Transatlantic Investment Treaty Protection

Written by | Wednesday, May 27th, 2015

Lauge Poulsen, Jonathan Bonnitcha and Jason Yackee (The Centre for European Policy Studies)

The Transatlantic Trade and Investment Partnership (TTIP) revolves around talks between the European Union and the United States for free trade between the two. The finalizing and publishing of the content of the agreement is planned for sometime later this year. Among important points left to be negotiated are also public consultations regarding the coherent system of investment protection and the mechanism of investor-state dispute settlement (ISDS), which are to be also included in the TTIP. According to the European Commission, the public as well as NGOs take a largely negative view of the agreement. A thorough assessment of all implications of the investment protection clause, which should be part of the agreement, is therefore decisive.

The proponents of the TTIP expect that the agreement will cover one third of outward foreign direct investment (FDI) stocks of the Member States and almost 40 percent of all inward FDIs. For the Unites States, the ratification of the agreement will mean covering as much as one half of outward FDIs and 62 percent of the inward stock. The economic benefit resulting from the ISDS could be in the form of increased inward investments from U.S. investors, which would be subject to full international legal protection. The protection of investments will then significantly increase, which is a big plus for the EU Member States. However, it is vital for European investors to assess the possible gross increase of U.S. demand and the simultaneous increase of EU’s costs because the size of U.S. investment stock in the Union is significant.

It is unlikely that the concerns among European investors operating in the U.S. market would be alleviated because of the inclusion of a greater legal protection in TTIP. Although they have no restrictions in the US regarding repatriation of profits, dividends, interest or royalties, these investors are still worried about the discrimination of foreign investors. The inclusion of ISDS will probably not lead to significant economic and political benefits for the EU, as it might seem at first glance. While it is important not to exaggerate the scale of potential costs for the Union, it has become apparent that these costs will far outweigh the potential benefits of the TTIP for the European Union.

(The study can be downloaded here)

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