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BackAustrian Foundation for Development Research ÖFSE has examined four studies, which the supporters of TTIP (Transatlantic Trade and Investment Partnership) like to refer to in order to aid their argumentation. It transpires that these studies are not only too optimistic, but that risks are consequently being ignored.
Little new growth, weakening of the Internal Market!
ÖFSE examined the studies of four institutes ECORYS, CEPR, CEPII and Bertelsmann/IFO. In their over-optimistic scenarios, the studies assume additional growth effects of 0.3 % GDP to 1.3 % GDP. What at first glance might sound like as a plausible argument for a free trade agreement in times of crisis and unemployment, quickly turns out to be a drop in the ocean if looked at in more detail. Because what is rarely mentioned is the fact that this additional growth shall take place over a period of 10 to 20 years, based on which additional annual growth is just 0.03 to 0.1 %. This is hardly the way to combat the social crisis in Europe. Thus, most studies do not assume an employment effect or expect more than 130,000 new jobs per year in the entire EU. However, even these modest benefits already have a negative side as it is assumed that based on the growing transcontinental trade, the trade between EU countries might shrink by up to 30 %. Hence the European Internal Market is at risk of being weakened by TTIP.
Risks and side effects
The ÖFSE authors make it clear that TTIP does not concern free trade in the classic sense, but deregulation. Given the fact that tariffs between the USA and the EU are already at a very low level, the main objective is to reduce non-tariff trade obstacles by mutual recognition and harmonisation. This is in fact nothing else but a deregulation agenda.
The study therefore also depicts the possible effects through TTIP: on the one hand the macroeconomic adjustment costs and the social costs on the other, which are either not included or neglected in the examined studies.
The first include the no longer applicable tariffs. Even though these are no longer a major obstacle for trade itself, the yield generated from them represents quite a significant share of the EU budget. A complete discontinuation of all tariffs between the EU and the USA would therefore mean a reduction of the EU budget by 2 %.
Further adjustment costs would arise through newly created unemployment. Even though the studies examined by ÖFSE do not assume any or only minor positive effects on the level of employment in the medium-term, it is to be expected that the adjustment or reorganisation of various sectors will result in at least short-term negative effects. This is not only a social problem; it also causes costs. In contrast to the assumptions of the studies, it is not possible to rely on the fact that employees who lost their job in a certain sector will immediately find new employment in another, where their pay will remain the same. The ÖFSE calculated on the basis of the CEPR model - which expects up to 1 million jobs lost in the short and medium-term - that over a 10-year period, costs of at least EUR 10 to 15 billion would be incurred based on additional expenditure for unemployment benefits and lost tax revenue.
The authors of the ÖFSE study in particular also regard those costs, which are incurred by the omission of the non-tariff trade obstacles, as social costs. And here the ÖFSE study touches the core of the TTIP projects, because in contrast to the mainstream, it is assumed that these regulations are not just conventional trade obstacles, but that they are provisions whose actual purpose it is to serve society by protecting public health or consumers. Any omission of these rules would therefore incur additional costs for society, which, however, cannot be easily specified. Finally, the also much discussed Investor-State Dispute Settlement (ISDS) is coming under criticism, which would cause costs not only in one but in two different ways. First, governments, for fear of being sued by private companies, would simply not implement necessary provisions. And, if a state would be sued nevertheless, costs would incur, which in turn had to be borne once again by the tax payer.
The ÖFSE clearly shows that the scepticism towards the planned free trade agreement between EU USA is appropriate. Is the focus really on the common good of the entire society or is the main objective to enhance the profits of some multinational companies, which have a strong lobby?
Further information:
ÖFSE study
ÖFSE examined the studies of four institutes ECORYS, CEPR, CEPII and Bertelsmann/IFO. In their over-optimistic scenarios, the studies assume additional growth effects of 0.3 % GDP to 1.3 % GDP. What at first glance might sound like as a plausible argument for a free trade agreement in times of crisis and unemployment, quickly turns out to be a drop in the ocean if looked at in more detail. Because what is rarely mentioned is the fact that this additional growth shall take place over a period of 10 to 20 years, based on which additional annual growth is just 0.03 to 0.1 %. This is hardly the way to combat the social crisis in Europe. Thus, most studies do not assume an employment effect or expect more than 130,000 new jobs per year in the entire EU. However, even these modest benefits already have a negative side as it is assumed that based on the growing transcontinental trade, the trade between EU countries might shrink by up to 30 %. Hence the European Internal Market is at risk of being weakened by TTIP.
Risks and side effects
The ÖFSE authors make it clear that TTIP does not concern free trade in the classic sense, but deregulation. Given the fact that tariffs between the USA and the EU are already at a very low level, the main objective is to reduce non-tariff trade obstacles by mutual recognition and harmonisation. This is in fact nothing else but a deregulation agenda.
The study therefore also depicts the possible effects through TTIP: on the one hand the macroeconomic adjustment costs and the social costs on the other, which are either not included or neglected in the examined studies.
The first include the no longer applicable tariffs. Even though these are no longer a major obstacle for trade itself, the yield generated from them represents quite a significant share of the EU budget. A complete discontinuation of all tariffs between the EU and the USA would therefore mean a reduction of the EU budget by 2 %.
Further adjustment costs would arise through newly created unemployment. Even though the studies examined by ÖFSE do not assume any or only minor positive effects on the level of employment in the medium-term, it is to be expected that the adjustment or reorganisation of various sectors will result in at least short-term negative effects. This is not only a social problem; it also causes costs. In contrast to the assumptions of the studies, it is not possible to rely on the fact that employees who lost their job in a certain sector will immediately find new employment in another, where their pay will remain the same. The ÖFSE calculated on the basis of the CEPR model - which expects up to 1 million jobs lost in the short and medium-term - that over a 10-year period, costs of at least EUR 10 to 15 billion would be incurred based on additional expenditure for unemployment benefits and lost tax revenue.
The authors of the ÖFSE study in particular also regard those costs, which are incurred by the omission of the non-tariff trade obstacles, as social costs. And here the ÖFSE study touches the core of the TTIP projects, because in contrast to the mainstream, it is assumed that these regulations are not just conventional trade obstacles, but that they are provisions whose actual purpose it is to serve society by protecting public health or consumers. Any omission of these rules would therefore incur additional costs for society, which, however, cannot be easily specified. Finally, the also much discussed Investor-State Dispute Settlement (ISDS) is coming under criticism, which would cause costs not only in one but in two different ways. First, governments, for fear of being sued by private companies, would simply not implement necessary provisions. And, if a state would be sued nevertheless, costs would incur, which in turn had to be borne once again by the tax payer.
The ÖFSE clearly shows that the scepticism towards the planned free trade agreement between EU USA is appropriate. Is the focus really on the common good of the entire society or is the main objective to enhance the profits of some multinational companies, which have a strong lobby?
Further information:
ÖFSE study