Germany is pivotal to the success of any trade agreement between the European Union and the United States. As the European Union's largest economy, Germany is responsible for 27 percent of the European Union's extra-European exports. The E.U. Commission will not make a major decision on trade policy unless Germany is on board.Footnote 1 Germany is the United States’ largest European trading partner and the sixth largest market for U.S. exports. For the United States, the volume of trade, large number of consumers, and Germany's geographic location at the center of a twenty-eight-member European Union make it a cornerstone around which many U.S. firms seek to build their European and worldwide expansion strategies. As the third largest exporter in the world, Germany is dependent on open markets; throughout the post-war period, government support for free trade has been unequivocal. Exports are the drivers of Germany's economic power and of the welfare of its citizens; 53 percent of Germany's gross domestic product (GDP) is export-driven and a quarter of all jobs depend on exports. Powerful exporter associations have the ear of policy makers driving German foreign economic policy, but protectionist voices are rarely heard. The German institutional policy-making apparatus is carefully protected from anti-free trade influences.
Despite these positive incentives for expanding free trade, both German business and the wider public voiced fierce opposition to the Transatlantic Trade and Investment Partnership (TTIP). TTIP became a flash point for the German public to overcome collective action problems and create a broad protest movement against a free trade agreement (FTA) for the first time in German history. This movement enabled the public to successfully exercise influence on German foreign economic policy-making, which had long been protected from public pressure. By 2015, the success of that pressure in penetrating the policy-making apparatus combined with growing government concern about the potential of international firms to undermine national policy. As a result of the confluence of these two forces, German leaders changed their position in TTIP negotiations.
The paper proceeds as follows. First, we present the empirical puzzle of opposition to TTIP in the context of historic support in Germany for liberalizing international trade. Next, we explain how this public opposition also challenges our theoretical understandings of public opinion and collective action around foreign economic policy. Third, we discuss a case study of changes in German support for and opposition to TTIP and the investor-state dispute settlement (ISDS) clause. Finally, we conclude with a discussion of the broader implications for trade negotiations over agreements like TTIP.
The puzzle of public opposition
German public opposition to TTIP and Germany's role in shaping and reshaping TTIP and the ISDS clause presented two empirical puzzles: The first was the surprising awakening of both the public and businesses to trade concerns and the coalescence of opposition to TTIP in general, and to the heretofore obscure ISDS clause in the agreement specifically. Why did the public become interested, why were important sectors of business opposed, and why was opposition so sweeping? Powerful business lobbies have long guided German policy.Footnote 2 And there has rarely been public opposition to Germany's free trade policy.Footnote 3 How then did opposition to TTIP become so strong and widespread so quickly? And until opposition to TTIP emerged, there was rarely organized opposition or protest over the direction of German trade policy. The political and economic elite have traditionally been united in support of free trade policy and the general public has had little interest. Second, the German government's support for ISDS, a key plank in the TTIP platform, has wavered. Why? Did public opinion play a role in changing the German negotiating position, especially around ISDS? ISDS had been originally pushed by the BDI and the DIHT in the 1960s as a way to help German corporations do business in the developing world. Powerful actors and interests support the agreement, while public opposition is diffuse and has few channels of influence in the German decision-making process. And although the influence of public opinion on foreign policy in general increased over the post-war period, there is little evidence that it increased in trade policy. As we shall see below, the chancellor and foreign minister have a privileged role in foreign economic policy. It was no surprise, then, that from the beginning, Germany backed TTIP with more determination than any other E.U. member.
In fact, a transatlantic FTA has been a long-held goal of a united Germany's foreign policy: The German government spent decades arguing for such a treaty with the United States. Numerous summits and bodies were created over the years to make that argument, especially the establishment of the Transatlantic Economic Council (TEC) during Germany's 2007 E.U. presidency. But progress was only moderate until 2011, when, in the wake of the financial crisis and persistent economic weakness, the United States, too, became interested. By 2013, TTIP appeared to parties on both sides of the Atlantic as a unique opportunity for job creation and economic growth.Footnote 4
The arguments in support of TTIP are powerful: To the extent that TTIP would lift important barriers in transatlantic trade, powerful exporters supported ISDS and stood to gain from a strong agreement, since it would erase tariffs and, more importantly, lift non-tariff barriers to trade. Germany's rising status as a global actor also provides a rationale expressed by the political elite: TTIP was a geostrategic necessity, the argument went, which would send a signal to the world about “Western Unity,” particularly at a time when Russia again appeared to threaten the West. Indeed, TTIP could ensure that Europe and America, which account for half of global output, set standards that the rest of the world then has to follow.
Surprisingly, however, after a phase of initial enthusiasm, the negotiations began to move very sluggishly, and the European public and some political and economic elites—particularly in Germany—became increasingly hostile to the project. Within the general public, opposition came from all sides: consumer advocates, farmers, environmentalists, and the anti-globalization movement. Small and medium sized enterprises (SMEs) also opposed TTIP because they believed that it would make doing business with the United States more costly.Footnote 5 These groups coalesced and focused their opposition on the ISDS clause of the agreement, which gave corporations the right to sue governments in an international arbitration tribunal that would bypass national courts.Footnote 6 Without ISDS, TTIP was thought to have far less impact.Footnote 7 A Pew survey taken in January 2015 revealed that opposition to TTIP was stronger in Germany than in any other European country.Footnote 8 But as noted above, until TTIP, the German public had been enthusiastically in support of free trade, and has shown little interest in trade policy.Footnote 9 Trade negotiations are often arcane and complex and, to the extent that they have lowered tariffs, their outcome has been beneficial to consumers and exporters. So why did it suddenly emerge? And did it impact Germany's negotiating position?
Theoretical considerations: public opinion, collective action, and trade policy
While there is abundant existing literature on the role of public opinion in foreign policy in industrial societies, there are fewer studies on the relationship between public opinion and trade policy. Furthermore, public protests against TTIP and opposition to ISDS defy conventional theory about the relatively low levels of collective action we expect around foreign economic policy. Organizers seeking support to protest trade policy face a classic collective action problem in forming coalitions of large groups. Concentrated interests can form small groups, where consensus is easier to reach,Footnote 10 and effectively engage in collective action. In large groups, coordination problems arise because communication among potential participants is difficult. Furthermore, cross-cutting cleavages in large groups cloud an understanding of the “common good” to be pursued, and costs and benefits are diffuse and uncertain. Under these conditions, the incentive to engage in collective action is low.Footnote 11 As noted above, free trade policy has been driven mainly by concentrated interest groups (export industries) who benefit directly from trade liberalization. Benefits to the wider public are usually diffuse and poorly understood. Opposition is therefore low, and in the German case, practically non-existent. And when the good (trade restrictions) is not excludable, large populations are likely to free ride or under-contribute to the opposition.Footnote 12 Theories of collective action would predict that for these reasons, it would be difficult to form coalitions opposing free trade. But, in fact, public opposition to TTIP has grown, coordination is efficient, and effective opposition groups have gained traction in organizing mass protest. We saw high levels of participation and collective action, ranging from online campaigns by cross-group coalitions, to protests by substantial numbers of people on the streets. Opposition groups have even tackled the technocratic issue of the ISDS clause and been successful in raising public awareness of its lack of transparency and potential impact on national sovereignty.
There are four ways in which collective action problems in large groups can be overcome. First, Olson argues they can be overcome through selective incentives (side payments for cooperation), which increase the benefits of joining, combined with perceived low costs of participation. Second, coordination problems in large groups can be overcome through joint action in which smaller groups join together.Footnote 13 Third, collective action can also succeed when the costs and benefits of the collective good to be obtained (stopping TTIP) are specific and clear, rather than diffuse and vague. Finally, collective action problems can be overcome through the “bandwagon effect.”Footnote 14 This argument suggests if a potential participant in collective action sees that others are joining, the costs of joining decrease. As the costs of agreement are reduced, new potential participants may be persuaded; indeed, the costs of not joining might go up if one person sees that his friends are in participating.Footnote 15 As the bandwagon effect begins to shape public opinion and that opinion is measured by polling data, it can feed back into traditional print and audio-visual media, thus magnifying the effect. We will examine whether these conditions obtain in the TTIP case and whether they explain the TTIP opposition movement's success.
Our second question focuses on the reasons for the reversal in Germany's position on ISDS and the role of public opposition in that reversal. The literature tells us that in democratic societies, domestic forces may significantly narrow the range of foreign policy options available to central decision-makers, because those decision-makers must be accountable to their publics and especially to powerful interest groups.Footnote 16 Therefore, foreign policy decisions may be especially important in a government's attempt to secure domestic support. Put another way, in pluralist democracies, foreign policy decisions often have to be “ratified” by domestic interests.Footnote 17 Interest group demands, party politics, and public opinion are likely to be included in central decision-makers’ calculations of their foreign policy preferences. It follows that in trade policy, if opposition groups can overcome collective action problems, their interests could be included in these calculations.
The structure of the German political system may provide some clues about the growing impact of public opinion on German foreign policy in general. Although the chancellor and the foreign minister have a privileged role in policy formulation,Footnote 18 the political parties put some constraints on their control. To the extent that public opinion is channeled through the parties, the public's voice can be heard.Footnote 19 Nonetheless, that voice was not often heeded. Germany had effectively maintained a two-and-a-half party system until the 2000s; each of the two large parties (the SPD or the CDU/Christian Socialist Union (CSU)) formed a coalition government with the small FDP, or a “grand coalition” together, and each party maintained strong links to a homogeneous society. This system led to elite consensus-building on major foreign policy issues. Although the large parties sometimes took opposite sides on some foreign policy issues, especially Ostpolitik, public opinion followed party preferences and not the other way around. The relationship between elite and public opinion was of the “top-down” variety: popular consensus followed elite consensus. And when social movements arose to protest government policy on security and environmental issues in the 1980s, their influence was minimal because party elites opposed them. European monetary union was opposed by both majority public opinion and the Bundesbank, but both major parties supported the chancellor, who successfully outmaneuvered them.Footnote 20
Nonetheless, by the 1990s, a small shift in the structure of party politics had taken place that changed those dynamics and made foreign policy issues into valued currency in party competition for political support. Fragmentation threatened the two-and-a-half party system, as the large parties began to lose a significant share of their traditional voters to new, smaller ones.Footnote 21 On the local and state level, new parties emerged and overcame the Sperrklausel, a clause in the constitution which bars parties with less than 5 percent of the vote from political representation. In the 1990 elections, the Greens broke the barrier, and the federal election produced three small parties in the Bundestag. The rise of the Greens led to fears of even further fragmentation, as the larger parties scrambled to win back votes from disaffected constituencies.Footnote 22 As they scrambled, public opinion—mobilized by social movements and political entrepreneurs—began to have an increasingly independent effect on party positions, which, in turn, affected the choices of central decision-makers.
The 2002 election campaign, for example, was extremely close, and to win, Schroeder knew that he needed support from the more “pacifist” wings of the Green and Social Democratic parties, as the public began to increasingly oppose the Bush Administration's foreign policy, and specifically its intent to invade Iraq. To secure the support of the more “dovish” party factions, Chancellor Schroeder proclaimed his opposition to an attack on Iraq and refused to commit German troops even under a UN resolution.
Although after 2003, public opinion seeped through party channels to break through elite consensus and the chancellor's tight grip on foreign policy, there was little public concern with trade policy, beyond the usual environmental concerns. Few channels to the political elite had been created by the few groups opposing free trade. And while anti-Americanism grew among both mass publics and elites after Edward Snowden's revelations of NSA spying, these sentiments alone do not explain the amount or trajectory of public opposition to TTIP.
A case study of Germany and TTIP
Guided by these theoretical considerations, we examine a case study of TTIP and Germany. Using process tracing, we follow changes in support for and opposition to the trade agreement over time and the importance of the Vatenfall case for debate over the ISDS clause. We draw on official reports from national governments and international organizations; English and German-language news articles covering TTIP negotiations, public protests, and wrangling over the ISDS clause; public opinion polls; and previous scholarly work to understand the budding opposition to regulations on the negotiating table. The German case tells us about particular domestic dynamics in foreign economic policymaking in the country and trade politics more broadly in advanced industrialized democracies.
In this section, we describe the dynamics behind the rise of public opposition to TTIP in Germany and the German withdrawal of support for ISDS. After explaining the sources of initial support for TTIP, we turn to the growing opposition to the trade agreement. We then trace changes in the German government's negotiation position and public opinion, with a focus on ISDS.
Initial support for TTIP
An understanding of initial German support for TTIP requires an understanding of Germany's neo-corporatist model of economic decision-making, in which strong and centralized labor unions, employers’ unions, and the government cooperate as “social partners” to negotiate and manage the national economy. Hierarchical, non-competitive “Peak Associations” represent economic interests—labor, business, and agriculture—within this partnership, a tradition that dates back to the corporate guild system of the Middle Ages. The BDI represents over 90 percent of all industrial firms. The German Labor Union Association (DGB) is the national peak association of the German Labor movement and represents virtually all organized industrial workers, most white-collar employees, and many government workers. Influence of peak associations on government policy is institutionalized through political parties (the BDI and DIHT maintain a highly-developed relationship with the Christian Democrats and the DGB maintains a close relationship with the Social Democrats), formal affiliations with Bundestag deputies, and formal ties with government ministries, who are required by law to consult with the peak associations about draft legislation that would affect them.
Because West German industry dedicates a significant percentage of its production to export,Footnote 23 business, labor, and government have traditionally united on policies which both promote exports and support free trade negotiations.Footnote 24 That unity is easy to understand: despite Germany's export-dependence and vulnerability to the vicissitudes of the global economy, its success as an exporter has created a virtuous circle strengthening the German economy, to the delight of those in political power. More exports have generated more profits and created more jobs, pleasing both business and labor. Jobs and profits have fueled domestic demand for consumer products. Happy consumers support government policies. The export sector therefore has a powerful voice in German economic and commercial policy making, including a special Foreign Trade Advisory Council, located in the Ministry of Economics, currently headed by the leader of the Social Democrats. Senior German political figures rarely make visits abroad without including select businesspeople and labor leaders in their official delegations.
It is important to note that the virtuous circle of economic success attributed to the export sector, together with the institutional structure designed to give the export sector a role in policy making, has historically brought labor on board when it came to foreign economic policy. Early in the TTIP negotiations, Sigmar Gabriel, leader of the Social Democratic Party, had stated, “Fifty-three percent of our gross domestic product is export-driven and a quarter of all jobs depend on exports…Part of the problem in our country is that often those who do not work in that field do not know that the economic, social, cultural and ecological progress and success in the sectors in which they themselves work depend heavily on the export sector developing well and successfully.”Footnote 25 And in Germany's neo-corporatist system, Gabriel's voice was heard: Within the Grand Coalition with Merkel's CDU, he had been appointed Economics Minister, and Deputy Chancellor.
Of course, as was true in the United States, the supporters of TTIP can be found primarily in the government, in the conservative party in power, and in the highly-organized business sector. The BDI supported TTIP with virtually no reservations, arguing that TTIP (together with CETA) offers the long-awaited opportunity to reduce tariffs and other administrative barriers to transatlantic trade. BDI President Ulrich Grillo spoke of hope, “Hope for economic growth, hope for more jobs and hope for the chance to actively shape globalization.” German industries saw “clearly an opportunity,” in TTIP, Grillo said, “namely the opportunity to ensure our prosperity and our excellent position in the world economy over the long term.”Footnote 26
Executives in Germany's automobile industry, a powerful member of the BDI, have made the most passionate arguments in favor of TTIP. Little wonder: The auto industry alone produces 20 percent of Germany's GDP, and the United States is the second-most important market for Germany's carmakers, close behind China. Together, top representatives from Daimler, BMW, Porsche, and Volkswagen lobbied in favor of TTIP, saying their firms would save more than €1 billion ($1.13 billion) each year if tariffs were lifted. The managers also underscored their frustration with standards and norms that differed on either side of the Atlantic, touting the advantages of no longer having to produce separate blinkers, side mirrors and lights for the two markets.Footnote 27
The German government initially made the conventional economic argument in favor of TTIP: Angela Merkel stated that she favored a conclusion of the FTA in 2014, in the interests of “jobs and growth in Europe.” “We can't seal ourselves off in this world,” she is quoted as saying at the World Economic Forum in Davos. Europe had to seize this opportunity to “accelerate and expand its growth opportunities by reducing barriers to transatlantic trade.” Indeed, the European Union boasted that TTIP would increase E.U. GDP by €120 billion annually,Footnote 28 and the BDI posted the figure on its website. However, not only did opponents of TTIP question this figure, but economists admitted that estimates were speculative and would remain so until—and, to an extent, even after—an agreement was negotiated and put into effect.Footnote 29 Foodwatch, a consumer organization in Germany, began to repeatedly question the figure on the BDI web site, accusing the association of purveying “grossly false information” about the trade agreement. The story made the headlines in Germany, and the BDI quietly changed the estimates published online.
When economists began to question the growth argument, the European Union, Merkel, and peak business associations changed course and began to press a “strategic” case for the agreement, citing Russia's annexation of Crimea in 2014 and the “return of geopolitics.” Economic arguments about the benefits of TTIP were replaced with warnings that prolonging negotiations and dropping the ISDS clause would weaken European security. TTIP began to be portrayed as an “economic NATO,” a signal to the world about Western Unity. Supporters of the deal increasingly fell back on the “strategic” case for an ambitious agreement with the United States—especially in the context of the debate since Russia's annexation of Crimea in 2014. Within the halls of government, TTIP provided the organizing logic undergirding Germany's relationship with the United States before the election of Donald Trump.Footnote 30 If the Trans-Pacific Partnership (TPP) was concluded and TTIP was not, they warned, the United States would indeed “pivot” toward Asia. By setting standards and regulations for a twenty-first-century world—i.e., preserving the existing liberal trade order—TTIP would have been a powerful tool to edge out BRIC competitors who wished to reshape the existing world order. Freya Lemcke, director of trade policy at DIHK, stated that “In terms of trade volume and geopolitical importance, the whole idea of setting standards together, defining the rulebook with the US as a strategic partner is crucial. We cannot stress enough the importance of having a comprehensive agreement.”Footnote 31
Growing opposition to TTIP
As negotiations wore on, however, the rapid rise of public opposition to the agreement began to break this happy tripartite partnership for the first time in post-war German history. The Left has long opposed “free markets” and been a vocal opponent of TTIP. But in 2014, support began to wane in the peak labor association and among its political allies in the Social Democratic Party and the Greens.
“Whoever whispers, lies,” and “No secret negotiations, stop TTIP,” read the banners in one of the early, colorful demonstrations against TTIP in Germany, marked by music, dancing, and floats portraying a Trojan Horse, snakes eating dollar bills, Merkel lighting a TTIP bomb that would blow up the German parliament building, and signs warning of other dire consequences if the agreement was signed. Protestors carried signs claiming that TTIP would serve narrow corporate interests, selling short both the consumer and the environment in secret negotiations. Other signs warned that Germans would be eating Chlorhühnchen—“chlorinated chickens”—if the floodgates were opened to American food products. TTIP would lower E.U. standards on consumer protection, food safety, and genetically modified organisms by giving U.S. firms free access to European markets for agricultural products. These signs spoke to multiple concerns among the participants. Opponents raised the issue of the Chlorhühnchen to make a more emotionally penetrating argument that TTIP would be a threat to Germany's values and way of life.
Furthermore, the fact that most of TTIP's gains would come about through the elimination of non-tariff trade barriers—that is, the prospect of eliminating standards—awoke fears that TTIP would lead to lower standards. These fears were heightened by the basic distrust that many Germans currently feel toward the Americans, especially since the NSA scandal and the Snowden Affair. And because negotiations were conducted in secret, the argument ran, the public would remain unaware, while Chlorhühnchen and hormone-treated meat would be imported to Europe (where they would be ingested by Europeans), and genetically modified organisms (GMOs) would find their way into Europe's food supply. And any power to oppose these measures would be negated by a “secret” and therefore undemocratic ISDS. Claudia Schmucker, a trade expert with the European Council on Foreign Relations, stated the problem succinctly: “It's an issue of trust. There is widespread anti-Americanism [in Germany], and the Snowden affair erased any trust people had. So when the US now says that we are going to have equal standards, everyone believes that these are bad standards.”Footnote 32
When E.U. Trade Commissioner Cecilia Malmström (who became E.U. trade commissioner in November 2014) initiated a transparency campaign, this later claim was muted in the opposition information campaign. Malmström ordered immediate publication and widespread circulation of the TTIP mandate, textual proposals, and position papers. But E.U. credibility had fallen with the revelation of what the opposition had called “falsified data” about the benefits of TTIP discussed above. Chlorhühnchen continued to be a symbol of the opposition movement, representing not only the inedible food that Europeans would be forced to eat but also American domination and its perceived codification within ISDS.Footnote 33 Instead of continuing with multiple concerns about industrial farming, food safety and environmental degradation, opponents turned their focus to ISDS, the clause which seemed to symbolize a central concern across the spectrum of opposition groups.
Controversy over ISDS
In order to shed light on the larger role of public opinion in shaping TTIP negotiations, we focus here on the demise of the ISDS clause of TTIP in Germany. The importance of this clause cannot be overstated: ISDS represented the heart of the TTIP debate in Germany, and its successor, the ICS, would likely come under attack as well.
The ISDS clause of TTIP would have allowed foreign private investors to sue governments if they believed that local laws threatened their investments. Using this mechanism, multinational corporations (MNCs) have a special right to claim damages from governments through international arbitration procedures rather than in domestic courts. Originally, the inclusion of ISDS was meant to protect foreign investors from discrimination, expropriation, and denials of justice. The separate process would protect investors from state interference in countries with weak judicial systems. It was believed this would in turn boost foreign investment.
Ironically, the first ISDS clause appeared in the bilateral trade agreement Treaty for the Promotion and Protection of Investments between Germany and Pakistan in 1959. Germany sought protection for its companies from possible investment losses in what they perceived as a volatile political and economic environment in Pakistan. Currently, different forms of ISDS provisions are in over 3,000 agreements worldwide.Footnote 34 Germany is party to fourteen intra-E.U. trade agreements with ISDS clauses; the United States is part of fifty such agreements; and nine E.U. countries have trade agreements with the United States that include ISDS.
However, MNCs have exploited ISDS to apply for compensation when state policy reforms hurt their business. Companies can sue if they feel they have been directly or indirectly expropriated, and they have taken advantage of unclear definitions of “indirect expropriation” to sue governments. Some firms have even bought companies in jurisdictions where ISDS applies in order to gain access to this ability to sue states. In 2011, Philip Morris Asia brought suit against Australia, claiming that the government's tobacco plain packing measure constituted an expropriation of its Australian investments under Article 2(2) of the 1993 Agreement between the Government of Australia and the Government of Hong Kong for the Promotion and Protection of Investments. The Australian government cited public health research that showed tobacco plain packaging reduced smoking rates, and Philip Morris Asia argued that the measure was an “unreasonable and discriminatory measure.”Footnote 35
Not only do critics argue that these disputes belong in domestic courts instead of in a separate channel for investors to sue host states, they also question the international arbitration panels that decide on disputes. Panel assembly is often ad hoc, and it is possible for a panel member to have either recently worked or soon join one (after the panel ruling) as a lawyer for the company in the case.Footnote 36 Arbitrators earn $600–700 per hour, which incentivizes them to take cases instead of dismissing them. The process is seen as secretive and lacking in transparency, and there is no requirement that panels consider or rely on precedent. Foreign investors can safeguard themselves from government abuse by buying political-risk insurance.Footnote 37
According to the United Nations Conference on Trade and Development, the number of ISDS cases is growing. In 2012, a record fifty-nine cases were initiated, double the count from just a decade earlier. In 2014, claimants initiated forty-two cases, 40 percent of which were against developed countries, higher than the historical average of 28 percent.Footnote 38 Of the 356 ISDS cases that were concluded by 2014, 37 percent decided in favor of the state, 25 percent were in favor of the investor, and 28 percent were settled. The United States and European Union are frequent ISDS users, accounting for 75 percent of the global number of known ISDS claims.Footnote 39 The lowest known amount awarded was $460,000 and the highest was $1.8 billion.
ISDS opponents
Supporters of ISDS called it the “right-to-sue provision,” meant to ensure that governments comply with their treaty obligations by allowing companies to bring lawsuits directly against individual countries. But opponents saw it as a means of corporate control, removing government protection of citizens. They argued that the very threat of litigation could challenge everything from food safety standards to a ban on fracking now in place in France. Furthermore, they claimed that the court systems in both the United States and European Union are mature enough not to be a concern to foreign investors. They saw ISDS as an instrument which would create “secret tribunals” that would protect the interests of large corporations (and Americans). Protesters’ banners stretched across a replica of the Trojan horse, reflecting all of these fears.
In order to dampen and co-opt opposition, and as part of the transparency campaign, the European Commission initiated a public consultation on ISDS. One hundred fifty thousand responses poured in—the vast majority were negative. Many of them saw ISDS as a focus for earlier protests: they rang the alarm that corporations would be able to bypass the courts through secret arbitration processes—undermining democracy—and that standards set by the government for the environment, health, and consumer protection could be surreptitiously cancelled out. And an article focused on ISDS in the June 2014 issue of the German elite weekly DIE ZEIT carried the headline: “Will the Americans soon rule over us?”
Even during the Commission's “Transparency Campaign,” the number of organizational members who joined the anti-TTIP coalitions began to grow rapidly. NGOs were soon joined by labor leaders, who now turned from pro-free trade arguments about job creation, to arguments against an agreement that might threaten European labor standards and regulations. The leadership of Germany's IG Metall labor union, which is strongly represented throughout the German auto industry, made a statement that it would oppose any erosion of worker rights or representation on company boards that would come about through ISDS.
As they grew more popular, these opposing arguments began to gain traction with the political elite. Recall that even left-of-center parties had historically joined with business to support Germany's free trade policies and that early in negotiations, Sigmar Gabriel, the SPD party leader at the time, had praised TTIP, urging business leaders and labor alike to promote its benefits. And he had been critical of the early demonstrators. “Out there it's all about PR and emotional campaigns against which rational discussion has no chance,” Gabriel said. “‘TTIP is evil’ does not help us.”Footnote 40
But beginning in 2015, opposition to TTIP rose within the ranks of the SPD. One demonstration, organized by that opposition, took place as Sigmar Gabriel arrived at party headquarters after a meeting with the BDI on TTIP. The demonstrators had been standing for hours in the rain, and there were so many of them that the road in front of the headquarters had to be closed to traffic. And the demonstrations did not stop.
The opposition movement grew rapidly. The organizers of “Stop TTIP,” the umbrella organization uniting all European protest groups against TTIP, issued a Europe-wide petition to stop TTIP, a petition which was billed as a European Citizens Initiative (ECI)—a mechanism with the potential to change E.U. law.Footnote 41 In November 2014, the petition had 180,000 signatures; by 20 February 2015, the number of signatures had reached 1.4 million, 860,000 of which were German. In July 2015, an opinion poll published in Eurobarometer showed that 42 percent of Germans supported TTIP, down from 55 percent reported by the PEW research Center in April 2014. Thirty-six percent were opposed to it, up from 25 percent in February 2014. And by April 2016, a survey conducted by YouGov for the Bertelsmann Foundation, showed that only 17 percent of Germans believed that the Transatlantic Trade and Investment Partnership was a good thing.Footnote 42
Gabriel eventually joined the opposition to ISDS. In March 2015, he gave an interview to the Munich-based newspaper Sueddeutsche Zeitung in which he stated: “what the SPD doesn't want, won't happen” and “We won't accept any pressure for further liberalization, or privatization. We won't lower any social, environment or consumer protection standards…And (referring to ISDS), we will not—I am completely sure of this—see any privatization of arbitration.”Footnote 43 He then promised to block any clauses in the trade deal that would go against the ideals of the SPD. The leadership of the Greens was in agreement with Gabriel, arguing that the TTIP negotiation process should be used to strengthen rather than liberalize standards. Negotiations on investment were suspended in early 2014, and by mid-March 2015, the German government announced that it was backing away from agreement on the ISDS clauses of the agreement altogether.
The demise of ISDS
More important than the public opposition and the emotional appeal of their arguments, however extreme, was that the political elite also jumped on the anti-TTIP bandwagon. Since the Snowden revelations, Social Democrats and Greens heightened efforts to make policy more transparent and to give their constituencies a stake in negotiations. Gabriel supported the proposal that TTIP must be ratified by national parliaments (as well as the European one), so the politicians could not ignore the critics among their ranks.
Although generally supportive of TTIP, politicians had other reasons for opposing the arbitration clauses of ISDS, which dovetailed with public concerns. Two shadows had fallen over the ISDS clause in TTIP in early 2015 which suggested that Germany's economic and geopolitical interests could reinforce the public opinion arguments and distance the German government from the agreement: First, in export circles, Germany's commercial ties with China seemed to conflict with its relationship with the United States. More importantly, however, were the highly-publicized cases in which the interests of multinational corporations conflicted with German policy, showing that ISDS could do great damage to Germany's domestic economic policy goals.
The cases provide a microcosm of how public and political concerns had merged. They involved Vattenfall, a power company owned by the Swedish government. In 2009, Vanttenfall sued the German government for conditioning its approval of a coal-fired power plant near Hamburg on the corporation taking steps to protect the Elbe River from its waste products. Vattenfall threatened to close its coal plants, triggering a visit by Gabriel to Sweden to dissuade it from doing so. Vattenfall was subsequently victorious in a local Hamburg court and dropped its international tribunal case at the World Bank's International Centre for Settlement of Investment Disputes. To avoid paying the $1.9 billion in damages requested by Vatenfall under ISDS, Germany lifted the environmental conditions on the company's coal-fired power plants.Footnote 44
But three years later, things had changed. Vattenfall sued Germany through ISDS for its policy change to phase out nuclear power plants. The Swedish firm was part owner and operator of the Brunsbüttel and Krümmel nuclear plants. After the Fukushima nuclear disaster in Japan in 2011, Merkel had decided to gradually move Germany away from nuclear energy, immediately shutting down the two Vattenfall reactors, among others.Footnote 45 The company had invested €700 million euros in the two facilities. In June 2011, it demanded “fair compensation” for losses associated with shutting down these plants and subsequently sued Germany for €4.7 billion in future lost profits. Chancellor Merkel subsequently stated publically that she was “very, very unhappy with Vattenfall,” and had doubts about the trustworthiness of the company. Germany's experience with the Vattenfall left an indelible impression on the German government and people over the reach of foreign investors through ISDS.Footnote 46
Regardless of whether decisions made through ISDS arbitration were won by corporations or the state, German policy makers were concerned about how the existence of the clause alone could unduly influence regulatory policymaking. The European Council on Foreign Relations stated, “As compared to national law, provisions in recent treaties still tilt the balance of power away from governments and towards global corporations.”Footnote 47 According to the German constitution, decision makers must consider the private owner's (or investor) interest and public interests when determining compensation in property expropriation cases. By comparison, the principle in CETA, often referred to as the blueprint for TTIP rules, bases compensation on the market value of lost profits without concern for society's interest.
Critics emphasized how the combination of 1) a special channel for arbitration for foreign investors outside domestic courts and 2) the shadow of potential ISDS cases cast on regulatory agencies encroached on state sovereignty. The president-elect of the European Commission, Jean-Claude Juncker, said he “will not accept that the jurisdiction of courts in the EU Member States is limited by special regimes for investors-to-state disputes.”Footnote 48 He further stated that the integrity of the rule of law within the European Union is of utmost geopolitical importance, both for protection from the United States and developing countries.
Since the Vattenfall case broke in the media in mid-March 2015, Germany officially changed its negotiating position on ISDS. Brigitte Zypries, a junior economy minister, told the German parliament that the government was determined to exclude arbitration rights from the TTIP negotiations. She was quoted in the press as saying: “From the perspective of the [German] federal government, U.S. investors in the European Union have sufficient legal protection in the national courts.”Footnote 49
By mid-September 2015, ISDS, as a clause in TTIP, was dead. And—because of opposition from politicians and NGOs in Germany and Austria—hopes had faded that the TTIP would be concluded by the end of the year. To support continued negotiations, Malmström proposed the ICS, a new investment court—a “public justice system”—that would comprise five judges each from the European Union, the United States, and elsewhere to replace ISDS. Cases would be presided over by three judges, representing each of the trading blocs, and all court proceedings would be open to the public. Court documents would be posted online.Footnote 50
Gabriel hoped to calm the dispute over investor protection in the transatlantic trade agreement with a new form of arbitration. He proposed a modernized procedure for arbitration of disputes between investors and the state, which would apply to TTIP and would replace the conventional arbitration court system with one based on public law. His proposed system would have more transparency and more opportunity to appeal arbitration rulings. To save TTIP, the original ISDS proposal was abandoned.
Gabriel's plan might have worked. When, on 19 September 2016, the SPD expressed overwhelming support for CETA, Brussels heaved a sigh of relief, because without SPD support, the German government would not have been able to support the agreement and TTIP negotiations would have been paralyzed. Reflecting central opposition concerns for citizen participation and transparency, the SPD motion to approve carried strict conditions: Before it would give final approval, the party demanded that the E.U. Parliament engage in broad consultation with national parliaments and NGOs.Footnote 51
The proposed mechanism for resolving disputes was one of a number of German concerns. One particular aspect of TTIP distinguished it from most other trade agreement negotiations. The agreement included details at the regulatory level. As with the controversy over ISDS, government authorities and protest organizers seized on these specifications to raise concerns about German sovereignty and control.
Mobilizing anti-TTIP protestors
Opposition to TTIP was so influential because opposition leaders were, for the first time, able to bring diverse groups together to engage in collective action. How were they able to achieve this? Theories of collective action provide four conditions which may explain the rise and success of a mass protest movement against TTIP in Germany. The first is what Olson calls the provision of “selective incentives,” that is incentives other than achieving the goal of collective action, which motivate participants to join. The protests were often much like large street parties, with music and festivities; they proceeded for the most part without incident and were watched over by friendly police. In this case, the costs of joining were low, while affective benefits of protesting were high.
Selective incentives are not usually the main motivation for social movements to arise and coalesce. The benefits of the collective good (in this case defeating TTIP) must be clear and specific, and must be perceived to be greater than the costs of not participating. The opposition coordinators made a clear case for the dangers of TTIP through a targeted media campaign, a case which appealed to groups as diverse as labor, environmental groups, and general citizens. Furthermore, the benefits of TTIP opposition were magnified by a confluence of forces: opposition to the lack of democracy and transparency in the European Union had led to a reinvigorating of the E.U. Parliament; campaigns against industrial farming were gathering force; and opposition groups linked industrial farming to TTIP. Furthermore, as noted above, Edward Snowden's revelations of spying had badly damaged the reputation of the United States. Opposition to TTIP represented another way to express opposition to the United States. These smaller groups were able to band together and overcome the coordination problems that often stymie the organization of a large group.
At the same time, the benefits of TTIP were never clearly articulated; they remained vague and remote, and the arguments about the benefits were only consumed by the elite. The policy positions of business and labor associations, labor unions, and political parties were all targeted to reach the political elite through print media and television news, conferences, position papers, and official hearings. Given the historical public apathy with regard to trade policy negotiations, the groups producing arguments about the benefits of TTIP have been traditionally able to define the trade agenda without public input; thus, there was no need to launch a media campaign in favor of their positions. The opposition, without a seat at the table in trade policy decisions and without adequate funding for a traditional media campaign, stated their case primarily through social media. Indeed, 85 percent of all TTIP-related positions in German media were originally authored and spread by anti-TTIP groups through online media. And, 90 percent of anti-TTIP online media penetration happened on Facebook and Twitter. Some 5 percent went to blogs and forum sites.Footnote 52 The opposition did not buy advertising space in the print media or time on radio and television. And it would also appear that Malmström's transparency campaign actually helped to galvanize public interest in the opposition's case against TTIP, which was then given direction by the media campaign.
Third, the “bandwagon” effect seems to have brought growing numbers of people to support the “Stop TTIP” crusade. In this case, activist groups staged visible public protest in the beginning of the movement, which was then reinforced by social media. People began to see that their Facebook friends agreed with anti-TTIP arguments, and those arguments began to “trend” on Twitter. The argument is that the more one's friends jump on the bandwagon, the more the costs of agreement with and support for anti-TTIP arguments decrease. As the costs of agreement are reduced, others may be persuaded; indeed, the costs of not agreeing might go up if one person sees that his friends are in agreement.Footnote 53 As the bandwagon effect began to shape public opinion (and that opinion is measured by polling data), it fed back into traditional print and audio-visual media, thus magnifying the effect. In the public debate about TTIP, opposition views and arguments were clearly visible, while pro-TTIP activists were hardly visible, if at all.
Finally, coordination problems were overcome when the pan-European “STOP TTIP” umbrella group set up headquarters in Berlin and took over the coordination of an alliance of over 500 NGOs. STOP TTIP coordinated all protests, coordinated the social media campaign to convince potential opposition participants of the specific benefits of opposition, and spearheaded the ECI. The ECI was a success, gathering over three million signatures in a single year, and reaching a country quorum (the number of signatures needed to move an ECI to the European Parliament) in twenty-three member states.Footnote 54
As a pan-European movement whose impact on Germany was crucial, STOP TTIP reached the highest levels of the European Union with its opposition message. European Commission President Juncker stated that he would “not sacrifice Europe's safety, health, social and data protection standards…on the altar of free trade…The rule of law and the principle of equality before the law must also apply in this context.”Footnote 55 Indeed, public protestors had reached beyond Germany all the way to the European Union.
We also found that public opposition to TTIP was able to create cracks in the German foreign policy making structure. STOP TTIP captured and spread clear arguments against TTIP through the channels of organized protest, social media, TV advertising, and online discussions. Print and news media followed and publicized the anti-TTIP/ISDS arguments. These arguments resonated with the public because they were more immediate, emotional, and powerful in the public imagination than the abstract promise of aggregate growth or intangible linkages between trade and security. The “bandwagon effect” took hold as more people became convinced of anti-TTIP arguments and influenced those around them. In Germany, opposition claims that TTIP would be a threat to democratic values and way of life then began to capture the center-left faction of the political elite, as unions and party rank and file began to prod politicians in Germany's “grand coalition” government. With those inroads into the elite discourse, the opposition's message reached central decision-makers shaping Germany's negotiating position on TTIP.
These public forays, though necessary, were not sufficient for changing the German stance. In the end, ISDS was defeated in Germany by elite fears triggered by the Vattenfall case. The German decision-making structure remained intact. But the impact of TTIP opposition, particularly on the SPD, suggests that cracks in that structure will continue to pressure the political elite and influence negotiating outcomes.
Conclusion
The TTIP, if ever signed, would create the world's largest economic zone. But its supporters face a credibility problem: Ever more Europeans, especially Germans, see in TTIP a threat to their way of life, and—Malmström's transparency campaign notwithstanding—to democracy, a “secret treaty” that protects corporate interests while undermining high European standards for the environment, health, and consumer protection. As we have demonstrated here, domestic opposition, particularly to the inclusion of ISDS mechanisms, was strong and growing in Germany. The Vattenfall case clinched the opposition at the elite level; German officials and elites backed away from their support of TTIP and pivoted to a stance against ISDS. In September 2015, the E.U. trade commission proposed ICS as an alternative to ISDS. However, in February 2016, the German Magistrates Association (DRB) came out against the proposed alternative to ISDS, ICS, saying it represented a threat to the sovereignty of legal systems in Europe and that it saw “neither a legal basis nor a need for such a court.”Footnote 56 It remains to be seen whether the ICS would be an acceptable alternative, or whether opponents would see it simply as “lipstick on a pig.”
The outcomes of negotiations over trade agreements like TTIP and the TPP will have broader implications for the global trade regime and world politics. While many of the stakeholders of TTIP aim to set global standards for future FTAs, it may be difficult to get buy-in from developing countries who did not contribute to the blueprint. Even if TTIP negotiators settle on a new, improved arbitration system for disputes between investors and states, it is unclear if future trade agreements between other countries will follow suit. As tariffs for transatlantic trade are low on average and trade is already relatively free, the geopolitical importance of an agreement between the European Union and United States should not be underestimated. TTIP as an “economic NATO” may serve as a reminder of how Western Unity and power could potentially counterbalance the rise of China and other developing countries. Germany's priorities of preserving state sovereignty and pursuing broader geostrategic goals will likely shape its negotiating position in future free trade agreements. As globalization has broken down the barriers between foreign and domestic economic policy, threatening the policies of the welfare state and even Germany's new-found geostrategic aims, Germany is likely to be much more careful about its negotiating position in future free trade agreements. Because Germany's position is central to the position of the E.U. Commission in trade negotiations, this change is likely to have important implications for the role of mega-FTAs in the global trade regime.
