02 Jul

European Union and the United States are currently negotiating the biggest free trade agreement in history. If concluded the new agreement will create a free trade zone that will include more than 800 million inhabitants as consumers and together with the United States will consist of 29 substantial economies that can muster the 37 % of the total world economic out put. This is by itself a game changing development in terms of global economy. Such an enormous change will inevitably have implications beyond economic that will spill over to other areas. Since the free trade agreement is a legal document that binds the signatories, it is quite natural that one of those areas where the ramifications of this free trade agreement between the United States and the European Union will be felt is law. Hence important legal implications are expected to ensue the agreement.

The Legal Implications Following TTIP

The Court of Justice of the European Union

One of the legal problems that the free trade agreement between the United States and the European Union is likely to face is the legal approach adopted by the Court of Justice of the European Union toward such agreements. Due to the internal structure of the EU, the Court of Justice has traditionally held the maxim that such free trade agreements have limited applicability within the EU jurisdiction. This means that such agreements generally have direct effect only in very limited circumstances. One should not forget that the European Union itself has an Acquis Communautaire that spans thousands of pages. Hence any free trade agreement that will be signed with the European Union has to be filtered through such a huge bulk of legal documents and made to be complied with them. Given the European Court of Justice’s past record of granting priority to the Community’s law over the free trade agreements should be taken in to account to better understand the legal implications of such a free trade agreement with the European Union.

Diverging Mentalities

What is even more important than the stance of the Court of Justice of the European Union is the diverging mentality adopted by the United States and the European Union in terms of, what the economists call, “the negative externalities” generated as a result of commercial transactions. Two such negative externalities are the tolls associated with human health and environment. In both of these two areas the United States and the European Union follows differing legal patterns where the European Union implements mandatory requirements on the issues concerning human health and environment whereas the United States only adopts non-mandatory voluntary guidelines. Therefore it is quite possible that a monumental effort will be needed to reconcile the American and the European approaches with one another and come up with some sort of transatlantic compliance in the business sectors pertaining to genetically modified food, chemicals and transportation where the emission levels set by the Europeans and the Americans are different from one another.

Dispute Resolution: Trade off Between Investment and Protection

The inevitable legal implication of a possible free trade agreement between the United States and the European Union will be on the dispute resolution front. It remains to be seen to what extend the investors will be provided with safeguards against an alleged unfair state behavior by TTIP. The investors usually seek for legal safeguards that would provide them the opportunity to exploit dispute resolution opportunities outside the jurisdiction where the investment is made. Even though this is necessary to make the investors to feel safe in a given jurisdiction of investment, there is always the trade off between the legal safe guards for the investors and protection of citizens and environment of the country where the investment takes place. Hence if the free trade agreement between the United States and the European Union contains far reaching clauses for the legal protection of investors this might harm the capacity of the national governments to enact the necessary laws to protect their citizens and the environment.

Conclusion

The free trade agreement which is expected to be signed between the United States and the European Union will create a single market with a legal framework where many of the regulations across the Atlantic concerning different business sectors will be led to comply with one another. However such a compliance, if attained, will be a hard fought process due to the diverging mentalities adopted by the two economic giants. Moreover, the stance of the Court of Justice of the European Union and the well know trade off between the investors and the national interests like the protection of citizens and the environment demonstrate the difficulties to be handled to reach such a level of compliance across the Atlantic.

 


Herdem Law Firm, Istanbul Turkey

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