International trade and the public interest

Professor Chris Newdick | September 21, 2020 | Blog

Are public interests at risk from the trade and investment agreements (TIAs) the UK is currently negotiating to replace its previous deals as a member of the EU? In particular, what about the public interest in the NHS as a publicly provided, publicly accountable, universal service, free at the point of delivery? Since the 1970s governments, captured by Hayek’s dream of free markets and small governments, have been content for neoliberal economics to govern public policy. Inevitably, this distorts responses to laws governing public interests.

TIAs’ core assumption has been that everything is determined by the operation of market competition. Excluding private companies from competing for public services on grounds of public interest has been regarded as an exception to the general rule requiring special justification. Yet, none of our public services could have developed in such an environment and the need for new TIAs highlights the need for new thinking about the weight we attach to public interests.

The problem starts with the “most favoured nation” (MFN) principle, i.e. that everyone’s tender for business should be treated equally (see, eg, the EU-Canada Comprehensive Economic Trade Agreement (CETA), Art 8.7.1). This means that any future trade deal will have to permit foreign, private companies the same access to NHS business as (say) BUPA, Circle, Virgin or Care UK – all of which provide services to the NHS. Unless a clear carve out is made, the UK could not favour public providers (see Art 19.4), nor require overseas investors to locate their investments in places most likely to benefit local economies (Art 8.5.2). The same prohibition would apply to a policy which favoured UK businesses to try to kick-start the economy after Covid-19.

Or, say UK health and safety standards are enhanced, or patient or employee rights are improved, with the result that foreign company profit from a public service is reduced. TIAs may permit transnational corporations (TNCs) to claim compensation from governments for loss of profit from regulations which deny their “legitimate expectations” (note the tendentious language). “Stabilisation clauses” in a TIA (again note the self-serving language) may also be used to stall improvements in regulatory standards for the duration of the treaty.

Take NHS drug prices. US negotiators may challenge NICE’s influence over drug prices, but the government says the NHS is “off the table.” And what about integrated care provider (ICP) contracts to promote primary, secondary and community care collaboration? Will ICPs be available for public tender? Exactly how will our negotiators protect the NHS?

The EU’s recent agreement with Canada, CETA recognises these dangers and offers a way of thinking about the balance between international trade and the public interest. For example:

  1. CETA reaffirms governments’ “right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity” (Art 8.9.1). Canada insisted on this. How will the UK protect the government’s right to regulate without fear of litigation? On the other hand, CETA also promotes regulatory “equivalence” between nations (Art 5.6). How will the UK preserve its food and farming standards and enable our own regulators to tackle the “commercial” determinants of health in ways we deem appropriate?
  2. CETA is also aware of the human and environmental costs of TIAs arising from unregulated competition. It makes frequent reference to the need for “regulatory cooperation [to]… contribute to the protection of human life, health or safety, animal or plant life or health and the environment…” (Art 21.3), and “the right of each Party to set its environmental priorities…” (Art 24.3). How will UK negotiators embed similar public interests in our TIAs? And, crucially, will they be fundamental democratic rights of governments, or limited exceptions to a general presumption favouring free markets?
  3. TIAs also suffer from their failure to give equal protection to governments from abuse by TNCs, for example, for breach of social corporate responsibility duties. Arbitration provisions benefit TNCs alone. Governments have no right to challenge corporate interests, other than as defendants in actions by investors (CETA, Art 8.23.1), and they are forbidden to appeal to domestic law as a basis for claims for breach of the treaty (Art 30.6.2). Arbitration is a one-way street in which TNCs have nothing to lose. This restriction cries out for change.
  4. Worse still, disputes are settled by an ‘Investor-State Dispute Settlement’ (ISDS) process. Instead of ordinary judges, the parties can appoint private, corporate lawyers to resolve disputes. But corporate lawyers are trained to serve corporate welfare and ISDS cases demonstrate how little empathy arbitrators have for public interests or human rights. Sensitive to this, CETA, provides for a standing pool of at least 15 arbitrators to be established with “expertise or experience in financial services law or regulation…” (Art 13.20). This still excludes national judges, but it does at least offer an independent panel of arbitrators, albeit that public lawyers are not expressly included.

Unsurprisingly, TIAs are suffering a “crisis of legitimacy” and the WTO has taken steps to recognise public interest “exceptions” in disputes. However, they remain exceptions to the general rule and leave unclear exactly how WTO law affects individual TIAs. This entire area is clouded by “systemic incoherence” which inevitably favours TNCs wishing to frustrate regulations promoting public interests.

Thus, although CETA has taken incomplete steps to recognise public interests, UK trade negotiators need to do better. The UK needs to be able to protect its comprehensive and accountable public health service, health equality and the right to control drug prices, as well as the fast food industry, consumer and employee rights, food and animal welfare standards, and the environment. And we urgently need a permanent and impartial replacement for ISDS.

There are two basic defects in the current system: (a) the absence of citizens’ engagement in the process of making TIAs and (b) to date, the failure to respond to the impact of neoliberal preconceptions on substantive TIA law. That is why we need scrutiny of the process as it develops.

The problem is that treaty negotiations do not require parliamentary oversight. Jonathan Djangoly, MP proposed that the negotiations with the EU should be open to parliamentary scrutiny so that we could contribute to the debate. Unfortunately, the government rejected the idea, so we will be in the dark until it is too late. Perhaps it believes TIAs involve trade-offs which cannot be done in public. But the balance between national politics and international economics, between public and private interests, is profoundly political and affects us all. Every effort is needed to make the process as open and transparent as possible.

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About the author

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Professor Chris Newdick

Chris Newdick is the Professor of Health Law at the University of Reading. He has served on the Department of Health's Medicines Commission and the BMA's working party on NHS rationing. He has been a member of successive Priorities Committees advising local NHS health commissioners. In 2016 he was a member of the Welsh government-appointed inquiry into Individual Patient Funding Requests. His book, Who Should We Treat? - Rights, Rationing and Resources in the NHS, was published by OUP.See all posts by Professor Chris Newdick