US Department Of Agriculture TAFTA/TTIP Study: Small Gains For US, Losses For EU

from the remind-me-why-we-are-doing-this-again dept

As we are constantly reminded by its supporters, the TAFTA/TTIP agreement currently being negotiated between the US and the EU is huge: together, the two regions account for around half of global GDP. Given that scale, and the impact that TTIP is likely to have on both the US and EU, you might expect there would be dozens of detailed studies looking at the likely effects — and whether, on balance, it would be a good idea. And yet such studies are very thin on the ground.

The main one (pdf), produced by the London-based CEPR for the European Commission, dates back to 2013. Initially, its figures were widely quoted to bolster the case for TTIP; and then, almost overnight, it was quietly dropped. It’s not hard to see why. Once people started digging more deeply into its oft-cited figures — an extra €119 billion for the EU’s economy, and €95 billion for the US — it turned out that these were from an “ambitious” deal, and referred to the cumulative effect of TTIP in 2027, after it had been in operation for ten years. Even that best-case scenario worked out at just 0.05% extra GDP per year — little more than a rounding error. Since then, TTIP supporters have stopped making precise claims about the boost to growth that TAFTA/TTIP will provide, and simply claimed instead that it will be good for the US and EU economies without going into further details.

The embarrassing lack of any compelling economic justification for the deal probably explains why there are so few studies: anything even half-way rigorous would show the same, thin gains, which would hardly bolster the case for TTIP. That dearth of high-quality research makes the recent appearance of a new report from the Economic Research Service of the US Department of Agriculture entitled “Agriculture in the Transatlantic Trade and Investment Partnership: Tariffs, Tariff-Rate Quotas, and Non-Tariff Measures” (pdf) all-the-more welcome.

As you would expect given its provenance, it’s a rigorous piece of work, and confirms that the GDP gains from TTIP are likely to be tiny: in the best case, around 0.1% for the US, and 0.29% for the EU. Both of those are cumulative gains, which means that the annual GDP boost for both sides is once more extremely small. What makes the new study particularly valuable is that it naturally concentrates on the agricultural sector, and provides us with the first detailed breakdown of how the proposed agreement is likely to affect what is a very important — and highly influential — industry for both sides.

The first scenario the report examines is one where all the tariffs currently imposed by the US and EU on each other’s agricultural goods are removed, which is what is typically found in “classical” trade agreements. Here’s what the report says might happen:

U.S. agricultural exports to the EU increase by $5.5 billion from base year (2011) levels, while EU agricultural exports to the United States increase by $0.8 billion. Overall, U.S. agricultural exports increase by 2 percent and agricultural imports by 1 percent. EU agricultural exports decrease by 0.25 percent, and agricultural imports rise by 0.5 percent.

To unpack that, this says that the agricultural trade between the US and EU increases for both sides, but that overall, including trade with other nations around the world, EU farmers end up exporting less than they currently do, while the EU as a whole imports more. In real terms, that means EU farmers will have a tougher time under TTIP if tariffs are removed.

The other situation modelled by the USDA study looks at what happens if so-called “non-tariff barriers” (NTBs), termed “non-tariff measures” (NTMs) by the researchers, are removed in addition to the tariffs. This is much more contentious, because those NTBs/NTMs include things like the EU’s ban on chickens washed in chlorine water, or the European refusal to accept the use of growth hormones for beef. As that indicates, this is not about traditional monetary tariffs imposed on imports, but cultural choices about how food is produced. Here’s what the econometric modelling found in this case:

[T]he additional removal of select NTMs (e.g., meats, field crops, and fruits and vegetables) results in an increase in U.S. exports to the EU by an additional $4.1 billion over gains in the first scenario [to $9.6 billion]. For the EU, the removal of NTMs generates an additional gain of $1.2 billion in exports to the United States [giving a total of $2 billion].

Overall, agricultural imports and exports each increase for the United States by about double the percentage in scenario one [4% and 2% respectively], while EU agricultural imports increase by 1 percent and agricultural exports decline.

As you would expect, removing those NTBs/NTMs does boost agricultural trade between the EU and US. But the bigger picture shows that the US fares better globally, while the EU does even worse than in the first scenario. In fact, the report prefers not to say how much — just that “agricultural exports decline,” which means decline even more, since the tariff-only scenario already saw global exports go down by 0.25%. But the report does make another very significant comment:

The decrease in overall EU agricultural exports in the first scenario is also largely attributable to a reduction in intra-EU trade.

What that means is that if TTIP is implemented, it will cause the agricultural trade between the 28 EU nations to decrease, as trade with the US increases, and EU production is diverted there. But one of the key reasons for creating the European Union’s “common market” was to facilitate economic interactions between member states so as to strengthen their political bonds. Put another way, the USDA study predicts that TAFTA/TTIP — a deal supposed to bolster the EU — will in fact undermine the European project.

Removing the non-tariff barriers is pretty disastrous for the EU, but is unlikely to happen, since the European Commission has promised that it will not allow chickens washed in chlorine, or beef injected with hormones, to enter the EU. And even if it broke those promises — surely an impossibility — the USDA study points out EU consumers might well refuse to buy those US products anyway:

The removal of select NTMs could lead to consumers preferring domestically produced products versus the importer equivalent. Thus, in the third scenario, export gains are smaller for both the United States and the EU.

As a consequence, the report warns:

Potentially, these demand-side effects could erase any gains from the removal of specific NTMs.

That’s an important result. It shows that it would be pointless for the US negotiators to fight for the removal of non-tariff barriers for agricultural goods, since doing so is unlikely to bring any benefit for US producers. More broadly, the new study not only confirms that the economic benefits of TAFTA/TTIP are vanishingly small overall, but suggests that the EU’s agricultural sector will actually be worse off under the deal than it is now without it. Good luck getting that through the European Parliament….

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Comments on “US Department Of Agriculture TAFTA/TTIP Study: Small Gains For US, Losses For EU”

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12 Comments
Anonymous Coward says:

The European Parliament? They do not usually trust foreign experts as much as they trust the commission. So when the commission comes back with what seems like overall small gains for what they think they can get, it hasn’t really killed TAFTA or TTIP.

No, what is killing the treaties are NSAs disrespect for data protection, an ISDS that is admitted as being beyond repair, user protection advocates warning about almost all of the potential elements in the treaty and a lack of enthusiasm for something that is smelling too much like ACTA 2.0.

Seegras (profile) says:

Democracy

And, something these “get-rid-of-non-trade-barriers” guys don’t seem to factor in, is that these are often the work of democracies. That is, these have sometimes been the work of the actual citizens demanding these barriers, not just some government agency mandating it.

So if the majority of the population is opposed to allowing genetically modified foodstuffs, what do you think the majority of the population will want to eat when the barrier falls?

They’re simply going to vote with their boots.

Anonymous Coward says:

An even better scenario...

The EU citizens prefer to buy their local, uncontaminated, beef and chicken. US beef and chicken exports to the EU do not rise at all. The US sells it’s beef and chickens to another nation. The US agriculture industry invites the various EU states to an ISDS party, hosted by the US, for not injecting their beef with growth hormones or washing their chickens with bleach. Thus, causing lost profits for the US agriculture industry. This will be like selling the same chicken to two different customers at the same time. Increasing US agriculture profits tremendously. Who says you can’t have your cake and eat it too?

charliebrown (profile) says:

But trade agreements are great?

Here in Australia there are some commercials that were made after the TPP was finalized promoting trade agreements. In one was a farmer with a wooden crate of oranges saying “With a trade agreement we are better off because we can sell more oranges to China”.

Excuse me, I need a new bullshit meter…. Mine just exploded for the seventh time in three months.

Dr David Hill (user link) says:

TTIP will be a disaster for 90% of the people of the EU and USA

If signed by the EU and USA governments, it will in the long term do more harm to 90% of their respective people than any world war, as it will continuously and without relent, impoverish them.

For the TTIP is the most insidious political-corporate invention ever devised by the USA and EU and if signed, it is irrevocable and forever. Indeed 90% of the people will not see any real benefits from this trade pact and only the top 10% will get richer (the richest people in the world by far. For all current trade pacts have proven this and where the NAFTA for one has already destroyed several million US jobs in a relatively short period in time and where according to statistical evidence, 14 US manufacturing plants are now closed every day in the USA, as jobs are continually transferred to the low-cost labour markets of the world by the top 10%. The TTIP is a form of enslavement if truth be told.

http://worldinnovationfoundation.blogspot.co.uk/2014/08/the-ttip-transatlantic-trade-and.html

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