Asiatic markets and further afield. More generally, Irish agrifood business is well positioned to compete on global markets.
It is important to drill down into these sectoral elements. The solutions are not clear because in the estimations done by Copenhagen Economics it adopted a very unrealistic equilibrium assumption that a job lost in one place is replaced somehow by a job created somewhere else. In that way, the model allowed for labour markets to clear, so that any excess in supply of labour would eventually even out through job creation elsewhere. However, as I said at the outset, there are other ways of measuring this. It is interesting that after all of the analysis and debate, the conclusions of Copenhagen are very modest. They point to a likely or possible net job increase of approximately 10,000. Every job created is welcome, of course, but if it is a case that 10,000 net new jobs are created once-off, that compares with an annual job creation figure at present of approximately 30,000. It is a very good figure and hopefully employment will continue to grow at an annual rate of 2%, but the specific additional impact of TTIP is quite modest.
Also, when one looks at the calculated impacts on investment and real wages, we are looking at increases of between possibly 1% and 2%. Again, it is strongly conditional on the assumptions behind the model. When one looks at the direction in which the European Union is going one must ask: what are the key objectives, what is the vision for Europe economically and socially and how important and useful is something such as TTIP to realising these goals? It appears that areas such as sustainability, economic and social inequality, social cohesion and raising European productivity levels, especially in the weaker economies, are the crucial goals from a policy point of view. The actual impact of TTIP is quite unclear and it raises many questions, collateral issues and possible damage in other areas. There are grounds for proceeding with caution and with sufficient time.
Frankly, we are probably facing a delay of a number of years. I cannot see how this can be wrapped up, and there is no way it can be wrapped up, at the end of this year. All of this must be carefully put together. The challenge is to engage civil society far more in the debate and in looking at all the pluses and minuses. It may be that, ultimately, critical evidence-based analysis must triumph over zeal, be it on the "Yes" side or "No" side of TTIP. We must look at this much more critically.
Mr. Mark Redmond:
I have a few observations. First, it is important to state that Ireland does not have a preferential right to US foreign direct investment. In fact, while the two way relationship is as strong as ever, the competition is as intense as ever. The extent to which Ireland continues to be successful in attracting new projects here and in expanding existing ones is a testimony to the success of the workforce and the talent in the US companies here and the leaders of those companies in Ireland who compete extremely strongly with other territories around the world to bring that investment. We have no preferential advantage in doing that.
I fully concur with Deputy O'Reilly's point about the critical role played by the agri sector during the five tough years of 2008 to 2012. He will forgive me for also stating that US foreign direct investment in those five difficult years for our country exceeded that of the previous 60. The US kept faith with Ireland through our tough times, because our fundamentals were sound and because of the longevity of the trading relationship.
Finally, there are differing studies about the benefits to Ireland and the European Union from negotiating a successful EU-US trade deal. While mindful of the cliché that past performance is no indicator of future performance, Ireland is a great test case. We can see how opening up to trade with our greatest trading partner, the United States of America, has transformed the lives and opportunities of our people. I will conclude with that.
Mr. Mark O'Mahoney:
The impact that TTIP could potentially have on the agrifood sector is a key consideration in our decision to support it. We are intimately acquainted with the companies mentioned such as Lakeland Dairies through our chambers in Cootehill and Cavan. We have seen them grow over the years. We are very much involved in supporting their growth particularly with regard to trade documentation and trying to overcome some of the barriers to accessing new markets.
We are looking at where our economy is and where it must be in the next five to ten years. As we move up the value chain in agrifood, we are finding new markets, higher value added, greater benefit to the economy and more jobs. That is essentially what informed our view that we must look at this in a positive light. If one looks at entities such as Lakeland Dairies, the Kerry Group and the Irish Dairy Board, their product is viewed as being of the highest quality in the world. Standards must be maintained. We believe a strong, robust TTIP will ensure those standards are maintained and will keep the standards at a level that will keep the Irish value added product high in consumer demand. That is an important point.
Informing our view as to why we support TTIP and on the research we have done, we looked at the effects in our European chambers. Each country did an assessment of the structure of where the economy is and where it must go. We are moving towards a high value added, service providing economy and the US public procurement market, in particular, lends itself to terrific opportunities for Irish SMEs in that sense. We spoke with Irish SMEs in software service technology and pharmaceutical companies that provide ingredients into the bigger pharmaceutical companies. Entering the value chain as well as the direct market is where we see the real benefit.
Ms Patricia King:
If this is not going to happen towards the end of the year and will be delayed, it would be extremely useful for all concerned to take time out to examine the impact on the various areas. People do not work up these fears for nothing. They are very real. That message was sent loudly and clearly in the European Parliament yesterday. Apart from the ISDS, to which we are implacably opposed, the impacts on the Irish economy and on jobs require far more in-depth examination. The Copenhagen report did not do that job and therefore it must be expanded. The time should be used.
In addition, the discussions and negotiations on this trade agreement have been marked by secrecy. There must be a great deal more transparency so all the facts can come to the fore and people's fears can be allayed by virtue of what they hear, rather than being worked up based on what they are not hearing.
As such, there is a job of work to be done to get to that place.
I return briefly to Dr. Healy or Mr. Brown to comment on the following. In terms of other European countries and their support for TTIP, while the UK is supportive, is this an issue that could impact on the referendum on leaving the EU? Is this an issue that could be of concern there?
Mr. Colin Brown:
The UK Government has been one of the strongest supporters of the TTIP negotiations. As a matter of fact, if one looks at the discussions and discourse in the UK, one sees that many of the proponents of the UK remaining in the EU point to the EU's successful trade policy as one of the reasons the UK should stay in the Union. Clearly, TTIP as one of the most prominent parts of the EU's trade policy at this moment in time will play out importantly in that debate.
Dr. Tom Healy:
Briefly, there is no direct link between the possibility of a Brexit - a UK exit - and TTIP, but there is one area where Ireland is very vulnerable which is in terms of foreign direct investment. Depending on the final outcome of the discussion on Brexit, the location of financial services but more generally pharma and IT services which underpin such a huge number of jobs in Ireland could be impacted profoundly by all of these factors. Less important, perhaps, is the detail of how companies here trade with other jurisdictions than the overall level of political and economic stability in Europe. It strikes me that the important emphasis needs to be put on a vision for Europe and understanding how a game changer can transform the European economy and society. I fear somehow that in the absence of a coherent vision and strategy reminiscent of what underlay the European vision in the 1950s and 1960s, the emphasis has been put unduly on a narrow programme of structural reform aided by an opening up to trade and investment, as in the case of TTIP, without a sufficient emphasis on the social dimension. This is having a profound effect on European debate. Brexit is in some ways symptomatic of the lack of cohesion which needs to be addressed. That is a wider problem perhaps to come back to at another date.
Mr. Mark Redmond:
I support Dr. Healy's comments that we cannot be complacent about FDI and its presence in our country. We have published a paper in the last three weeks entitled, Ireland's Innovation Pathway. It is the result of deep and comprehensive consultation with the US FDI community in Ireland on what will maintain and attract FDI in the coming decade. In terms of Dr. Healy's point, it is a game changer. The game changer is raising our game in investment in research, development and innovation. That is what we are competing with across the world to maintain and bring jobs here. I support that comment.
I thank Mr. Redmond and all the witnesses for attending the committee today. There will be a great deal more discussion over the coming months on this vital issue. The joint committee intends to meet with the Minister for Jobs, Enterprise and Innovation on 23 June to follow up today's discussions. That concludes our business in public session. I propose go into private session to deal with housekeeping matters.