Examination of the Expected Effects of TTIP

We recently wrote about TTIP, what it is, what can we generally expect out of it and how the negotiations are going.  We still don’t have information about the specifics of the Transatlantic Trade and Investment Partnership, but several big studies that investigate the possible consequences have already been published.

The most comprehensive study was conducted a year ago by the Centre for Economic Policy Research (CEPR) and aims to measure the effects of signing the TTIP, of course, with some assumptions. Keep in mind that the import tax and tariffs between the US and the EU are relatively low, but non-tariff barriers (NTB) to trade from both sides of the Atlantic are a serious obstacle to both trade and investment. The study examines the influence of removing these barriers and investigates 2 scenarios: 1) partial liberalization of the trade, that includes 10% decrease of the business costs involved in dealing with NTBs and almost complete removal of import taxes, to the tune of 98%, and 2) ambitious scenario, including removing 25% of the costs associated with NTBs and complete removal of import taxes. The calculations in the second scenario, which assumes complete trade liberalization of trade between the US and the EU, show that:

• The TTIP will bring benefits worth 119 billion euro per year to the EU, and 95 billion euro per year to the US. This accounts for 545 euro increase in the average European family’s disposable income, and 655 euro for USA families.

• The benefits for the EU and the USA are not at the expense of the rest of the world. On the contrary, the liberalization of the trade between the EU and USA will have a positive effect on the global trade and incomes, increasing the rest of the world’s income with approximately 100 billion euro (“spillover effect”).

• The increase of the incomes in EU and USA are a result of increased trade volume. The total exports would increase by 6% for the EU and 8% for the USA.

• The increase in economic activity and productivity, created by the TTIP, would create benefits for both the European and American trade market – increased salaries and new positions opening for both qualified and unqualified labor.

• The trade agreement will have a negligible effect on the CO2 emissions and the sustainable use of natural resources.

Another recent study (Felbemayr, G., 2013) shows that with meaningful liberalization of trade, we can expect serious growth of trade volume and incomes. This study also considers NTBs as the main obstacles before trade and again scrutinizes two scenarios: partial liberalization (i.e. removal of import taxes only) and significant liberalization (lowering the NTBs). In the first scenario the benefits for the US would be income increase per capita with 0.27% (0.23% for Bulgaria) in the next 10 to 20 years. In the second scenario – income increase per capita with 4.95% (4.83% for Bulgaria) in the long term. The differences in benefits for the different European states depend on their trade structure and geographical location, but both scenarios predict the TTIP will lead to further convergence within the EU.

Several other studies examine the trade agreement from another angle and claim that in some cases the predicted effects will be significantly lower. One such meta-study (ÖFSE, 2014) investigates critically the biggest studies for the positive effects of the TTIP, including some of their more optimistic assumptions (for example, the possibility of lowering NTBs with 25-50%), the period of the studies, prices elasticity, employment assumptions, and others. The study concludes that:

• The benefits of the trade agreements are very low and are overrated;

• Social costs from changes in legislations will be high;

• Most studies are underestimating the potential harmful side effects.

Some articles and papers are warning for specific dangers that the trade agreement can bring (e.g. food safety concerns, drugs costs, privacy, authors’ rights, etc.), although their claims have not been confirmed, and even directly refuted by the European commission.

The studies on the effects of the TTIP, of course, work with a lot of assumptions, as the negotiations have not yet concluded and the specifics of the agreement are not clear, except that it aims to liberalize the trade between the EU and the US. In fact a big part of the criticism is aimed at the lack of transparency on specific topics, discussed at the summit.