Last month, Ars wrote about the threat posed by the inclusion of investor-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership (TTIP) agreement. ISDS allows foreign investors to sue entire nations in special tribunals for the alleged expropriation of future profits through changes in laws or regulations. The acronym is now becoming quite well known, not least because the company behind the controversial Keystone XL oil pipeline announced a few weeks ago that it would be using ISDS to sue the US, claiming $15 billion (£10.5 billion) compensation for its supposed losses as a result of the Obama administration’s failure to approve the Keystone XL pipeline.

One of the key problems with ISDS is that it creates a supranational court whose power to impose huge fines can have a chilling effect on the introduction of new legislation. Companies can use the threat of ISDS claims to discourage governments from introducing laws or regulations that might reduce corporate profits. That's an indirect way in which TTIP is likely to undermine national sovereignty. But there's another aspect of the proposed agreement that is explicitly designed to allow EU and US corporations to influence—and block—new laws.

It goes by the mild-sounding name of "regulatory cooperation." It has been promoted as a key aspect of TTIP because of a fundamental problem at the heart of the proposed agreement: as the Ars feature last year noted, the European Commission's own study predicts extremely small economic gains from adopting TTIP.

But even those vanishingly small economic gains will only be realised if TTIP goes beyond removing traditional tariffs—the import duties often slapped on foreign goods—and manages to eliminate what it calls "non-tariff barriers" (NTBs). These are things like health and safety regulations that are different in the EU and US, which means that companies have to submit their products for approval twice—an obviously wasteful process. Fully 80 percent of the claimed benefit from TTIP in the "ambitious" scenario is predicted to come from removing NTBs, and only 20 percent from abolishing tariffs, which are already very low for EU-US trade.

Given the central nature of NTBs to the success of TTIP, the question becomes: how can differences between EU and US regulations be reconciled? One way would be to level down by adopting the lower of the two standards. But faced with a growing storm of public protest at this idea, the European Commission has insisted that it will not allow this to happen.

Another option would be for regulations to be levelled up. But US industry has made it clear that it is unwilling to adopt EU regulations that impose higher standards—for example in animal welfare for agriculture—since this would increase their costs. Similarly, where US standards are higher, in the world of finance, say, the EU industry has been equally vocal in its rejection of any strengthening of regulations.

Another approach is mutual recognition: products that meet the required standard in one region would be considered approved for the other. But again, the wide variation in regulations makes that impractical. For example, in the EU, 1300 chemicals are banned from use in cosmetics; in the US the number is 11. If US products were allowed to be sold in the EU without further checks, there are potentially 1289 banned chemicals that might be present. Mutual recognition is therefore equivalent to a levelling down of standards.

The final possibility—and the one that seems to be the preferred solution for TTIP—is regulatory cooperation. This means both sides work to make future regulations as compatible as possible. As usual, the US side refuses to disclose its proposals on this score, but the European Commission, to its credit, has released its initial offer on regulatory cooperation in TTIP. A new report from Corporate Europe Observatory, which looks at the whole area of regulatory cooperation between the EU and US, past and present, summarises the Commission's proposals as follows:

An early warning mechanism to ensure that the other side can become involved in the preliminary stage of decision making: typically in the drafting phase, before elected politicians have become involved.

Reform of ‘impact assessments’, including special attention to the effects of a proposal on trade.

Dialogue at any point in the decision-making process, if the interests of the other side are at stake.

A common institutional structure to elaborate long-term strategies for regulatory coherence. This would include a body to oversee the entire process, and in-depth cooperation between ‘regulatory agencies’ (in the EU this would mean the Commission, and in the US it would include bodies such as the Environmental Protection Agency).

The establishment of working groups to elaborate detailed strategies on particular topics (eg certification or impact assessments) or for sectors (eg chemicals).

The involvement of ‘stakeholders’ in the elaboration of regulation.

That all sounds pretty reasonable, but the devil is in the details. For example, the "early warning mechanism" essentially gives companies the opportunity to voice their objections even earlier in the rule-making process, as does the "dialogue at any point," the "working groups," and involvement of "stakeholders."

Greater involvement of stakeholders would seem to be the right thing to do when it comes to drawing up new laws and regulations, since in theory it allows everyone to offer their views.

But the reality is rather different: another Corporate Europe study found that “93% of the Commission’s meetings with stakeholders during the preparations of the [TTIP] negotiations were with big business. The list of meetings reveals that, in addition to the civil society dialogue meetings reported on the DG Trade website”—sessions also attended by companies—“there is a parallel world of a very large number of intimate meetings with big business lobbyists behind closed doors—and these are not disclosed online.”

There's no reason to expect that meetings with stakeholders as part of regulatory cooperation will be any different. The new structure would therefore allow companies to increase their influence over the law-making process in both the EU and US.