No investor-state litigation clause in EU-US trade agreement!

American and European negotiators have met for the second round of bilateral talks for the Transatlantic Trade and Investment Partnership (TTIP) on Monday. In different negotiating groups such as "market access", "public procurement" and "regulatory aspects", EU and US officials are working to simplify business rules for both sides of the Atlantic. 

In one of the groups, negotiators are trying to establish a mechanism for investor-state dispute settlement (ISDS). This would allow an American investor to claim damages from the EU in front of an international court if the EU was to modify its public policy in a way that would spoil the investor's profits. Canada is feeling the heat of such a dispute since a group of investors has sued the region of Quebec under NAFTA for its ban on fracking. Argentina had to pay US investors hundreds of million dollars for their losses after it had to devalue its currency in 2001.

If US and EU negotiators agree to put an ISDS clause into the TTIP, this could curb the EU's and the member states' regulatory powers. A British fracking ban could for example cost the EU millions of Euros if it spoils a planned investment by US investors. In the same way, if a European country was to introduce an eco-tax or a financial transactions tax (FTT), this could also lead to compensation for American investors. 

EU and US negotiations keep affirming that both entities have a well-developed legal system and the need for ISDS should never arise. But once the system is in place, it can be freely used by every investor who wants to. It is a system that can become very dangerous for the shaping of democratic politics.

For this reason, there should be no ISDS clause in the TTIP.

EU-China summit: Advance on Market Economy Status, retreat on Economic Partnership

At the EU-China summit in Tianjin, José Manuel Barroso, Herman van Rompuy and Chinese Premier Wen Jiabao agreed

that a rich in substance EU-China investment agreement would promote and facilitate investment in both directions. Negotiations towards this agreement would include all issues of interest to either side, without prejudice to the final outcome. [Both sides] agreed to work towards the start of the negotiation as soon as possible.

One the one hand, this is an interesting development. In the past, bilateral investment agreements have allowed European enterprises additional security in their overseas investments, given that they could directly seek arbitration with an international tribunal.

One the other hand, opening new investment negotiations suggests that the 2007 Partnership and Cooperation Agreement (PCA) talks are all but dead. At the time, the EU wanted to update the 1985 agreement that governs Sino-European economic relations, and adapt the partnership to the changed trade patterns of the 21st century (increased trade in services, increased volume of foreign direct investment, questions of intellectual property, China's entry into the WTO in 2001 etc.). The 2010 EU-China summit still referred to the PCA, but this year it was not mentioned a single time. Are economic relations between the EU and China running smoothly if a comprehensive economic agreement is silently scrapped and replaced with the promise of a potential investment agreement? I don't think so. 

Another import point at the summit was Market Economy Status (MES) for China. Despite China's WTO membership since 2001 (analysis: here), the EU has long withheld MES for China and used it as a bargaining chip. Now, it appears that Van Rompuy and Barroso are ready to scrap their opposition if China steps up its help in the Eurozone crisis in return. Granting MES to China would inter alia strengthen Chinese enterprises in anti-dumping cases. The ALDE group is particularly unhappy to see the EU's bargaining chip vanish, but it would soon disappear anyway, given that under China's WTO accession agreement, the EU agreed to grant MES automatically in 2016 (even though this is contested).

Overall, I do not have the impression that this summit was a great advance in EU-China relations. But then, good relations across different cultures are not created overnight. Instead, many small initiatives such as dialogues in climate change, energy, urbanization etc. continue to bring the two partners closer together. In the long run, I would hope that the EU and China, two of the biggest trading blocks in the world, can use the summits to give their voice to global trade and global sustainable development. But in the short run, I believe that bilateral cooperation will continue to take place on the micro-level.

Kiyosaki's promise: Quit your job, let your money work for you

Don't work for money, let your money work for you. That is the essence of an interesting book by Robert T. Kiyosaki called "Rich Dad, Poor Dad". Employment in a company with a fixed work contract, Kiyosaki says, will lead most people into a hamster's wheel. Looking to earn money to support their growing expenses (children, house, car etc.), most people tend to work harder to receive more pay. They promptly hand over a larger share of their income to the State as they enter a higher tax category. In 2010 for example, an average German citizen employed in a private firm was working for the government until July 4th, after which he started producing value for himself. If he decided to work harder, it might push Tax Freedom Day even farther away.

Let your money work for you/adapted from
Flickr CC BY esbjorn2

Kiyosaki therefore proposes to a) cut spending and b) invest the money thus saved. His book can be criticized for many reasons, but the idea of "making money work for you" sounded appealing. I'm all in favor of investment with a moral backbone, so I scrapped speculation on oil, currencies, pension funds and food commodities in favor of stock options. I invested a fictional 7740 EUR into a portfolio of big stable European companies on May 7th (if I wanted to do that annually, it would require me 645 EUR per month in real life). Commission fees etc. of approx. 2% would put it down to 7585 EUR.

Now, the DAX which reunites 30 of the strongest enterprises in Europe's economic locomotive, Germany, grew by roughly 26% in 2009 and 17% in 2010 (my calculations). If I was lucky and my European company portfolio outdid the DAX by a third, I'd be between 23% and 35%. After a year of foregoing spending, I'd have gained 1745-2654 EUR (again subject to taxes).

Let your money work for you? I couldn't quit my job and live on 2654 EUR per year. Nor could I do so after ten or 20 years. Investment, I guess, cannot replace a work contract. It can give you a bit of spending money, but it won't make you rich unless you put your money into high-risk endeavors like startups or low-priced stocks.

Besides, for the last month all of my big European company stocks have only seen one direction: down.