20 May 2016

The Transatlantic Trade and Investment Partnership (TTIP), the EU-US free trade deal currently under negotiation, is facing growing public scepticism across Europe. In the UK, criticism has focused primarily on the potentially adverse effects of TTIP on the NHS. This discussion has got sucked into the broader EU referendum debate. It emerged yesterday that at least 25 pro-Brexit Conservative MPs were prepared to throw their support behind a Labour backbench amendment to the response to the Queen’s Speech, expressing “regret” that no Bill was announced to exclude the NHS from TTIP.

The Government eventually decided to accept the amendment, avoiding what might have been the first defeat in the House of Commons on a Queen’s Speech since 1924 – at the hand of an unlikely alliance of Corbynistas and traditionally pro-free trade and pro-US Conservative MPs. Apart from the specific episode, however, it is worth looking into this issue in some more detail.

What are the concerns?

Opponents of TTIP argue that it could lead to a sell-off of the NHS or at least make the existing privatisation of the NHS irreversible because of the so-called Investor-to-State Dispute Settlement (ISDS) mechanism – an instrument of public international law that grants investors the right to sue a foreign government, typically if they believe that they have been subject to expropriation or discriminatory treatment in that country.

Critics point out that TTIP would allow US private companies providing NHS services to take the UK Government to an international arbitration court and challenge attempts at re-nationalising those services. Fear of being potentially forced to pay compensation, the argument goes, would ultimately deter the Government from trying to roll back NHS privatisation even if it wanted to.

Leave campaigner Peter Lilley, one of the Tory rebels willing to back the Labour amendment on TTIP, said yesterday,

I support free trade. But TTIP introduces special courts which are not necessary for free trade, will give American multinationals the right to sue our Government – but not vice versa – and could put our NHS at risk.

In fairness, this argument has also been made by supporters of continued EU membership. Already in July 2014, Len McCluskey, the leader of the Unite trade union, said,

US health companies will even have the right to sue a future UK government in secret courts if politicians try to reverse [NHS] privatisation.

How valid are these concerns?

TTIP is still some way from being concluded. However, the European Commission has made available all the negotiating texts on its website – including the list of proposed carve-outs from TTIP that EU negotiators have put to their US counterparts.

Page 88 of this document makes it clear that, in future,

The EU reserves the right to adopt or maintain any measure…with regard to the provision of all health services which receive public funding or state support in any form, and are therefore not considered to be privately funded.

In practice, this means that TTIP would not force European governments to open up their public healthcare systems to US providers. Importantly, this reservation appears to cover publicly-funded health services that are provided by private suppliers. The same carve-out also features in the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada – which is often mentioned as a ‘template’ for TTIP.

Furthermore, EU Trade Commissioner Cecilia Malmström has so far given numerous reassurances that TTIP would not affect public services. In a joint statement from March 2015, Malmström and US Trade Representative Michael Froman specifically addressed the issue of public services outsourced to private companies, saying,

No EU or US trade agreement requires governments to privatise any service, or prevents governments from expanding the range of services they supply to the public. Moreover, these agreements do not prevent governments from providing public services previously supplied by private service suppliers; contracting a public service to private providers does not mean that it becomes irreversibly part of the commercial sector.

This is very much in line with what Malmström had written two months earlier to then UK Trade Minister Lord Livingston. One can always assume that the EU Trade Commissioner goes on record and lies deliberately, but we would be trespassing into conspiracy theory territory – which is clearly not the purpose of this blog post.

Indeed, the UK Government could decide to unilaterally break its contracts with private healthcare suppliers – thereby exposing itself to being sued by US companies. However, this looks very unlikely to happen in practice. As long as the UK complies with the terms of the contracts involved, there seems to be nothing in TTIP preventing the Government from re-nationalising those services once the contracts expire.

It is also worth bearing in mind that the ISDS mechanism is nothing new or unusual. EU member states are parties to some 1,400 international investment treaties that are currently in force around the world – and almost all of them include ISDS. According to the UNCTAD database, EU member states were on the receiving side of 128 known ISDS claims at the end of 2014 – around a fifth of the total 608.

Interestingly, though, 99 of them were intra-EU disputes – meaning that EU member states had faced only 29 challenges from investors based outside of the EU. Furthermore, as of end-2013, 76% of the 54 concluded ISDS cases against EU member states had been either won by the state (50%) or settled (26%) – while investors won only 24% of them.

As regards the UK, the Government has so far only been challenged once by a foreign investor via ISDS – while UK-based investors have launched 59 ISDS cases against foreign governments.

The verdict

TTIP is still under negotiation, which inevitably leaves room for uncertainty. However, based on the draft texts available and on a number of unequivocal public statements from both the European and the American side, it seems pretty clear that fears of TTIP triggering a sell-off of the NHS are overstated. David Cameron recently dismissed claims that TTIP would threaten the NHS as “the reddest of red herrings”. It is fair to say he was right.