free trade negotiations between the european union and the united states with regard to finnish wage...

Free trade negotiations between the European Union and the United States with regard to Finnish wage earners 4 April 2014

EU-US free trade negotiations with regard to Finnish wage earners 1 SAK, STTK and Akava

TABLEOFCONTENTSExecutive summary .................................................................................... 2 Preamble ................................................................................................... 3 1 TTIP as a global undertaking ................................................................. 3

The agreement intensifies cooperation among Western democracies ......................... 3

The agreement as a part of wider cooperation among open market economies ......... 4

The free trade agreements promote economic openness ............................................. 4

Regulatory cooperation beneficial to EU and US enterprises ........................................ 6

Labour rights to be included in the agreement .............................................................. 6

Conclusions regarding the global dimensions of the agreement ................................... 6

2 Removal of barriers to trade ................................................................... 8 Current status of transatlantic trade .............................................................................. 8

Aim to eliminate customs barriers ................................................................................. 8

Public services excluded from liberalisation of trade in services ................................... 9

Openness in public procurement ................................................................................... 9

Aim of regulatory compatibility .................................................................................... 10

Economic impacts of liberalisation of trade ................................................................. 12

Conclusions regarding the removal of barriers to trade .............................................. 13

3 Boosting investments ........................................................................... 16 Removing barriers to investments ............................................................................... 16

Negotiating parties aim for stronger investment protection ....................................... 16

Conclusions regarding the TTIP investment agreement .............................................. 17

4 Promoting fundamental labour rights ................................................... 20 Aim to incorporate fundamental labour rights in the agreement ............................... 20

Compliance required with fundamental ILO labour rights ........................................ 20

Conclusions regarding the promotion of fundamental labour rights .......................... 22

5 Conclusions ......................................................................................... 23


Executive summary

The Finnish trade union confederations support the negotiations on the free trade agree-ment between the European Union and the United States. SAK, STTK and Akava empha-sise the importance of intensifying economic and political cooperation between the world’s leading open and democratic market economies.

The trade agreement would increase trade and investment between the EU and the US, and this would be of economic benefit to Finland as well. Increased competition would encourage enterprises to develop and invest, which would boost productivity and eco-nomic growth. For wage earners, this would translate into a greater number of meaningful and well-paid job opportunities; for consumers, into more affordable and higher quality products and services.

Companies in the EU and the US must continue to compete by means of innovating ra-ther than by undercutting labour or environmental standards. A key objective in the nego-tiations is to reconcile the regulatory differences between the EU and the US. Regulatory convergence and cooperation should be pursued openly and they must not lead to deregu-lation. Trade unions need to be guaranteed a genuine opportunity to have a say in the manner in which the compatibility of laws and standards is pursued.

The trade agreement would not require any weakening of labour legislation or collective agreements. The promotion of employee mobility is a desirable objective. The confedera-tions insist, however, that the terms of employment of posted workers must be in line with the laws and agreements of the country of destination.

In opening up public procurement, the rights under the EU’s procurement directive to im-pose social as well as other criteria in the awarding of public contracts must be retained. The agreement may not be permitted to create pressures to privatise publicly funded ser-vices. Publicly funded welfare services such as social and healthcare services must be ex-cluded from the scope of the agreement. It must also remain permissible to return privat-ised services into public hands.

There is no need for the agreement to provide for strong and extensive investment protec-tion, as the rights of investors are already safeguarded under the current legal structures of both the EU and the US. The agreement’s investment protection provisions may not be permitted to encumber the enactment of new national legislation that is in the public in-terest.

The vast economic and political clout of the EU and the US will put pressure on other countries as well to introduce the ground rules mutually laid down by the two. The agreement thus offers the EU and the US an opportunity to work towards greater open-ness and fairness in the world economy.

In order to reduce social dumping, the agreement must strengthen the monitoring of ILO fundamental labour rights. Mechanisms concerning economic consequences are needed to address breeches of these rights. The means chosen here must be supportive of the ILO’s monitoring mechanisms.

EU-US rapprochement would reduce the economic dependency of the two on countries which do not share their common values, such as democracy and human rights. In the en-ergy sector, cooperation would be of particular benefit to EU Member States, as they could step up their import of energy from the United States and thus diversify their ener-gy supply.


Preamble

The European Union and the United States launched in July 2013 negotiations on a free-trade agreement, the Transatlantic Trade and Investment Partnership TTIP. The agreement would give rise to the world’s largest free trade area and is thus likely to increase the volume of trade and investments between the EU and the United States. Finland is also estimated to benefit from the agreement.

The EU seeks to conclude the trade negotiations within the term of the current Commission, by autumn 2014. It seems likely, however, that the negotiations will extend into the term of the next Commission as well. The entry into force of the agreement requires the approval of the European Parliament.

1 TTIP as a global undertaking

The agreement intensifies cooperation among Western democracies

The TTIP agreement would strengthen economic integration between the world’s leading Western democracies. Closer economic cooperation would help the Euro-pean Union and the United States defend their shared values and interests in the global political arena.

Closer cooperation between the EU and the US in the energy sector in particular would be of considerable political importance. The huge increase in oil and natu-ral gas production in the United States is will make the country self-sufficient in energy in the coming decades. In the case of oil, self-sufficiency may be reached as soon as in the next few years. While US dependence on unstable oil production regions such the Middle East wanes, the EU looks to remain greatly dependent on Russia in particular. Roughly one third of all natural gas consumed in the EU is imported from Russia; in Finland, the figure is 100%.

At the EU-US summit held in Brussels on 26 March 2014, it was agreed, in the context of the Ukraine crises, that the export of liquefied natural gas (LNG) from the United States to the Member States of the European Union would be increased in order to reduce the European Union’s dependence on Russian energy. Accord-ing to US President Barack Obama, the TTIP agreement would be needed in this context to substantially increase the granting of LNG export licences to European companies.1

1 EU-US Summit Joint Statement 26 March 2014: http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ec/141920.pdf and President Obama’s speech at the summit press conference: http://www.whitehouse.gov/the-press-office/2014/03/26/press-conference-president-obama-european-council-president-van-rompuy-a


The agreement as a part of wider cooperation among open market economies

Until the mid-1990s, agreements aimed at liberalising world trade were concluded on a multilateral basis among all member states of GATT (subsequently the WTO). Since then global negotiations have produced few results and the focus had shifted to bilateral and regional trade agreements. At the same time, trade ne-gotiations have increasingly become an element of geopolitics for nations and economic regions.

In 2010, the Obama administration launched an ambitious round of negotiations designed to bring about a free trade agreement with US allies in the Pacific (Trans-Pacific Partnership TPP). Underlying these negotiations was the US aim of shifting its foreign policy emphasis to Asia, where the foremost goal is to foster US interests relative to the rising superpower China. The TPP agreement is envi-sioned to create a framework for the success of the Pacific region’s open market economies2 in competition against China’s state-led system as well as other emerging economies.3

July 2013 saw the launch of the negotiations on the Transatlantic Trade and In-vestment Partnership TTIP between the European Union and the United States. One of the aims of the partnership is to usher the European Union into the bloc al-ready consisting of the United States and the other TPP nations.

Once Japan decided in 2013 to join in the TPP negotiations and to initiate negotia-tions with the EU on a bilateral trade agreement, the TPP and TTIP negotiations came to encompass a group of open market economies accounting for more than 60 % of the global economy.

The TTIP negotiations are being pursued between the two largest economies in the world. According to Eurostat, in 2010 the 27 EU Member States accounted for 26 % of global GDP while the United States accounted for 23 %.

The free trade agreements promote economic openness

One of the aims of both the TPP and TTIP agreements is to agree on a set of rules to promote openness in the global economy. The considerable weight carried in the world economy by the TTIP and TPP countries would allow them to utilise various instruments to encourage – or to pressure – other nations to open up their economies. In the forthcoming investment agreement negotiations between the

2 The TPP group consists of Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam, the last-mentioned being the only one in the group not classified by the Heritage Foundation as ‘free’ in terms of economic freedom.

3 Gordon, B. K. (2011), The Trans-Pacific Partnership and the Rise of China http://www.foreignaffairs.com/articles/136647/bernard-k-gordon/the-trans-pacific-partnership-and-the-rise-of-china


EU and China, for instance, it would be difficult for China to disengage from dis-cussion on rules that are already included in both the TPP and TTIP agreements.

The European Union and the United States are both hoping that China will liberal-ise its economy and abandon certain features of its economic model which the two perceive as a significant economic threat4. Both the EU and the US are running major trade deficits with China and their relative significance in the manufactur-ing sector has decreased while China has become the world’s leading exporter of industrial goods.

The TTIP and TPP agreements are to contain rules to address the aggressive fa-vouritism of state-owned enterprises and the restrictions on foreign and privately owned companies that are typical of the Chinese economic model. Exchange rate manipulation as a means of increasing exports may also to be prohibited. The United States has for many years strongly criticised China for this practice.

China has responded to Western criticism primarily by emphasising that the Unit-ed States and the other developed economies similarly protected their own econ-omies in the early years of their development. In line with the strategic policy goal that was adopted by the Communist Party of China in 2006, the country’s state-owned enterprises have, however, become increasingly aggressive global actors. This has served to undermine the plausibility of China’s argument in the West5.

The Commission’s negotiating mandate approved by the European Council in-cludes the goal of defining common rules with the United States on state subsi-dies, state monopolies, state-owned enterprises and enterprises assigned by the state to perform specific tasks. The Council also gave the Commission a mandate to negotiate rules concerning private-sector monopolies and abuses of dominant market positions, in respect of which current US legislation is considerably strict-er than European legislation. No official objectives were laid out for these negoti-ations, however.

4 Dalton, M. (2013), Europe Seeks New Trade Weapons http://online.wsj.com/news/articles/SB10001424127887324010704578414673612252346?mg=reno64wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424127887324010704578414673612252346.html

5 Jie (Cherry) Yu (2012), Firms with Chinese Characteristics: The Role of Companies in Chinese Foreign Policy http://www.lse.ac.uk/IDEAS/publications/reports/pdf/SR012/yu.pdf


Regulatory cooperation beneficial to EU and US enterprises

A key aim of the free trade agreement between the EU and the US is reconcile regulatory differences between the two parties. The aim is to reconcile a wide range of technical regulations while not changing basic laws such as those regulat-ing labour (see Chapter 2). Were the two biggest economic actors of the world economy to agree on common standards, this would put pressure on the rest of the world to comply with those standards, not least in order to gain access to EU and US markets.

The regulatory cooperation between the European Union and the United States would further their interests in two ways. On the one hand, their enterprises would gain an advantage in the global marketplace, as their production systems would already be compliant with the new international norms. On the other hand, the au-thorities of the EU and the US, and the European and American enterprises con-sulted by them, could gain powers over the future direction of global standard de-velopment.

The TTIP agreement is to include provisions on permanent forms of regulatory cooperation. This would provide a permanent opportunity to optimise standards in keeping with the interests of European and American enterprises. The extensive regulatory cooperation included in the TTIP agreement is not a component of the TPP agreement, however.

Labour rights to be included in the agreement

Both the TTIP and the TPP agreements are to include rules on environmental pro-tection and fundamental labour rights (see Chapter 4).

When compliance with fundamental rights is required under both the TTP and the TTIP, compliance with such rights can be demanded with greater forcefulness from non-agreement states as well, in trade negotiations and with the help of other trade policy instruments such as anti-dumping duties6. In trade negotiations pur-sued under the auspices of the WTO, developing countries have opposed EU and US proposals on the incorporation of fundamental labour rights in trade agree-ments.

Conclusions regarding the global dimensions of the agreement

The Finnish trade union confederations see that it is important to promote fair competition and economic openness in the world economy and fundamental prin-ciples and rights at work. At present, China and many other countries gain consid-erable unfair competitive advantages from the implementation of protectionist

6 The European Parliament only recently voted in favour of imposing anti-dumping duties and anti-subsidy duties on the basis of social dumping as well. http://www.socialistsanddemocrats.eu/newsroom/sds-welcome-strong-victory-social-and-labour-rights-new-anti-dumping-legislation


policies and for not applying workers’ fundamental rights, both of which are to be addressed in the TTIP agreement. Employment in manufacturing has developed unfavourably in Finland and many other open economies with strong labour rights, and this has been partly caused by unfair competition in the world econo-my.

In the TTIP negotiations it is, nonetheless, important to agree on such rules gov-erning open markets that allow states to implement active industrial policy, also with the help of state-owned enterprises. It is also important for states to retain the right for state monopolies and other state-owned actors when these are needed to advance public interests.

The opportunity for defining international and even global rules must be taken use of, yet along with the economic interest of the EU and the US the interests of de-veloping countries in particular need to be taken into account. Third-world pro-ducers’ access to the EU and US markets on favourable terms is vital to the eco-nomic development of these countries. Trade is the best tool of developmental policy, and the promotion of trade also creates markets for products from the EU.

The European Union and the United States share a common value base built on democracy, human rights and the rule of law. This value base provides a good foundation for economic cooperation that enables the reduction of economic de-pendency on countries which do not share these values.


2 Removal of barriers to trade

Current status of transatlantic trade

The European Union and the United States are the two largest actors in world trade and also the most important trade partners to each other. Trade with the US has been important to Finland as well; in recent years, the United States has ac-counted for roughly 6% of Finland’s non-EU imports and 15% of its non-EU ex-ports.

In terms of value, the most important Finnish export item in the last decades have been ships, which have been exported to the US in greater number than to any other country. Other significant export items have been various kinds of machin-ery and mechanical equipment, chemical industry products such as petrol, medical devices and equipment, and paper. While industrial goods play a major role in imports as well, services account for a considerably higher portion of imports (roughly one half) than of exports (roughly one quarter).

Aim to eliminate customs barriers

In the negotiations, the European Union is pursuing the objective of eliminating all export and import duties from both industrial and agricultural goods. Special treatment may nonetheless be afforded to the most ‘sensitive’ of goods.

With the exception of textiles and clothing, customs duties on industrial goods are already very low. Meanwhile, both parties continue to protect their agriculture with fairly high customs duties, the EU even more so than the US. The EU impos-es particularly high tariffs on dairy products (48%), animal products (22%), sugar (22%) and beverages and tobacco products (20%), while the highest tariffs in the United States apply to dairy products (20%), beverages and tobacco products (16%) and sugar (10%)7.

As part of the TTIP negotiations, the European Commission made to the United States in February 2014 an offer to lift duties on all goods with the exception of beef, pork and poultry as well as certain other ‘sensitive’ products, to which abso-lute quotas would also continue to apply8. The proposal is in line with the objec-tives of the Finnish Food and Drink Industries’ Federation9.

7 WTO & ITC & UNCTAD: World Tariff Profiles 2011.

8 ROBIN EMMOTT and PHILIP BLENKINSOP (2014), Exclusive: EU ready to lift duties on most U.S. goods for trade pact http://www.reuters.com/article/2014/02/06/us-eu-usa-trade-idUSBREA1519S20140206

9 TTIP statement issued by the Finnish Food and Drink Industries’ Federation to the Agri-culture and Forestry Committee of Parliament http://www.etl.fi/www/fi/lausunnot/lausunnot/LausuntoPDF/Komission_neuv_transatlanttisesta_EKmv_20130527.pdf


Public services excluded from liberalisation of trade in services

The negotiations have the aim of liberalising not only trade in goods but also trade in services. The Council gave the Commission a very broad mandate to negotiate the liberalisation of trade in services, including sectors earlier excluded from EU trade agreements (e.g. transportation). The specific sectors to be included in the negotiations remain to be determined. Professional services are one of the sectors in which the removal of barriers to trade is being negotiated; others include social services, healthcare services and educational services, but only in respect of pri-vately funded services.

The barriers to trade in services are currently higher on average in Finland and the European Union than in the United States. Barriers are particularly high in the EU’s transportation sector. Considerable barriers exist in both the EU and the US in respect of professional services such as accountancy, auditing, and legal ser-vices, whereas in some sectors such as telecommunications barriers on both sides are already quite low. 10

The TTIP negotiations on the liberalisation of trade in services also involve the reciprocal recognition of professional and vocational qualifications, business li-censing procedures and possibly also the promotion of labour migration by e.g. facilitating the posting of workers between the two economies. In at least some of the trade agreements concluded to date, the EU has required observance of the collective labour agreements and labour legislation of the country of destination in respect of posted workers.

In earlier EU agreements, public services have been afforded double protection by a general exclusionary clause for publicly funded services and by sector-specific clauses. Trade agreements thus have not forced the parties thereto to privatise any public services or to choose a given form of service provision (public or private). The Council has not given the Commission a mandate to amend this approach.

Openness in public procurement

Opening up public procurement at all levels of government is also an aspect of the TTIP negotiations. At present, domestic suppliers are strongly favoured in public procurements in the US. Factors underlying this trend include the ‘Buy American’ legislation.

Wider access for European enterprises to the public procurement market in the United States could, according to the Ministry for Foreign Affairs, open up signif-icant opportunities for Finnish companies especially in the information and com-

10 Research Institute of the Finnish Economy ETLA: EU:n ja Yhdysvaltojen mahdollisen kauppa- ja investointikumppanuus-sopimuksen vaikutuksia suomalaiselle elinkeinoelämälle ja yhteiskunnalle [Impacts of the potential EU-US trade and investment partnership agreement on business and society in Finland, report available only in Finn-ish. 2013


munication sector, products and services related to energy and environmental competence, the health sector, and the infrastructure sector11. The export of Fin-land’s most important US export item, ships, could also grow easier, as American products are nowadays vigorously favoured in the United States’ federal purchas-es of means of transport. At present, only American ships are permitted to traffic between American ports.

Unlike in the United States, in the European Union and in Finland public pro-curement is already fairly open to international competition, particularly to other EU Member States but also to signatories to the WTO’s GPA agreement, which include the United States. The trade negotiations are likely, at most, to allow American enterprises to achieve the same standing in Finland’s public procure-ments as is currently held by enterprises from EU Member States. Only fairly mi-nor changes would thus take place in Finland.

Aim of regulatory compatibility

A key objective of the TTIP negotiations is to agree on a wide-spanning reconcili-ation of regulation in the European Union and the United States. The negotiations in this respect centre on technical regulation related to product and service quality requirements, whereas no convergence of labour legislation, for instance, is being pursued.

Generally speaking, the standard of regulation is high in both the US and the EU, yet there are also marked differences between the two. Financial markets, for ex-ample, are clearly more strictly regulated in the US than in the EU, whereas the opposite holds true in respect of e.g. food safety.

The European Council has given the Commission a mandate to negotiate on in-creasing regulatory convergence and co-operation in such a manner that the standard of regulation is not lowered. On several occasions, the Commission has given public assurances that the negotiations are not about deregulation. In addi-tion, the Commission has emphasised that ‘basic laws’ i.e. laws to protect human life and health, animal health and welfare, or environment and consumer interests, will not be part of the negotiations12.

The precise extent of the laws defined by the Commission as ‘basic laws’, and as such excluded from the negotiations, is unclear. The negotiations do not extend to e.g. labour legislation, yet neither are the negotiations limited solely to the laws and regulations pertaining to the technical properties of goods and services. Since

11 http://www.formin.fi/public/default.aspx?contentid=294940&nodeid=48660&contentlan=2&culture=en-US

12 European Commission: TTIP Questions and answers http://ec.europa.eu/trade/policy/in-focus/ttip/questions-and-answers/


the negotiations are being pursued in secret, it is unclear which regulations exactly are negotiated upon.

A large bulk of the costs in transatlantic trade currently arise from the different requirements imposed in the EU and the US on the properties of goods and ser-vices. According to surveys conducted by the Ministry for Foreign Affairs of Fin-land, the single biggest obstacle to Finnish enterprises in expanding to the US market is the technical barriers to trade based on regulatory differences13.

Regulatory convergence, without compromising on standards, would be accom-plished by one of the following four alternative means on a case by case basis:

1. adopting common regulation through harmonisation of the parties’ exist-ing legislation,

2. adopting common regulation through the joint rollout of wholly new regu-lation, such as existing global standards,

3. deciding that existing rules guarantee the same level of safety and other key aims (’equivalence’), or

4. reciprocally recognising existing regulation in cases where the rules of both are of high standard despite having different mechanisms or aims.

In relation to regulatory convergence, the trade agreement has the aim of agreeing on objectives such as the forms and timetable of the convergence. These efforts would be continued in the years following the conclusion of the agreement with the aim of working on regulatory convergence of both horizontal and sector-specific regulations. The sectors covered are expected to include, for example, food, chemicals and automotive industry, ICT and the pharmaceutical industry and other health-related sectors (e.g. medical devices). In other words, the goals is to remove technical barriers to trade in several of Finland’s major export sectors.

With a view to future legislative endeavours, the goal is to agree on a mechanism for consultation between the parties prior to the enactment of legislation. The agreement would not infringe in any way on the parties’ rights to enact and im-pose their own laws and regulations, however.

In the TTIP negotiations, the United States has raised demands related to the drafting process of future regulations. The United States is reportedly 14 hoping

13 Research Institute of the Finnish Economy ETLA: EU:n ja Yhdysvaltojen mahdollisen kauppa- ja investointikumppanuus-sopimuksen vaikutuksia suomalaiselle elinkeinoelämä-lle ja yhteiskunnalle [Impacts of the potential EU-US trade and investment partnership agreement on business and society in Finland]. 2013

14 “US pushes for higher transparency in EU business regulation”, Financial Times 23 February 2014


for greater openness in the preparation of regulation within the EU. The US is seeking an opportunity for American enterprises and other actors to put forward their views within the framework of legislative preparation in the EU. The right to be heard would apply not only to enterprises but also to NGOs and the trade union movement. This issue is further discussed below in the ‘Conclusions regarding the removal of barriers to trade’

Economic impacts of liberalisation of trade

According to an impact study15 conducted by CEPR on assignment from the Commission, an ambitious and comprehensive transatlantic trade and investment agreement would increase EU exports to the United States by 28% while imports would go up by 37%. The agreement overall would increase the EU’s total ex-ports (Unites States and elsewhere combined) by 6% and imports by 5%. Total exports would rise in all sectors except electrical machinery, in which US manu-facturers are considerably more competitive than Europeans. Positive export im-pacts of particular magnitude would be seen in the automotive industry (42%), metals and metal products (12%), chemicals (9%) and foodstuffs (9%).

In respect of electrical machinery, agricultural and other primary production products, some sectors of the metal industry and certain service sectors, the value of the EU’s total imports would rise considerably more than the value of total ex-ports, according to the CEPR. Imports in these sectors may be presumed to substi-tute for the EU’s own production to a significant degree. In the estimation of the CEPR, however, only 0.2%–0.5% of the EU’s labour force would have to change jobs and move to another sector due to the structural changes wrought by the free trade agreement.

No sector-specific impact study based on mathematical modelling has been per-formed in respect of Finland16, yet increased trade would undoubtedly have its impacts on trade between Finland and the US as well. Assuming that the CEPR projection of exports growth would be realised in full in Finland, a marked in-crease in export revenues would take place. In 2012, Finnish exports of goods and services to the United States had a combined value of €4.8 billion17. A 28% hike in exports would translate into an additional €1.3 billion in export revenues. In the absence of relevant research, it is not possible to determine in which sectors in Finland companies would find it hardest to adapt to the freer trade with the US.

Increased trade would intensify competition and result in the most efficient and innovative enterprises growing stronger. This development would boost produc-tivity and thus lead to greater economic growth and higher wage-payment capaci-

15 Centre for Economic Policy Research CEPR: Reducing Transatlantic Barriers to Trade and Investment 2013 http://trade.ec.europa.eu/doclib/docs/2013/march/tradoc_150737.pdf

16 See the aforementioned general study by ETLA (footnote 13), however

17 Customs (export of goods) and Statistics Finland (export of services)


ty. For consumers and for the industry using intermediate products, increased trade with the United States would bring about lower product prices and thus im-prove real earnings and profitability.

According to the CEPR study as well as other studies on the possible impacts of TTIP18, the overall economic effects of the free trade agreement (including in-creased investment, which is addressed below in a separate Chapter) would be positive for the EU. Open economies such as Finland are presumed to reap greater than average benefits from the agreement.

The TTIP impact assessments have come to conflicting conclusions as to the im-pacts of the agreement beyond the EU and the US. The impacts on third countries are likely to depend largely on the extent to which these countries are able to adapt to the regulatory requirements of the EU and the US. Third-country impacts would also depend on the geopolitical and development policy aims pursued by the EU and the US (see Chapter 1).

Conclusions regarding the removal of barriers to trade

As a small open economy, Finland may expect to gain economically from the re-moval of trade barriers between the European Union and the United States. It is important not only to maximise these gains but also to minimise any risks arising from the agreement.

The elimination of customs barriers would primarily impact on agriculture and the food and beverage industry in Finland. In the negotiations, the European Commis-sion is striving to retain customs barriers for several product groups of key rele-vance to Finland, and the risks to employment in these sectors may thus be esti-mated to be moderate.

Benefits to consumers need also be pursued. The increase in competition resulting from more trade may well bring down the prices of foodstuffs as well as other products, and thus increase the purchasing power of consumers.

The removal of technical barriers to trade may result in greater structural change in the Finnish economy than the reduction of customs barriers. Industry geared to the domestic market may be expected to encounter ever fiercer foreign competi-tion. The Government should indeed be prepared to allocate greater resources to the different programmes it has in place to support workers in conditions of struc-tural change.

International impact studies suggest that, as a whole, the structural change brought about by the TTIP agreement would be beneficial to Finland. Productivity and the potential wage level would be higher than average in the jobs created as a result of the agreement.

18 IFO/Bertellsmann, CEPII, Kommerskollegium.


The liberalisation of trade in services cannot be permitted to create pressures to-wards the privatisation of public services or publicly owned enterprises. Moreo-ver, it must remain possible to return privatised services into public hands. Posted workers must be guaranteed all of the same minimum rights as workers in the country of destination. Public sector actors must retain the right to impose social and environmental criteria in public procurement.

The draft TTIP position papers of several European industry federations of trade unions and the position paper ETUC position19 emphasise the risks related to trade in services and public procurement despite these risks having been effective-ly minimised in the EU’s earlier trade agreements through the means described above. It is unlikely that the EU changed its policies in these respects.

Public procurement and trade in services also offer opportunities. Increased com-petition for public contracts may reduce public sector expenditure and improve the quality of the goods and services acquired. In services, productivity in the US is higher than in the EU in many sectors and the increased competition ensuing from liberalisation could thus enhance productivity and potential wage levels in the services sectors in the EU.

Convergence of professional and vocational qualifications, and easing of work permit procedures would facilitate cross-Atlantic job-seeking. The labour laws and collective agreements of the destination country must be observed in all cir-cumstances, however. Neither is any decline in the standard of professional and vocational qualifications to be deemed acceptable. The sensitive nature of certain sectors of the labour market needs to be taken into account.

The parties to the TTIP negotiations have on several occasions given public as-surances that the negotiations are not about deregulation. Nonetheless, it must be ensured that the standard of regulation remains unchanged.

Deregulation might pose a particular risk, for instance, when reconciling widely differing regulations on privacy and health and safety. A particular challenge is to reconcile the European REACH Regulation on chemicals with the equivalent US legislation. The US has expressed its unwillingness to adopt certain practices re-quired by the REACH regulation, with particular opposition directed at the impo-sition of chemical reporting requirements on enterprises. In this context as well as elsewhere, the occupational health and safety rights of workers and the right of consumers to safe products of high quality standard must be ensured.

The Treaties of the European Union dictate that the European social partners and professional organisations need to be consulted on any reforms to labour market regulations. The parties may also independently negotiate framework agreements pertaining to the world of work, either on their own initiative or on the initiative

19 ETUC position on the Transatlantic Trade and Investment Partnership (2013) http://www.etuc.org/documents/etuc-position-transatlantic-trade-and-investment-partnership#.UwtyUuN_vQM


of the Commission. These European rights must stand unaltered. The regulatory culture of the European Union and the United States may as such warrant devel-opment, provided that this results in better regulation.


3 Boosting investments

Removing barriers to investments

In respect of investments, the negotiations first and foremost seek to increase for-eign direct investment (FDI) between the European Union and the United States.20 The two are already the world’s largest sources of foreign direct investment and also the most important investment destinations to one another.

The United States is an important investment partner to Finland as well; it is the destination of one third of foreign direct investment from Finland to countries outside the EU. American-owned companies, meanwhile, occupy second place in Finland when measured by the number of employees, bested only by Swedish-owned enterprises21.

In terms of value, however, FDI between Finland and the United States as well as Finland and other countries has been modest. Between 2003 and 2012, the flow of FDI abroad from Finland as a percentage of GDP was on average only 1.9% while the figure for FDI from abroad to Finland was 1.8%. The equivalent average fig-ures for European Union Member States were 3.8% and 2.8%, respectively22.

The aim of the EU in the negotiations is to achieve more effective FDI liberalisa-tion than in any agreements to date. In Finland, the barriers to FDI are low to begin with, while these are considerably higher in the US. According to the rele-vant OECD indicator, the FDI Regulatory Restrictiveness Index, Finland was among the least restrictive investment destinations among OECD countries in 2011 with an index score of 0.019. The equivalent figure for the US was 0.089. The only more closed OECD country in the European Union was Austria (0.106). Then again, the United States is a markedly less restrictive investment destination than ‘frontrunner’ China, where the index score was 0.409. 23

Negotiating parties aim for stronger investment protection

In the TTIP negotiating mandate for the EU, agreed upon in June 2013, the Com-mission was given the mandate to negotiate the highest level of investment pro-tection gained in any agreements to date. In trade and investment agreements, for-eign investors have traditionally been afforded protection in three distinct areas, and the Council’s directives to the Commission regarding the negotiations set the objective of incorporating all three into the agreement with the United States.

20 investments in foreign enterprises leading to a holding of 10% or more

21 aforementioned ETLA study (footnote 13)

22 UNCTAD http://unctadstat.unctad.org

23 OECD Factbook 2013 10.1787/factbook-2013-table87-en


Components of investment protection:

1. protecting investments against expropriation

2. guaranteeing investors the right to ’fair and equitable’ treatment

3. guaranteeing investors a level playing field relative to local investors

While the third aim is a generally accepted element in international economic re-lations, the first two have generated greater controversy. Protection against expro-priation in international investment agreements applies both to cases which are nowadays quite rare, where governments expropriate the production capacity of enterprises, but also to regulatory expropriation.

In the latter case, governments may be held to have violated the agreements when they enact legislation, the indirect effects of which are of such significance as to equate with actual expropriation. The significance of ‘fair and equitable’ treat-ment, meanwhile, differs considerably depending on the text of the relevant agreement and the party interpreting it. Agreements seldom contain a comprehen-sive definition of the concept, and this has resulted in interpretational disputes. As in the case of expropriations, this investment protection principle has been utilised in challenging the legislative undertakings of numerous governments.

The European Council laid down for the Commission the aim of incorporating in the TTIP agreement the Investor-State Dispute Settlement (ISDS) mechanism. This would mean that disputes concerning investment protection would be re-solved in international arbitral tribunals such as the ICDIS operating under the World Bank.

Arbitral tribunals are bodies independent of national court instances. They would e.g. decide whether new legislation is consistent with the agreement. When a giv-en law is found to be contrary to the agreement, the enacting state may become liable for damages to the claimant investor. Amendment of the law in question could not be demanded, however. In addition, it should be noted that action could not be brought against states for legislation predating the entry into force of the agreement.

Conclusions regarding the TTIP investment agreement

Investment from Finland to the United States might increase somewhat with the investment agreement while its impacts on investment from the United States to Finland would in all likelihood be fairly small, considering that the barriers to for-eign investment are, to begin with, low in Finland but somewhat higher in the US. In those EU Member States with higher barriers to investments, the impacts might be more positive. According to the CEPR study, the ambitious removal of barriers to investments would indeed expand employment by American enterprises in the EU by as much as 11%. The positive dynamic effects of increased international investments would indirectly benefit Finland as well.

The removal of investment barriers would have no significant adverse impacts for Finland, whereas strong investment protection combined with the international


ISDS mechanism would be more problematic. Its political cost would be the threat of more constricted democratic legislative power and judicial power. Unless exhaustively defined, investment protection could permit unfounded ISDS pro-ceedings to be brought against governments.

This would translate into a de facto transfer of power from multi-level legal sys-tems to three-person panels. The substantial damages which these panels would be empowered to adjudicate would give rise to uncertainty and could act as a de-terrent to legislators, who might err too strongly on the side of caution in catering for the interests of multinational enterprises in their enactment of new legislation.

There are issues of principle associated with the strong investment protection in-cluding the ISDS arbitration proceedings, yet it need not necessarily give rise to any major practical issues. In the most recent years for which statistics have been compiled, not a single developed country has been ordered to pay damages in such proceedings24. Finland, for example, as far as is known, has never had to pay compensation on the basis of its own 65 investment agreements despite ISDS pro-cedure being included in many of these, whereas compensation has been ordered payable by several developing countries where investors lack the protections af-forded by the rule of law.

The standing of investors in the EU and the US is already strong, which begs the question of whether a strong investment protection agreement incorporated into the free trade agreement confers benefits equal in value to the inherent risks. Were strong investment protection included in the agreement, this might facilitate the achievement of protection of equivalent level in future investment agreement ne-gotiations scheduled to take place in the near future between e.g. the EU and Chi-na. On the other hand, the refusal of Australia to incorporate ISDS procedure in its agreement with the US in 2007 has not prevented the US from including the procedure in all its subsequent agreements.

It would suffice for the TTIP agreement to reinforce the equal treatment of inves-tors. In this way a level playing field could be guaranteed, for example, for Finn-ish and American companies in the US market. To guarantee equal treatment, ISDS procedures may not necessarily need to be incorporated in the agreement. The application of investment protection could instead perhaps be entrusted to na-tional courts of law. Reliance on the national judicial system may, however, also be problematic. One study has, for example, found the US International Trade Commission USITC, which hears patent cases, to have issued biased rulings and to have favoured American enterprises at the expense of foreign ones25. There is no particularly compelling evidence of such partisanship, however.

24 ISDS statistics of UNCTAD for the years 2011 and 2012.

25 Robert Hahn: Assessing Bias in Patent Infringement Cases: A Review of International Trade Commission Decisions. Brookings 2007.


If the promotion of investment protection nonetheless proceeds along the lines proposed by the Council, it is vital that the range of situations in which investment protection applies be defined exhaustively and that every effort be taken to ensure the maximum independence and transparency of the ISDS procedure. It should al-so be enshrined in the agreement that the reform of labour legislation, social legis-lation and occupational health and safety legislation could never be construed as violation of the agreement.

In consequence of civil society criticism, the European Commission launched in March 2014 a public consultation on investment protection and the dispute set-tlement mechanism. The draft position papers of various European industry feder-ations of trade unions as well as the position paper of the European Trade Union Confederation ETUC26 demand that the ISDS procedure be wholly excluded from the Transatlantic Trade and Investment Partnership between the EU and the US. The negotiations on investment protection have been suspended for the duration of the public consultation. The Finnish trade union movement will also submit a statement in the consultation and welcomes the frank disclosure of both the threats and opportunities associated with the topic.

26 See above, footnote 19


4 Promoting fundamental labour rights

Aim to incorporate fundamental labour rights in the agreement

Both the European Union and the United States wish to retain their autonomy in labour regulation and are not pursuing negotiations on amending any national la-bour legislation or industrial relations institutions. In TTIP, only two restrictions would be applied to this autonomy. Firstly, the agreement would prohibit the weakening of labour legislation in order to reinforce competitiveness. Secondly, it would bind both parties to comply with a set of fundamental labour rights.

The negotiating mandate of the European Commission states that labour matters are to be incorporated in the TTIP agreement on the basis of the provisions in ear-lier agreements of the EU and the US. Earlier EU agreements have regulated la-bour issues, along with other social and environmental issues, in a chapter on Trade and Sustainable Development. Agreements concluded by the United States have correspondingly included separate Environment and Labor Chapters.

In their trade and investment agreements, the European Union and the United States have included requirements on fundamental labour rights to a greater extent than agreements concluded by other parties27. Based on the earlier EU and US agreement provisions, trade union organisations ETUC and AFL-CIO both con-sider that fundamental rights can be strongly enshrined in the TTIP agreement28.

Compliance required with fundamental ILO labour rights

Both the sustainable development negotiating agenda of the Commission29 and the negotiating objectives of the US30 state that in the labour domain, the starting point shall be the commitment of the parties to the ILO Declaration on Fundamen-tal Principles and Rights at Work (1998) and the ILO Declaration on Social Jus-tice for a Fair Globalization (2008), which are binding on all ILO members, the US included.

27 See ILO reports on labour related provisions in free trade agreements: http://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/documents/publication/wcms_228965.pdf and in investment agreements: http://www2.ilo.org/wcmsp5/groups/public/---ed_emp/documents/publication/wcms_191245.pdf

28 http://www.etuc.org/documents/etuc-position-transatlantic-trade-and-investment-partnership#.UwxhLON_vQM http://www.aflcio.org/Issues/Trade/U.S.-EU-Free-Trade-Agreement-TTIP

29 http://trade.ec.europa.eu/doclib/docs/2013/july/tradoc_151626.pdf

30 http://www.finance.senate.gov/newsroom/chairman/download/?id=7486a33d-7cb9-41ba-9492-3cc3145e3598


According to the 1998 ILO Declaration, the fundamental principles and rights at work apply to all member states of the organisation. Arising from their member-ship in the Organization, members are obligated to respect, to promote and to real-ize the principles concerning the fundamental rights expressed in the eight funda-mental ILO Conventions:

1. freedom of association and the effective recognition of the right to collec-tive bargaining,

2. the elimination of all forms of forced or compulsory labour,

3. the effective abolition of child labour, and

4. the elimination of discrimination in respect of employment and occupa-tion.

The ILO Declaration on Social Justice for a Fair Globalization issued in 2008 states that the fundamental principles and rights at work are necessary for the full realization of all of the strategic objectives of the ILO: promoting employment, enhancing and developing social protection (including social security and labour protection), promoting social dialogue and tripartism, and promoting the funda-mental principles and rights at work.

The European Commission holds that in addition to the 1998 and 2008 ILO Dec-larations, the agreement could mention other ILO Conventions and standards as well and also reaffirm the parties’ commitment to the promotion of the Organiza-tion’s Decent Work Agenda. The Commission also has the aim of incorporating in the agreement monitoring mechanisms involving various stakeholders. The agreement concluded between the EU and South Korea, for example, provided for the establishment on the part of both parties of monitoring bodies consisting of trade unions, employer organisations and civil society organisations. Cooperation between the monitoring bodies was furthermore enshrined in the agreement.

The United States seeks to have the agreement provide for sanctions against viola-tion of the fundamental labour rights in the same manner as against violations of other obligations under the agreement. An equivalent clause has earlier been in-corporated at least in the agreement between the United States and Peru.

The ILO Declarations and norms are ‘public goods’. The Organization has links with e.g. the European Commission’s Directorate-General for Trade, which draws upon the observations and recommendations of the ILO’s Committee of Experts and the Committee on Freedom of Association in its policy-making.

The ILO has no issue with other parties making reference to its Declarations and Conventions in their activities or with their imposing sanctions based on the monitoring of the Declarations and Conventions.


Conclusions regarding the promotion of fundamental labour rights

The substance of fundamental labour rights should be given as broad a definition as possible in the TTIP agreement with reliance on the current commitments un-dertaken by the United States and the European Union. In practical terms, this would primarily mean committing to the ILO Declarations of 1998 and 2008.

In the TTIP agreement, the most progressive provisions of earlier EU agreements on the monitoring of fundamental labour rights should be combined with the most progressive sanction mechanisms of earlier US agreements. Monitoring and sanc-tions should nonetheless be implemented in a manner supportive of the ILO’s ex-isting monitoring mechanisms.

Even if the TTIP agreement were to bring together the best monitoring provisions and the best sanction provisions of earlier agreements, this would in all likelihood have little direct impact on workers in the EU or those in the US. To date, no vio-lation of fundamental rights is yet to result in punitive measures on the basis of the sanction provisions in US agreements, for example.

The provisions in the agreement would nonetheless be stronger than in any earlier trade agreement. In providing a model for future trade negotiations with other countries, they would serve to steer development in the right direction. A stronger model for the safeguarding of fundamental labour rights in trade policy could provide a useful tool for reducing social dumping in world markets (see Chapter 1).


5 Conclusions

The conclusion of a free trade agreement between the European Union and the United States is desirable.

The agreement would boost jobs and growth in Finland. Export revenues could increase by as much as €1.3 billion. Purchasing power would in-crease.

The agreement would give rise to the world’s largest free trade area which would strengthen the EU’s relevance in the global political arena

The agreement must not be allowed to undermine the development of multi-lateral trade within the framework of the World Trade Organization WTO. The TTIP agreement can act as progressive model for WTO negotiations in areas such as fundamental labour rights.

Finnish export companies would benefit from reduced US protectionism.

The United States is a key trading partner of Finland.

Important export sectors include the maritime industry and associated ser-vices.

The agreement would serve as an important benchmark in promoting US–EU standards and labour rights

The aim of the central employee federations of Finland is for the agreement to include an ambitious chapter on labour rights in which:

1. Councils with trade union representation would be established to monitor the observance of fundamental labour rights and to issue recommendations. Provisions would be laid down to impose financial consequences for the vi-olation of fundamental rights.

2. The TTIP should contain no such labour provisions or mechanisms that would undermine the standing of the ILO. Instead the role of the ILO should be strengthened, for example, by making reference to ILO Declarations and Conventions.

Provisions on investor protection should be unambiguous and should under no conditions become an obstacle to the development of legislation that is fair and in the public interest.


The Finnish trade union confederations do not support the inclusion in the agreement of strong investor protection provisions. Guaranteeing non-discrimination of investors will in all likelihood suffice.

The dispute settlement procedures must be impartial.

The Commission’s pursuit of openness and consultation is commendable.

A public consultation on investment protection and dispute settlement was initiated in March 2014.

Public procurement shall be provided for in the agreement in a manner that permits the continued imposition of social criteria in awarding public con-tracts.

The compatibility of the EU’s new public procurement directive and this free trade agreement must be safeguarded.

The agreement may not result in increased pressures to privatise public ser-vices

National decision making powers over who provides public services must be retained.

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