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09 April 2014
‘Limited economic gains and considerable downside risks’ - new study challenges optimistic groupthink on EU-US trade deal.
A new study by ÖFSE, the Austrian Foundation for Development Research, has criticised previous Commission-backed studies which claim that the effects of TTIP will be positive on both sides of the Atlantic. Highlighting some issues ‘which are frequently neglected by trade impact assessments, but are nevertheless important’, the study argues that the minor gains in trade exports for both regions does not negate the impact of revenue losses and unemployment costs for states as a direct result of the deal.
The report, commissioned by the GUE/NGL group at the European Parliament, suggests that overall the macroeconomic adjustment costs have been downplayed in previous reports, and must be adequately dealt with by EU policy makers. The reports analysed by ÖFSE include Ecorys (2009), CEPR (2013), CEPII (2013) and Bertelsmann/ifo (2013) - which have proved to be the main sources for political leaders and policymakers on the economic benefits of TTIP, often involving the same leading authors, and the methodologies of J. Francois.
On the employment issues downplayed by these reports, ÖFSE suggests that:
Costs of unemployment, including long term unemployment, might be substantial, especially during the 10 year transition period of TTIP. Based on projected job displacement in one of the studies of 0.4 – 1.1 million, our rough (and conservative) calculation suggests implied costs of €5 – €14 billion for unemployment benefits, excluding costs for re-training and skills-acquisition. In addition, foregone public income from taxes and social contributions from unemployment might accrue to €4 – €10 billion
Tariff elimination may also result in the immediate loss of revenue for member states, of up to €2.6 billion per year, or a loss of €20 billion over a ten-year implementation period.
Social costs of regulatory change could be ‘substantial’
The estimated gains due to the removal of non-tariff barriers (NTBs) are also ‘overly optimistic’ in all the studies - an essential aspect of TTIP with 80% of the gains deriving from the removal of such NTBs. The negative costs associated with the removal or reduction of such regulations as well as the threat to public policy goals has not been considered:
Most importantly, the elimination of NTMs will result in a potential welfare loss to society, to the extent that this elimination threatens public policy goals (e.g. consumer safety, public health, environmental safety). The analysis of NTMs in the studies, particularly Ecorys, completely ignores these problems. Instead, it is assumed that around 50 % or 25% of all existing NTMs between the EU und the US can either be eliminated or aligned to some common standard. This includes sensitive sectors such as foods & beverages, chemicals, pharmaceuticals and cosmetics or automotives.
Although minor increases to EU-US trade are substantiated, internal trade between EU countries could drop by up to 30% due to trade diversion to the US, something which has not been adequately explored in other reports and could pose issues for the EU internal market. In turn, Less Developed Countries (LDCs) are also likely to take a substantial hit as a result of a fall in EU demand from such countries, with losses of up to €20 billion to Latin American nations as an example, over a decade. Such negative impacts on LDCs could be in direct contradiction with EU commitments to support such nations and reduce poverty globally.
The full report entitled ASSESS_TTIP: Assessing the Claimed Benefits of the Transatlantic Trade and Investment Partnership (TTIP) can be found here, with further analysis from the GUE/NGL group here.