New Economic Study Indicates EU-Canada Trade Deal Will Cause 'Unemployment, Inequality And Welfare Losses'

from the tell-me-why-we-are-doing-this-again? dept

As Techdirt noted back in January, it is astonishing that the TPP negotiations proceeded for years with almost no detailed analysis of whether they would be beneficial. It was only recently, after the text had been finalized, that a number of studies started to appear which explored the likely impact of TPP in some depth. Strikingly, every single one of them predicted almost no benefit for the US economy from the deal.

The situation for TPP is rather better than for the other big US trade negotiations currently underway, TAFTA/TTIP, where attempts to model its impact are thin on the ground. The same is true for CETA, the EU-Canada trade deal that was supposedly “finished” two years ago, and yet still hasn’t been passed because of the text’s deep problems, not least because of its corporate sovereignty provisions. Despite the fact that CETA may be quite close to final ratification — although growing resistance to it in Europe may still stop it — we have very few studies of what benefits it might bring. The main one is the official analysis that was used to kick off the talks (pdf) in the first place, published in 2008. Here’s the key result:

The annual real income gain by the year 2014, compared to the baseline scenario, would be approximately €11.6 billion for the EU (representing 0.08 percent of EU GDP), and approximately €8.2 billion for Canada (representing 0.77 percent of Canadian GDP). Total EU exports to Canada go up by 24.3 percent or €17 billion by 2014 while Canadian bilateral exports to the EU go up by 20.6 percent or €8.6 billion by 2014.

Leaving aside the fact that 2014 has come and gone, it’s clear even from these figures that CETA will produce almost negligible annual GDP uplift for both sides, since the quoted figures are cumulative extra growth that would come from CETA. But an important question is just how reliable even these small gains are, since they implicitly form the main justification for the whole deal. A new study from the Global Development And Environment Institute at Tufts University, which also conducted one for TPP last year, offers a useful perspective. Its results are pretty damning, and include the following:

CETA will lead to wage compression. By 2023, workers will have foregone average annual earnings increases of €1776 in Canada and between €316 and €1331 in the EU depending on the country. Countries with higher labor income shares and unemployment, such as France and Italy, will experience the most pronounced wage compression.

CETA will lead to net losses of government revenue. Competitive pressures exerted by CETA on governments by international investors and shrinking policy space for supporting domestic investment, production and investment will reduce government revenue and expenditure. Government deficits will also increase as a percentage of GDP in every EU country, pushing public finances closer or beyond the limits set by the Maastricht treaty.

CETA will lead to job losses. By 2023, about 230 thousand jobs will be lost in CETA countries, 200 thousand of them in the EU, and 80 thousand more in the rest of the world, adding to the rising dependency ratio (the average number of people supported by one job).

CETA will lead to net losses in terms of GDP. As investment and foreign demand remain sluggish, aggregate demand shortfalls nurtured by higher unemployment will also hurt productivity and cause cumulative welfare losses amounting to 0.96% and 0.49% of national income in Canada and the EU, respectively. While the United Kingdom (-0.23%) and Germany (-0.37%) may be least affected, France (-0.65%) and Italy (-0.78%) will lose more than other EU countries (-0.53%).

The full 40-page paper (PDF) goes into the details. Along the way, it provides a highly critical analysis of the underlying econometric model used for almost all of the official studies of CETA, TPP and TTIP — the so-called “computable general equilibrium” (CGE) approach. In particular, the authors find that using the CGE model to analyze a potential trade deal effectively guarantees that there will be a positive outcome (“net welfare gains”) because of its unrealistic assumptions:

In these CGE analyses, the Canadian and EU economies instantaneously and costlessly adjust to the trade reform, and as any increase in unemployment or loss of aggregate income, even temporarily, is ruled out beforehand, CGE analyses can only point to net welfare gains. Blinded by such strong but palpably unrealistic priors, neoclassical CGE modelers have merely defined away the problem. In light of such a lack of intellectual diversity and empirical realism, this paper contends that, already by their design, these studies do not represent a reliable basis for assessing CETA and meaningfully informing policy-makers.

Another new paper on CETA (pdf) points out a further issue with existing analyses of the economic impact: the fact that CETA — like TTIP — is mostly about regulatory convergence, rather than simple tariff reduction. And yet no account whatsoever is taken of the negative consequences of these moves in the official study or in those that follow its approach:

The additional burden on regulators from the various additional steps due to CETA — and even more after its potential extension to other countries — in the context of diminished regulators’ resources, is likely to lead to delays, blockages and a reduction in the standard of regulation. Use of the precautionary principle is likely to be under great pressure in a number of areas. All of this is done in the name of economic gains which turns out in the official impact assessment to be vanishingly small — the equivalent of a cup of coffee every three months for each European in terms of disposable income — and if the omitted effects of constrained regulations in the areas of climate change, finance, toxic chemicals, etc., were included in a more thorough assessment, then the economic evaluation would turn out to be heavily negative. Locking such provisions into an international treaty would turn out to be the height of folly.

These two new studies offer valuable perspectives on CETA. It’s a pity they weren’t produced years ago, when more might have been done to mitigate the harmful effects they reveal. As it is, it seems the only option now is to reject CETA completely.

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Comments on “New Economic Study Indicates EU-Canada Trade Deal Will Cause 'Unemployment, Inequality And Welfare Losses'”

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Whatever says:

Cool story, until you look at the sources…

the “another paper on CETA” is written by a pro-labor group. Anything that rocks their boat is NEGATIVE AS HELL. I only read a few pages, but I could already tell they were looking for their desired results, rather than worrying about getting all the facts on both sides.

The Tuft study was co-authored by Pierre Kohler, well known for his anti-free trade stance. Again, not hard to imagine that he started out looking for this conclusion.

Anonymous Coward says:

Re: Re:


When attempting the ‘biased source’ refute, always do a quick ‘reversal’ to make sure you’re not readily providing the reader with the very reasoning required to discredit your argument. When you call out the “pro-labor” bias in the report, you’re simultaneously begging the question of what bias the criminal plutocrat authors of these anti-Capitalistic, anti-innovation, anti-competition, anti-free market, anti-consumer, anti-labor trade agreements have written into them to begin with. And that’s a rookie move, rookie.


don’t you have boot to lick somewhere?

@Whatever’s Handlers,

I’ve been mildly amused by ‘Whatever’ for some time now. So, thanks for that. But for your own sake, you should consider doing yourself a great favor and once and for all accept that your guy/gal/team’s propaganda is woefully sub-par. They just don’t know how to properly shill/troll/whatever-the-fuck-you’re-attempting-here??? Honestly, it’s so bad it’s hard to tell exactly what it is you seek to accomplish.

My advise is to fire them all and start over. Hire people who understand how to PR, spend the money on experienced professionals, do it right. As it is now, you stick out like a sore thumb, convince no one of anything, change no minds, and do nothing to discredit, promote distrust, dissuade, deceive, deter, delay and/or disrupt. Your guys seriously suck at this. And I’m being kind here. Watching them work is like watching a fluffy animal get slowly tortured to death. It’s painful for everyone.

MadAsASnake (profile) says:

If the only viable option is to reject CETA entirely, its an outcome I for one would welcome. These “Trade Deals” are generally corporate wishlists that do little for the benefit of the people in these countries, and impose substantial costs on them, often by dismantling social and environmental protections.

These corporates have little interest the value of the deal to the trading countries – just to themselves, so it should be no surprise that they add little if any value.

If a few more go the way of SOPA, then just maybe a more reasonable negotiation style may come about – one that includes the people.

Manok says:

Most of these treaties seem to throw regulations out of the window anyway. If you do away with controls on pesticides, GM food, lower environmental standards, etc.. obviously companies can make more profit.

After all, letting a few airplanes drop out of the sky every year, or have some other big-damage disasters, will also increase GDP.

GDP growth is not a holy grail… How it grows is what counts more. Indeed, damages to climate change, finance, toxic chemicals, etc., those are all hidden cost.

But then, those are not problems for this government(s), but the next, or the next next one.

freedomfan (profile) says:

Re: Re: Re:

Broken window fallacy?

Possibly, though I think the intent was to imply that fewer regulations (at the cost of things like planes falling out of the sky) would increase profits.

Just as troubling as a possible broken window fallacy is the possible assumption that a) regulations are what keep people safe and b) corporations are against regulations, rather than accepting them with the knowledge that inevitable regulatory capture will mitigate their effects and that regulations serve corporations in terms of rent seeking (e.g. by disadvantaging smaller competitors).

Roger Strong (profile) says:


NAFTA and its ISDS provisions weren’t responsible for the tariffs on Canadian softwood lumber. That was the US flat-out declaring that it wasn’t going to honor the deal. Take away NAFTA and ISDS, and the tariffs would have been put in place regardless.

Both Hillary and Trump – and others in the last few election cycles – promise to renegotiate NAFTA. Canada and Mexico would cheerfully show up for those negotiations, seeking a new deal with guarantees that the US would honor NAFTA on softwood lumber, durham wheat, livestock, trucking and manufactured goods this time.

bob says:

cost to negotiate.

When studying the effects of trade deals and generating theoretical results, do the analysts take into account the cost incurred trying to negotiate and ratify the agreement?

Considering that the TPP took 10 years and you have operating expenses to pay (pay checks, facility costs, hotels, etc.), is the net benefit significantly impacted or is the cost insignificant.

techie1 (profile) says:

ISDS enforcement question

What is the enforcement mechanism, or mechanisms, for penalties assessed through ISDS action? I’ve read that the WTO often plays a role in these extra-judicial (read: treaty obligations, not within a nation’s courts) tribunals. How could, say, Phillip Morris/Altria collect a possible judgement awarded by a tribunal if the sovereign nation (say, Russia or Germany) refuses to pay?
I enjoy your articles here on Techdirt and ARSTECHNICA.
Patrick Anderson

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