Why TAFTA/TTIP Isn't Worth It Economically, And How We Can Do Much Better

from the doing-it-by-numbers dept

As recent posts on Techdirt have made clear, resistance to TAFTA/TTIP is growing on many fronts. In countering that, supporters of the negotiations unfailingly cite the “unique opportunities” or “huge benefits” of the deal. There’s no denying that potentially TAFTA/TTIP will be huge: the European Commission’s pages on the negotiations point out that the US and EU trade €2 billion every day (around $2.7 billion). They also note the following important facts about investment between the two regions:

Total US investment in the EU is three times higher than in all of Asia.

EU investment in the US is around eight times the amount of EU investment in India and China together.

Of course, those impressive figures completely undermine the case for including corporate sovereignty provisions in TAFTA/TTIP, since investors are clearly happy to put their money into the US and EU even in the absence of ISDS mechanisms.

But what counts is not just the present size of the trade and investment between the US and EU, but the future gains that TAFTA/TTIP would bring. This is clearly the central question about the negotiations, because if those benefits are small, there is no point making painful concessions of the kind that will be required to conclude the deal. And yet, surprisingly, there is precious little in the way of rigorous research into what the effects of TTIP would be on the US and EU economies. It’s true that figures about the benefits are regularly trotted out by those involved, but these come almost exclusively from one source: econometric modelling carried out by the Centre for Economic Policy Research (CEPR) in London (pdf), and paid for by the European Commission. Here are its key claims about the benefits of TAFTA:

An ambitious and comprehensive transatlantic trade and investment agreement could bring significant economic gains as a whole for the EU (€119 billion a year) and US (€95 billion a year). This translates to an extra €545 in disposable income each year for a family of 4 in the EU, on average, and €655 per family in the US.

Those figures of €119 billion a year (about $160 billion) for the EU and €95 billion a year (about $130 billion) for the US are uncritically quoted in most articles about TAFTA. That’s a pity, because they are misleading in the extreme. For example, the passage quoted above speaks of “€119 billion a year” as if this would be the gain from TTIP each year. But a footnote on page 3 of the CEPR study, where a table lays out the predicted change in GDP, explains:

Note: estimates to be interpreted as changes to a projected 2027 global economy.

That is, the €119 billion figure is the extra GDP that would be seen in 2027 as the result of TTIP being in place for the previous ten years, compared to the situation in 2027 without the agreement: it is a cumulative GDP gain. That means the other figure often thrown around — that TAFTA will increase the GDP of the EU and US by around 0.5% is similarly misleading: it refers to the cumulative GDP gain after ten years. In terms of how much TAFTA would add to GDP each year, that would be far less — roughly 0.05%, a rather different matter. Here’s what the economist Dean Baker has to say on this misdirection, in a blog post on the TTIP negotiations with the provocative title: “Why Is It So Acceptable to Lie to Promote Trade Deals?

Implying that a deal that raises GDP by 0.4 or 0.5 percent 13 years out means “job-creating opportunities for workers on both continents” is just dishonest. The increment to annual growth is on the order of 0.03 percentage points. Good luck finding that in the data.

He goes on to make a great point about the impact of strengthening intellectual monopolies in these trade agreements:

there are reasons to believe the growth effect could go in the opposite direction. The model used by the London CEPR does not assume any negative growth impact from higher prices for drugs or other goods that might be more costly due to stronger patent and copyright protections coming out of the deal.

These will likely be a drag on growth. Economists tend to like patents and copyrights (probably because their friends and family members benefit from them), but that doesn’t change the fact that they lead to market distortions and have major economic costs. If the price of a drug rises by 1000 percent because we imposed stronger or longer patent protection it has the same effect in the market as if we imposed a 1000 percent tariff on the drug.

Nor is this the only negative factor that is ignored in the CEPR projections. A study by a group of economists at the Austrian Foundation for Developoment Research, commissioned by the Confederal Group of the European United Left/Nordic Green Left in the European Parliament, points out that a number of major costs have been omitted when calculating the overall benefit of TTIP (pdf). The most important of these are the costs that arise from TAFTA’s stated aim to eliminate “non-tariff barriers”, or “non-tariff measures”, by harmonizing regulations and standards. As the researchers point out:

All studies, but particularly the Ecorys study, assume that a reduction of NTMs [non-tariff measures] is welfare-enhancing. This ignores that NTM such as laws, regulations and standards pursue public policy goals. They correct for market failures or safeguard collective preferences of a society. As such they are themselves welfare-enhancing. The elimination or alignment of an NTM thus will imply a social cost for society. This applies equally to NTM elimination, harmonization and mutual recognition.

In other words, eliminating or harmonizing regulations may well produce a boost for companies, which no longer need to worry about stringent health and safety standards, say, but represent a loss for society, which suffers through increased health costs. Many of the supposed gains from TAFTA/TTIP are actually counterbalanced by similar losses that society as a whole will be forced to accept.

It’s also worth emphasizing that the “€119 billion a year” figure that is used by supporters of TAFTA is what the CEPR research calls an “ambitious, comprehensive agreement” — in other words, the most optimistic prediction. Strangely, no one ever talks about the other figures in the study — the less optimistic, more realistic ones. Naturally, those would produce even lower growth than the tiny 0.05% extra GDP per year discussed above.

Because mainstream media unquestioningly accept this “€119 billion a year”, and fail to challenge the assumptions that lie behind it, we don’t know how the US and EU negotiators would attempt to justify TAFTA given the extremely small economic benefit predicted by the European Commission’s research. Presumably, they might say that it’s better than nothing at a time when both the US and EU are keen to boost their economies and create jobs.

But that’s not really true, because it ignores the fact that there are other ways of achieving this goal that don’t involve placing companies above nations through corporate sovereignty provisions, or require massive changes to regulations on both sides of the Atlantic. For example, a report commissioned by the Omidyar Network, entitled “Open for Business: How Open Data Can Help Achieve the G20 Growth Target” (pdf), claims that:

implementation of open data policies including in areas corresponding to G20 agenda items could increase G20 output by around USD 13 trillion over the next five years. This would boost cumulative G20 GDP by around 1.1 percentage points of the 2% growth target over five years.

That would work out as an extra GDP boost per year of around 0.22% — four times what TAFTA might offer in the most optimistic case. And of course, open data initiatives do not require negotiations or concessions: governments can implement them unilaterally for very little cost.

Or how about this new report on “climate-smart development”?

Government policies that improve energy efficiency and public transport could increase global economic output by more than $1.8 trillion per year, and also save lives, reduce crop losses and tackle climate change, according to new analysis released today from the World Bank and the ClimateWorks Foundation.

The increased economic output (pdf) works out at $242 billion for the US, and $271 billion for the EU, both in 2030. In this case, a collateral benefit of taking this route is that it would help to improve the environment and tackle climate change, too — not something that can be claimed for TTIP. The current negotiations between the US and EU are being presented as a “once-in-a-generation” chance to boost transatlantic economies. They are nothing of the sort. TAFTA/TTIP is merely one of a number of ways of achieving that, and, as the above discussion indicates, not even a very good one.

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Comments on “Why TAFTA/TTIP Isn't Worth It Economically, And How We Can Do Much Better”

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Anonymous Coward says:

?119 billion won't be ?545 in disposable income each year for a family of 4 in the EU

We know that the top 10% earners will take 80% of the ?119 billion, leaving ?23.8 billion for the rest of us. That’s 109? increase in disposable income for a family of four.

For those 109? a year, if a “strong” agreement is made, I’ll have to accept, GMO food products, chlorinated chicken, hormonal residue in meat products?

Ridicules patent and copyright laws?

Anonymous Coward says:

Re: Re:

There are several players in these games:
– Governments wanting a standardisation of legislation to encourage a further internationalisation of markets.
– Companies from both sides of the pond seeking stricter regulation in some areas to gain a relative advantage after the agreement.
– Companies from both sides of the pond wanting to lessen regulation to reduce costs.

Governments are represented and their GDP-interests will align in reducing the differences even if they have to swallow some camels. Companies from both sides are represented to share their view. All seems fine in the above.

The exception is that lessening of regulation always hit a third party. Since third parties are not represented in these negotiations or even lack a spokesperson among lobbyists, they will get trampled!

I want more trade agreements. But do it in phases with real consultations with the public at a time where things aren’t falling because everything is locked down! Some real two-way transparency is a necessity for these kinds of negotiations to gain acceptance in the public.

David says:

"Economic gains"?

This translates to an extra ?545 in disposable income each year for a family of 4 in the EU, on average, and ?655 per family in the US.

Ok, we all know that one cannot eat money. So unless we are talking about driving inflation but actual value, this “extra” is supposed to translate into actual value. Now let us, for the sake of the argument, value the ability to have a working democracy where the democratically elected parliament actually has more power than global corporations for passing laws at $0. Some people have fought wars to retain democracy, but let us assume that nobody wants to pay a dime for it these days.

So that purported additional value has to be in more readily available goods. What kind of goods? Hormonally treated meat and gene-manipulated crops that might not be marked as such and will, due to cheaper pricing, push produce from the market that has been created according to local community standards.

Because I am no longer allowed to see the details of what I eat, the only decision criterion is price, and that means that I will stuff myself with the cheapest goods (as the more expensive ones may or may not be produced in ways more compatible with my desires), giving me more income to dispense with as I like. Correction: as they like.

Naturally, this “gain” comes at the price of killing local production (since local production is no longer allowed to visibly compete in those respects important to people), so we are actually talking about increases in a household that managed to hold onto its jobs in spite of globalization.

Of course, since the whole point is to make things more efficient overall, we get a higher rate of unemployment. With working social security, the costs for that are to a good degree passed on to those with the “now higher” income.

More money is in circulation, and more people are kept out of the loop, and the quality of available products according to local metrics takes a dive everywhere.

Mason Wheeler (profile) says:

Re: Re: Re:

You are assuming inflation, but that’s not a safe assumption.

The economy is driven primarily by consumer spending, and consumer spending is driven primarily by the largest consumer demographic: the Baby Boom generation. This is true in Europe as well as the USA. Both had their Baby Booms at approximately the same time, for the same fundamental reason: the end of WWII.

Thing is, that means that across Europe and the US, the largest consumer demographic, across the board, is now starting to or preparing to retire. That means withdrawing from the consumer economy, saving money, and beginning to draw upon pensions and retirement accounts. To put it simply and bluntly, they are currently in the process of transitioning from driving the economy to being a drag on it, which will continue until the bulk of the generation is dead.

In saying this, I’m not trying to heap blame upon them. It’s not their fault they were all born in a big mass like that, and this is simply the natural consequence of it, as nearly the entirety of our history since their birth has been. But what that means is that what lies ahead is not inflation, but deflation. Economic contraction. If you want to see the future of the USA and Europe, look at the recent history of Japan, who had their baby boom earlier and tried to deal with the inevitable cliff the same way we did: money-printing by their central bank to stave off deflation, which hasn’t worked for them any more than it has for us.

Any economic “projections” that show future growth as an extrapolation of past years are simply delusional. Unless we fundamentally restructure our economic system and enact a bunch of reforms that, realistically, are never going to happen, the Western world is inevitably on a downward course for the next few decades.

Whatever (profile) says:

Not exactly

Of course, those impressive figures completely undermine the case for including corporate sovereignty provisions in TAFTA/TTIP, since investors are clearly happy to put their money into the US and EU even in the absence of ISDS mechanisms.

there is no way to draw this conclusion. While companies on both sides are clearly investing, you have to ask “how much more would happen” under this type of deal. The numbers are big, could clearly be much bigger, as trade could shift from one place to another.

You are trying to hard to draw a conclusion where the facts don’t come close.

Donglebert The Needlessly Unready says:

Re: Not exactly

you have to ask “how much more would happen” under this type of deal.

Then you have to ask “do we really want them to invest more?” under this type of deal.

State banks create money to meet the demand of business wanting to borrow. If you have separate markets competing, that could be a good thing because new US money comes over here and new EU money goes over there (although there’s obvious problems with that assumption). But if the trade deal reduces barriers to the extent that there’s only one market, then what’s the point of creating the money? All it does is fund large organizations who can borrow – allowing them to get bigger – and penalise any smaller competition. Essentially building state sponsored cartels with no benefit to the public purse.

Anonymous Coward says:

I know from experience, that the last half dozen or so free trade deal only increased wealth for the top 5% and lowered wages for everyone else. The same claims about increased household income, jobs, and wages were all promised just like they’re being promised for TAFTA/TTIP and TPP.

It’s like listening to a broken record player repeating over and over again. All I can say for certain is that the record player is definitely broken, because the financial figures never pan out for the majority of people. The figures usually go down, not up, with each new free trade deal.

Anonymous Coward says:

I’m not understanding the need for these multiple agreements. The titles contain trade or some such word, but the things being negotiated have little to do with trade. Why do we, inhabitants of this planet, need such agreements?

Possibly, the most egregious item (leaked so far) is the corporate sovereignty provisions. How ridiculous … a signatory country is not allowed to made their own decisions without approval of their overlords? What a great idea – not! Time and time again, the corporate world has demonstrated their lack of self control and complete disdain for anything that interferes with profits, and we are supposed to simply trust they have our best interests in mind … that is beyond laughable – it is psychotic.

ponk head says:

your missing the big picture

What you are missing is that the worlds powers are not countries anymore but huge political organisations that are plotting to take over said world. They are making it happen and they are going to control it all. The entire world, and we are seeing just how they intend to do it. Destroy countries and make everyone part of their world wide earth. Then make all laws and enact all legislation for everyone over the entire world. Then dismantle ethnic origin and history then dictate dictate dictate. They have the script and they are doing it. The most powerful politicians in the world are all a part of it. They dont care about us, its all about their visions of grandeur. We are pawns they own us and everything. They will rule entirely forever or so they will tell us when we are subjugated. Look around you and seriously tell me that is where we are heading. If you dont realise that you are not thinking about it.

Anonymous Coward says:

oui bien sur avec un recul de pres de 3% de croissance POUR LES US ! et ce sont encore les marchés européens qui dans leur honnêteté et naiveté sont manupilés a la baisse par washington !
Evidmement, WSGT va nous pondre un autre Quantitative Easeing !

Et puis continuer les amendes pour compenser l’argent perdu de ses QE abusifs !

vivement l’effondrement du dollars d’oncle sam !

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