Economics Essay 59: Protectionism

 Explain the main ways in which countries can protect their domestic industries from foreign competition.

Countries can employ several measures to protect their domestic industries from foreign competition. The main ways in which such protection can be achieved include:

1. Tariffs: Tariffs are taxes imposed on imported goods, making them more expensive compared to domestically produced goods. By levying tariffs, countries can increase the price of imported products, making them less competitive and protecting domestic industries. Tariffs can be specific (a fixed amount per unit) or ad valorem (a percentage of the product's value).

2. Import Quotas: Import quotas place a limit on the quantity of a particular product that can be imported into a country. By restricting the quantity of imports, domestic industries are shielded from foreign competition, ensuring that they have a larger share of the domestic market. Import quotas are often used to protect sensitive industries or to safeguard national security interests.

3. Subsidies: Governments can provide financial assistance or subsidies to domestic industries, making their products more competitive in the market. Subsidies can be in the form of direct payments, tax breaks, or low-cost loans, reducing production costs and enabling domestic industries to offer lower prices or invest in research and development.

4. Regulatory Barriers: Governments can impose regulations, standards, or licensing requirements that foreign producers must meet to enter the domestic market. These regulations may create additional costs and barriers for foreign competitors, providing an advantage to domestic industries that are already compliant.

5. Intellectual Property Protection: Strong intellectual property rights and enforcement mechanisms can safeguard domestic industries by preventing unauthorized use or replication of their proprietary technologies, processes, and inventions. This protection encourages innovation and provides a competitive advantage to domestic firms.

6. Government Procurement Policies: Governments can implement policies that prioritize the purchase of goods and services from domestic suppliers. By giving preference to domestic industries in government procurement contracts, countries can stimulate demand for domestic products and support local businesses.

7. Exchange Rate Manipulation: Governments may manipulate their exchange rates to gain a competitive advantage. By intentionally devaluing their currency, countries can lower the price of their exports, making them more attractive to foreign buyers and potentially reducing the competitiveness of imports.

It is important to note that while these protectionist measures may offer short-term benefits to domestic industries, they can have negative consequences in the long run. They can distort market forces, hinder international trade, and lead to retaliation from trading partners, potentially escalating trade tensions.

Countries often implement protectionist measures to support infant industries, protect national interests, or promote economic development. However, striking a balance between protection and the benefits of open trade is crucial for long-term economic growth and global cooperation.

Debt - you are not alone: Start of a Debt Collective

 

Columbus shows Trump how to thrive in the new world order

Rana Foroohar in The Financial Times


A day or two after Donald Trump announced tariffs on a spate of Chinese goods, the world was gripped by fears of a trade war. More than a week later, there is a storyline building that perhaps the US president had the right idea. China is negotiating with the US; the US and South Korea will probably cut a new trade deal. While the administration is right to call China out over unfair trade practices, however, there is also a risk of taking away the wrong message, which is that tariffs are the best way to protect the US Rust Belt. 

China may not play fair, but it plays the long game. This is the crucial point. While Mr Trump rails mostly against the trade deficit, China has an industrial policy designed to win the jobs of the future in strategic high-tech industries. This is the better strategy, as evidenced not only by what is happening in the Middle Kingdom, but also in the US. 

Consider the success of Columbus, Ohio, a city whose fortunes I have followed closely for many years because it is an economic and political bellwether for the country. Politicos come here to take the pre-election temperature of the nation and companies to test drive new products. Columbus is in the heart of the Rust Belt territory that helped elect the president. Mr Trump has visited Ohio in recent days, offering modest federal incentives with the aim of creating a boom in local infrastructure spending (unlikely, given the dismal fiscal picture in many US states and cities). 

Columbus is the third-biggest national market for employment in the manufacture of motor vehicles. Yet the city fathers are not too bothered either way about what the president does or does not do around tariffs. 

“Some industries will win, some will lose,” says Kenny McDonald, the head of Columbus 2020, the regional economic development strategy. “But there’s plenty of people at JPMorgan, Honda and Nationwide [all large local employers] that are right now working on algorithms that may replace their jobs.” 

This statement reflects important truths. During the past four decades, technology has created just as much job disruption, if not more, in the Rust Belt as has trade. After the global financial crisis, Columbus was one of the US cities that suffered most. While it didn’t fall quite as far as the rest of the state thanks to a diversified economy (Columbus is the state capital and also has a strong education sector), it was faced with chopping $100m in municipal spending — more than 15 per cent of its total operating budget — in 2009. 

The city did all the usual back-end trimming of public services. But then, rather than become Detroit, which for a period of time literally couldn’t keep the lights or water on, Columbus also did something else: it thought ahead. 

The Democratic mayor went to the Republican city fathers and persuaded them to support a tax rise, the first in nearly four decades. They agreed, on condition that a chunk of that money would go into a public-private economic development partnership that focused on how to cultivate human capital for an era in which all value will reside in intellectual property, data and ideas. 

They connected community colleges with local companies, domestic and global (L Brands, JPMorgan, Worthington Industries, Honda) to train up a digitally savvy technical workforce. They renovated the crumbling downtown and created new housing stock to appeal to the millennials who had been leaving for greener pastures after their studies. 

Columbus is now one of the top 10 areas that young workers are pouring into (it ranks number three as a city of choice for fashion designers, after Los Angeles and New York). In an effort to move from making bumpers and hubcaps to being part of the internet of things, Columbus bid for, and won, a $40m Department of Transportation grant to become a “smart city” focused on electric vehicles. About $500m of additional investment has followed. 

“This isn’t a five-year plan for economic development, it’s a 100-year plan,” says Alex Fischer, head of the chief executives group the Columbus Partnership. 

The city is part of Elon Musk’s “hyper-loop” plan to create a train that can connect Chicago, Columbus and Pittsburgh in minutes. Ohio State and Columbus State Community College have started some of the first degree programmes in data analytics. Tesla, AWS and Apple have moved into town. Accenture now has an innovation lab on what used to be the site of a large buggy manufacturer. 

It is hard to imagine a greater symbol of change. The Columbus region has, since 2010, created roughly half of all the new jobs in Ohio. Harvard Business School recently wrote a case study about the city’s accomplishments. 

The city’s success is a great example of what American industrial policy can yield. Many countries — not just China, but also a number of European nations — create multiyear plans for economic development. The US does not, of course. Industrial policy have always been dirty words here. 

Mr Trump, and many others, rail against Chinese state-run capitalism. But by demonising the outsider, rather than creating a real national economic development strategy at home, the US is missing the point. Columbus is, in a way, showing how to do Chinese economic development with American characteristics. It’s a strategy worth copying.

"You Don't Deserve a Bailout - You are NEITHER a Banker NOR Chinese"

If librarians and steelworkers wanted state bail-outs, they should have done something 

useful - like bankers

In any case the bankers deserved to be bailed out, as they couldn’t possibly anticipate that if they kept taking money it might eventually run out, whereas steelworkers have caused their own downfall by not being Chinese.

Mark Steel in The Independent


The main thing to realise with the current steel industry crisis is that the government has been clear and decisive. They’ve stated firmly, “We’re not ruling out anything at all, though we are ruling out nationalising anything as that doesn’t count as anything, but we will do anything we possibly can that won’t make a difference such as drawing a pretty picture of a caterpillar, and we’re doing all we can because as we keep saying there’s nothing we can do, but we do feel desperately sorry for anyone who loses their job which is why any steelworkers who become redundant will immediately be called in to the job centre for an interview and told they won’t get any benefits if their answer to ‘Why have you let yourself be put of work?’ is ‘There was nothing I could do’.”

---Also read

Steel v banks: Why they're different when it comes to a government bail-out

Tata's failure - Another nail for Indian corporate power?

------

Some people have pointed out that other industries were bailed out by governments in the past - but this has only been if they’ve produced essential goods, such as hedge funds and executive bonuses, not frivolities like the stuff that makes ships and teaspoons.

In any case the bankers deserved to be bailed out, as they couldn’t possibly anticipate that if they kept taking money it might eventually run out, whereas steelworkers have caused their own downfall by not being Chinese.

Luckily this sound economics is understood across the country, including by the sensible wing of the Labour Party such as those in charge of Lambeth Council, who are closing half the borough’s libraries and turning them into gyms.

This is the sort of can-do attitude people want from Labour. Hopefully it will spark off other schemes, such as turning social services departments into sushi bars, or converting disabled people’s wheelchairs into drones so they can be rented out to the RAF.

There’s no point in complaining about this; it’s the way the free market works. And if the Chinese are flooding South London with cheap Agatha Christies, we just have to accept it, and ask the elderly people who rely on going to libraries as their only point of contact with the community to spend all morning performing 200 reps of 40 kilograms per calf on a multi-gym body-solid squat machine instead.

One of these libraries, the Tate, has been assessed as receiving an average of 600 visits per day. This may seem successful, but where the library has let itself down is forgetting to charge any of them money for borrowing books and bringing kids into reading classes.

Maybe the library service should learn from gyms, and only let them in if they pay £40 a month on a minimum two-year contract. They could even offer them special courses in which an instructor screams, “Right, everyone, let’s all read this week’s Economist - you CAN do it - let’s drive ourselves to the limit - GO – ‘the Yen faces unexpected slow down’ - come on Eileen pick it up, PUSH everyone!”

The council insists they will preserve the essence of the libraries, because each of the gyms will include a “lounge with a limited supply of books”. Obviously they won’t have all those unnecessary books you see in old-fashioned libraries, but surely no one’s so fussy they insist on any specific book, as most books are pretty much the same.

The council also agreed that “under-18s may not be allowed in these lounges”, which will surely improve the service as rooms with books aren’t a suitable environment for the young.

Surprisingly, the local population appears shamefully ignorant about economics - so there have been daily protests against the closures, in which thousands have taken part. It seems these people don’t understand that it may have been all right to build and maintain free libraries back in the 1930s, but you can’t expect us to keep funding the luxuries we could afford back then.

So the council demanded a banner was taken down at one library, which was changed each day to tell people how many days were left until it was closed. Maybe the council hoped that if people weren’t reminded of the closure, they just wouldn’t notice. Then eventually they’d all tell stories of success and improvement to each other, such as: “I asked for a reference book on growing cucumbers and was sent into the corner. After three weeks I didn’t feel I was making any progress with my gardening, but then someone told me I’d spent the whole time benching 140 kilograms and now I’m the all-Hertfordshire Over-60s Bodybuilding champion.”

Nevertheless, the protests continue. But the libraries have probably been lending the wrong assets if they want state intervention. Instead of irresponsibly lending books to people who live round the corner so they can read and study and educate and entertain themselves and their kids, they should have lent billions of dollars to anyone who asked for it, without even suggesting a 40p fine if they kept it a week too long.

Then, once they’d succeeded in ruining the world economy, they’d have had a very reasonable case for being bailed out - unlike these people who want to fund steelworks and libraries because they don’t understand the world economy.

@@@@@@

------- The China Tariff matter

Steel tariff row explained

Here’s a Q&A on the steel tariffs row, from Kate Ferguson of the Press Association.

Q: What is a tariff?

A tariff is a form of tax imposed on goods or services imported from abroad. It can restrict trade by making products more expensive, and can be used as a form of protectionism - to protect and encourage domestic industry.

Many in the UK steel industry have demanded higher tariffs be imposed on imported steel amid concerns Chinese steel dumping has sent prices plummeting.

Q: What is steel dumping and why are the Chinese accused of it?

Steel production in China has soared over the past decade and it now produces around half of the world’s annual output of 1.6 billion tonnes. But its domestic market has been slowing, leading steel producers to seek to export more.

China has been accused of “dumping” its steel on European markets - which means selling it not just cheaply, but at a loss. In 2014, Chinese steel imports to the UK cost €583 a tonne compared to €897 a tonne for steel produced elsewhere in the EU, according to reports quoting the EU’s statistics agency, Eurostat.

Q: Why has the British Government been criticised for not doing enough to protect the UK steel industry? 

Sharply falling prices and a flood of cheap, foreign steel has sparked major concern for the future of the British steel industry, and the many jobs that depend on it.

British ministers blocked proposals in the EU to get rid of the “lesser duty rule” which caps tariffs at 9% - in the US some products face a tariff of up to 236%. The British Government has said the 9% tariff is too low, but warned against lurching towards protectionism.

The debate comes as Britain has been courting China hard in a bid to foster closer trade links. Chancellor George Osborne said the two nations should “stick together and create a golden decade” while on a visit to China last September.

The following month, Chinese President Xi Jinping visited Britain and was treated to a State banquet at Buckingham Palace, where he sat between the Queen and the Duchess of Cambridge.

Set in this context, the Government has been accused of betraying British steelworkers to curry favour with the Chinese.

---China imposes a tariff on EU steel imports

The Guardian on 1/04/2014

China has risked raising tensions over its role in the UK steel crisis by imposing a 46% import duty on a type of high-tech steel made by Tata in Wales.

The Chinese government said it had slapped the tariff on “grain-oriented electrical steel” imported from the European Union, South Korea and Japan. It justified the move by saying imports from abroad were causing substantial damage to its domestic steel industry.

Tata Steel, whose subsidiary Cogent Power makes the hi-tech steel targeted by the levy in Newport, south Wales, was unable to say on Friday whether any Cogent products are exported to China.

News of the tariff emerged as David Cameron confronted the Chinese president, Xi Jinping, on the sidelines of a summit dinner in Washington on Thursday night, urging him to use Beijing’s presidency of the G20 group of leading countries to tackle the problem.

Asked if Cameron raised concerns about British job losses from Chinese steel dumping, a senior government source said: “He highlighted his concerns, yes.” The source added: “He made clear the concerns that we have on the impact this is having on the UK and other countries.”

British politicians have been accused of pandering to China by blocking new tariffs on Chinese imports to the EU, a measure designed to prop up Europe’s struggling steel industry.

The tariff move by the People’s Republic is likely to anger steelworkers and unions, who blame China for much of the industry’s recent troubles. Steel firms say one of the key reasons for the UK industry’s woes is that state-subsidised firms in China are “dumping” their product on the European market, due to flagging demand at home.

The UK business secretary, Sajid Javid, who visited Tata Steel’s struggling Port Talbot plant on Friday, has been accused of blocking measures to crack down on Chinese imports. Javid voted against EU plans to lift the “lesser duty” rule, which would have allowed for higher duties to be levied on Chinese steel imports. The UK has also lobbied for China to be granted “market economy status”, which would make it even harder to crack down on steel dumping.

“The fact is that the UK has been blocking this,” European Steel Association (Eurofer) spokesperson Charles de Lusignan told BBC Radio 4’s Today programme. “They are not the only member state but they are certainly the ring leader in blocking the lifting of the lesser duty rule. The ability to lift this was part of a proposal that the European commission launched in 2013, and the fact that the UK continues to block it means that when the government says it’s doing everything it can to save the steel industry in the UK and also in Europe, it’s not. It’s not true.”

Silence from big six energy firms is deafening

If this were a competitive market, our fuel bills would be £850 a year instead of £1,100

Patrick Collinson in The Guardian


 

UK consumers are not seeing their tariffs cut despite the fall in wholesale gas and oil prices. Photograph: Alamy


You cannot hope to bribe or twist the British journalist (goes the old quote from Humbert Wolfe) “But, seeing what the man will do unbribed, there’s no occasion to.” Much the same could be said about Britain’s energy companies. You cannot call them a cartel. But seeing what they do without actively colluding, there’s no occasion to.

Almost every day the price of oil and gas falls on global markets. But this has been met with deafening inactivity from the big six energy giants. Their standard tariffs remains stubbornly high, bar tiny cuts by British Gas last year and e.on, this week.

If this were a competitive market, which reflected the 45% fall in wholesale prices seen over the last two years, the average dual-fuel consumer in Britain would be paying £850 or so a year, rather than the £1,100 charged to most customers on standard tariffs.

But it is not a competitive market. The energy giants know that around 70% of customers rarely switch, so they can be very effectively milked through the pricey standard tariff, which is, itself, set at peculiarly similar levels across the big providers. The advent of paperless billing probably helps the companies, too, with busy householders failing to spot that they are paying way over the odds.

The gap between the standard tariffs and the low-cost tariffs is now astounding – £1,100 a year vs £775 a year. Yes, the 30% of households who regularly switch can, and do, benefit. But why must we have a business model where seven out of 10 customers lose out, while three out of 10 gain?

The vast majority would rather have an honest tariff deal where their energy company passes on reductions in wholesale prices without having to go through the rigmarole of switching.

Instead, we have a regulatory set-up which believes that the problem is that not enough of us switch. It thinks that it will be solved by getting that 30% figure up to 50% or more. Unfortunately, too, many regulators have a mindset that is almost ideologically attuned to a belief in the efficacy of markets, and the benefits of competition. If competition is not working, then they think the answer is simply more competition.

What would benefit consumers in these natural monopoly markets would be less competition and more regulation. We now have decades of evidence of how privatised former monopolies behave, and what it tells us is that they are there to benefit shareholders and bonus-seeking management, rather than customers.

In March we will hear from the Competition and Markets Authority about the results of its investigation into the energy market. Maybe it will conclude that privatisation and competition have failed, but my guess is that it won’t. The clue is in the name of the authority.

• A final word about home insurance. Last week I said every insurer is in on the game, happy to rip-off loyal customers, particularly older ones. I received a letter from a 90-year-old householder in Richmond Upon Thames, who, for 20 years has bought home and contents cover from the Ecclesiastical Insurance company.

After seeing my coverage, he nervously checked his premiums, as he had been letting them go through on direct debit for years without scrutiny.

To his delight, he discovered that Ecclesiastical had, unprompted, been cutting his insurance premiums.

One company, at least, doesn’t think it should skin an elderly customer just because it can probably get away with it. We should perhaps praise the lord there is an insurer out there with a conscience.

Is Ecclesiastical the only “ethical” insurer, or are there any others who are not “in on the game”, asks our reader from Richmond. Let me know!

What is TTIP? The controversial trade deal proposal explained

Julia Kollewe in The Guardian

The EU claims it will create millions of jobs and bring down the cost of living – but others say it is a threat to public services such as the NHS
 

An anti-TTIP banner is held aloft at a rally before the G7 summit in Munich in June. Photograph: Wolfgang Rattay/Reuters



If you are not yet familiar with the acronym TTIP it is likely you soon will be. TheTransatlantic Trade and Investment Partnership is a proposed trade agreement and the subject of an ongoing series of negotiations between the EU and US aimed at creating the world’s biggest free trade zone spanning the north Atlantic.

It would dwarf all past free trade deals: the European commission reckons it could boost the size of the EU economy by €120bn (£85bn) – equal to 0.5% of GDP – and the US economy by €95bn – 0.4% of GDP.

It would create several million jobs dependent on exports, Brussels says, while consumers would enjoy cheaper products and services. The average European household of four would be around €500 a year better off as a result of wage increases and price reductions, according to the study commissioned from the Centre for Economic Policy Research in 2013.

The plan is to cut tariff barriers – levies imposed to control cross-border trade – to zero and other non-tariff barriers by 25-50%. The study insists this is a realistic prospect. The business sectors that would benefit most include industries based around metal products, processed food and chemicals, and especially the motor industry.

In the UK (and elsewhere), the main beneficiaries would be big businesses, as smaller firms are less likely to trade outside Britain. The UK could benefit to the tune of £10bn, which means the average household would be £400 a year better off.

The main aim of TTIP is to reduce regulatory barriers to trade, in areas ranging from food safety law to environmental rules and banking regulations. Opponents argue it will water down important EU regulations.

Food safety has become a major stumbling block in the negotiations as both sides prepare for the latest round – the 10th – which takes place from 13 to 17 July in Brussels.

The talks have been conducted largely in secret, but opposition to TTIP is growing on the ground. More than 2 million people in Europe have signed an online petition against the proposed deal. Campaigners have been outspoken about TTIP’s potential dangers and have painted it as a threat to European democracy.
In Britain, MPs on the all-party business, innovations and skills committee havedenounced the government’s firm support for TTIP amid fears for the NHS and other public services.

Concerns are mounting that TTIP could lead to more privatisation, with the prospect of US corporations providing vital UK public services such as transport, education, water and health.

As highlighted in this Guardian video, another major concern is whether standards will drop. For example, the EU bans cosmetics tested on animals but the US does not. Another question is what happens if EU countries want some protection, for instance Italy for its Parma ham, and the UK for its pork pies.
One of the most controversial elements of the trade proposal is the Investor State Dispute Settlement (ISDS) provision. ISDS provisions have been included in many trade deals since the 1980s, to encourage overseas investment in poorer countries. It means private investors can ask a tribunal of international arbitratorsto judge if a government has treated them unfairly – and can get compensation.

Over the past decade some big, mainly American companies, such as tobacco conglomerate Philip Morris, have used ISDS to claim rights. The provision would in theory allow private investors to sue governments for the loss of future profits due to decisions made by national parliaments. Critics say it could be used to attack the UK’s NHS by making privatisations of specific services harder to reverse.



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TTIP: the key to freer trade, or corporate greed?

Some say the US/EU trade deal that could be agreed this year will open up markets and promote UK growth. Others fear it will drive down wages and promote privatisation

Philip Inman in The Guardian


Cheap American olive oil could, in a few years’ time, be sitting on supermarket shelves next to the Tuscan single estate varieties loved by British foodies. At present a prohibitive tariff on US imports effectively prices them out of contention.

But a groundbreaking trade deal could lower the $1,680-a-tonne tariff on US olive oil to match the $34 a tonne the US charges on imports from the EU. Or the tariffs could disappear altogether. Either way, Greek, Spanish and Italian olive farmers must fear the Transatlantic Trade and Investment Partnership (TTIP), a deal that aims to create a level playing field between them and massive US agri-businesses.

Trade deals were once seen as a panacea for global poverty. In the 1990s, the World Trade Organisation was formed to harmonise cross-border regulations on everything from cars to pharmaceuticals and cut tariffs in order to promote the free flow of goods and services around the world.

There was always a fear that, far from being a winning formula for all, lower tariffs would favour the rich and powerful and crucify small producers, who would struggle to compete in an unprotected environment.

The effects of the North American Free Trade Agreement (Nafta), signed by the US, Mexico and Canada in 1993, appeared to justify that fear: it became in later years a cause celebre for anti-poverty campaigners, angered by the plight of Mexican workers. Not only were they subjected to low wages and poor working conditions by newly relocated US corporations – and, as consumers, to the relentless marketing power of Walmart, Coca Cola and the rest – but the major fringe benefit of cutting corruption remained illusory.

This year the US hopes to sign what many believe will be Nafta’s direct successor – TTIP. Should it get the green light from Congress and the EU commission, the agreement will be a bilateral treaty between Europe and the US, and, just like Nafta before it, outside the ambit of a gridlocked WTO.

Supporters say it will be an improvement on its predecessor because the main proponents are a liberal US president and a European commission that considers itself concerned with workers and consumers. Why, the commission asks, would 28 relatively affluent member states with concerns about high unemployment, stagnant wages, welfare provision and climate change agree to a charter that undermines workers’ rights, attacks public services or reduces environmental regulations?

TTIP is also billed as an agreement between equals that allows both sides to promote trade: it is claimed that the UK’s national income could be raised by £4bn-£10bn annually, or up to £100bn over 10 years. That amounts to a 0.3 percentage point boost to GDP, which would have pushed this year’s expected 2.4% growth to 2.7%.

  An anti-TTIP demonstration in Berlin this year. Photograph: Wolfram Steinberg/EPA

But it strikes fear into the hearts of many, who believe it to be a Trojan horse for rapacious corporations. These corporations, hellbent on driving down costs to enhance shareholder value, spell the end for Europe’s cosy welfare states and their ability to shield fledgling or, in the case of steel and coal, declining industries from the harsh realities of open competition.

TTIP has been compared to the 1846 Corn Law abolition, which either swept away protectionist tariffs that impoverished millions of workers, or protected a vital source of food and led Karl Marx to ask: “What is free trade under the present condition of society?” His answer was: “It is the freedom which capital has to crush the worker.” Is that the case with TTIP? Here are five key factors to consider.

Health and public services

From the moment TTIP became part of President Barack Obama’s growth strategy, critics have feared that he little realised the expansionary intentions of US healthcare companies or was too distracted to care. The concern relates to the prospect of EU countries, under pressure from rising healthcare costs, handing over major parts of healthcare provision to the private sector. Once services are in private hands, say critics, TTIP rules will prevent them being taken back into state control.

Since these fears were voiced, trade negotiators have excluded provisions that would have allowed firms to sue governments for the loss of health and public services contracts once they expired. This allows the UK’s rail franchise system and the contracting-out of health services to continue under time-limited contracts.

But the US private health industry, which is the largest in the world, views a Europe struggling with the needs of an ageing baby-boomer generation as ripe for the picking. For this reason alone, contracting out the distribution of drugs, the supply of medical devices and the provision of vital services could prove irresistible.

Dispute resolution

A little known facet of every trade deal is a separate form of arbitration for the businesses covered by the agreement, allowing them to avoid the civil courts. As such, the investor-state dispute resolution (ISDS) gives foreign investors the power to sue a government for introducing legislation that harms their investment.

Famously, it was used by big tobacco to sue the Australian government when it introduced plain cigarette packaging. Before and after the scandal, other governments have come under legal challenge from corporations concerned that public policymaking is denying them revenues.

In spring 2014, UN official and human rights lawyer Alfred de Zayas called for a moratorium on TTIP negotiations until ISDS was excluded. He warned that the secret court tribunals held to settle trade disputes were undemocratic. Their reliance on a small group of specialist lawyers also meant that arbitrators sitting in judgment were the ones who at other times represented corporate clients.

De Zayas feared that smaller states would find themselves in the same position as many governments in trade disputes, suffering huge legal bills and long delays to public policy reforms. He was joined in his mission by NGOs and, most importantly, by MEPs in Strasbourg.

As a first concession, the US side agreed to prohibit “brass-plate” firms – those that exist only by name in a county, without any employees or activity – from suing a government. This aimed to prevent a repeat of the Australia incident when the Ukrainian arm of tobacco firm Philip Morris, effectively a brass-plate entity, spearheaded the attack on plain packaging.

  European commissioner Cecilia Malmström has proposed an international court of arbitration to settle investor disputes. Photograph: Emmanuel Dunand/Getty

Many EU politicians said this concession was too easy to circumvent, leaving corporations in a powerful position. So Europe’s chief negotiator, Swedish commissioner Cecilia Malmström, hatched a scheme for an international court of arbitration – an open public forum instead of the private court system. Even her critics said it was a bold move, and unlikely to be accepted by the Americans.

Washington has countered with proposals for a more transparent ISDS court, with live-streamed meetings and the publication of all documents. Not enough, says de Zayas, who wrote recently: “Alas, countless ISDS awards have shown a business bias that shocks the conscience. To the extent that the procedures are not transparent, the arbitrators are not always independent and the annulment procedure is nearly useless, ISDS should be abolished as incompatible with article 14(1) of the ICCPR [International Covenant on Civil and Political Rights] which requires that all suits at law be decided by independent and competent tribunals under the rule of law.”

The two sides have yet to formally discuss either proposal: under deals between the US and Japan and the EU and Canada the issue was barely mentioned, but it is now expected to be among the most contentious.

Regulations

Michael Froman, the US chief negotiator, described the task of harmonising regulations as follows: “For years the US and EU have accepted each other’s inspection of aeroplanes because it was obvious they would not be able to check all the planes landing in their jurisdiction. We seek to expand this practice to other areas.”

So how would Froman apply this to the fact that American cars will still be left-hand drive, restricting their use on British roads? He argues that the cost of imported cars, research and development and testing can still benefit from the harmonisation of regulations on either side of the Atlantic.

Yet there is nothing US food regulators would like less than to accept processed foods tested by EU officials who failed to spot the horsemeat scandal.

And EU regulators are duty bound to reject GM foods, after sustained protests by Europe’s consumers in direct conflict with US farmers. Washington claims it will accept the science when it applies to regulations, which supports GM foods being accepted by the EU as part of TTIP, just as it is part of the WTO agreement.

Tariffs

Dispensing with tariffs seems like a straightforward process compared with tackling complex regulations. Under TTIP, tariffs on goods and services should disappear, though it is expected that some will only be reduced, and others may take years to go the way of history.

Under the Trans Pacific Partnership (TPP) recently agreed, but not yet implemented, between the US, Japan, Australia, Vietnam and other East Asian countries, all goods, from pork to cars, are covered.

A good example of how long it can take for tariffs to come down is found in the case of the 2.5% rate slapped on Japanese car imports to the US: this will start to be incrementally lowered 15 years after the agreement takes effect, halved in 20 years and eliminated in 25 years. In return, Japan will, among other things, lower its tariff on imported beef from 38.5% to 9% over 16 years. A similar programme could be possible under TTIP, with olive oil tariffs lowered over 25 years.

Labour standards and workers’ rights


Japanese trade unions supported the TPP deal, and unions in Europe are expected to follow suit with TTIP. They accept that labour protection rules lie outside the scope of a deal, and that their governments can therefore continue to implement minimum wage legislation and other supportive measures without being sanctioned.

But unions, where they exist, tend to represent workers in successful industries, which naturally welcome access to wider markets. Workers in weaker areas of the economy could find their jobs coming under pressure from harmonised regulations, lower tariffs, or even just exposure to a US rival with a work ethic that denies most employees more than two weeks’ holiday a year.

TTIP is important to the UK government because the US is our biggest market for goods and services outside the EU. It’s seen as especially important for small and medium-sized businesses, which appreciate the lack of language barrier. Britain also has a trade surplus with the US: we export more than we import, which helps counterbalance the country’s huge trade deficit.

Such is the momentum behind the talks that a deal could be agreed by the end of the year, and go before Congress and EU parliaments in 2017. Both sides claim to be making good progress. But the dispute over ISDS and protests from farmers could yet quash Obama’s hopes for US olive oil sales.