TTIP – economic content (part 2)

TTIP – economic content (part 2)

by Dario Rivolta, Milan*

Since the TTIP agreement includes an arbitration clause which justifies the primacy of “investment protection” over possible national laws that might be considered (by the judges) as discriminatory or as “indirect expropriation”, the sovereignty of governments and parliaments will be reduced. So much is certain.
Nevertheless, it is said that this agreement will bring the economies of the US and of Europe so many benefits that it is worthwhile despite the loss of independence.

Is less independence worthwhile?

To prove this assumption, the European Commission asked the Centre for Economic Policy Research (CEPR), to conduct a profound study on the economic consequences of a possible implementation of TTIP. This analysis was realized and submitted in 2013 under the name “Reducing trans-atlantic barriers to trade and investment.”
The US government commissioned its own Department of Agriculture (this is a governmental department) to accomplish the same task. On the whole, the results resemble each other.

It is not about the reduction of tariffs

One must start by saying that the real aim of this agreement is not the reduction of tariffs, because these are already very low or have already been abolished for almost all products. More precisely, the highest duty for Europeans in the United States is 3.7% for agricultural and forestry products. This is followed by 3.2% for processed foods, while for most of the remaining products the customs offices demand a percentage to 1% or less. Europe demands slightly higher Customs duties for American goods: 14.6% for processed foods, and 8% for passenger cars. Everything else costs about the same as our exporters pay in the US.

The real key objective of the possible agreements

If tariffs are not the problem, it follows that we must pay attention to the so-called “non-tariff barriers”, i.e. the regulations in the following areas: production conditions, technical standards, legal and juristic investment limits, and standards for health and hygiene. The reduction of these “barriers” is the real central aim of these possible agreements. Subject to the abolition of all existing tariffs, the CEPR study delineates two scenarios in this context: harmonization of 25% of these standards, which is considered possible, or the ambitious target of 50% of them. Of course, the resulting economic results would be very different.

The one …

In the first case (25%) the study estimates that by 2027 Europe would realize an increase of GDP of 0.27%, while the US would remain at 0.21%. At best, the respective increases would amount to 0.48% and 0.39%. In the latter, more optimistically estimated, case annualised European gross domestic product would amount to around 0.3%. So if the planned growth for 2017 is 1.8% on the continent, it would then instead rise to 2.1%. For the European families that would mean an average of 11.25 euros per person per year. Not much, frankly, but there are those who would say this is better than nothing. And that is true! But what about the other side of the coin?

... and the other side of the coin

Let us remain with the study ordered by the European Commission. It delineates that some sectors, such as the automobile industry, would profit and others, particularly our agriculture and the sector of electric machines, would suffer losses. In addition, a loss of jobs of 0.6% is predicted for the US and also for the EU. This means that about one million workers would lose their jobs and would have to hope that they get employed somehow in the remaining sectors at some point of time in the future.
We have talked about the studies ordered by the negotiating parties, but this is not the only existing analysis: Professor Jeronim Capaldo, economist and researcher at the Global Development and Environment Institute at the Boston University, used another method of analysis than the CEPR and in this way achieved less optimistic results. He concludes that in 2025 the number of jobs in the United States will have increased by 784,000 units, while it will have declined by 58,300 units in Europe. The purchasing power of European workers’ families will decrease annually by between 165 and 5,500 euro (in France), and the average prices of basic goods will rise, especially in Germany, France and England.

Brexit makes reassessment of all studies necessary

Regarding England it must be noted that the above figures relate to Europe as it stands at present. The Brexit will require a re-evaluation of all studies, mainly because the British, along with the Spanish, the Swedes and the Baltic States, would have been the greatest European beneficiaries of the agreements. The possible absence of the GDP growth of 9.7% attributed to England would make it clear that even the measly annual growth rate of 0.3% would have to be corrected downwards.

For the benefit of the United States: increase of transatlantic trade causes decrease in internal trade

That is not all. The study prepared by the Department of Agriculture in 2015 focuses on the sector of its competence (Agriculture in the Transatlantic Trade and Investment Partnership) and is clear in its conclusion, that in agricultural trade between the two shores of the Atlantic Ocean there will be a reversal of the present situation to the benefit of the United States: the European medium and small enterprises (especially the Italian ones) will be at a disadvantage: Europe will import much more food than it is able to export and intra-EU sales will decrease. Perhaps this is the reason why Obama insists so much on the opening of the agricultural sector and that of the GMO (genetically modified organisms) and wants to exclude the financial services.
All studies take into account the different variables within the entire, growing world trade, and this is included in the calculation of GDP. It is not known how the real data would look if the interactions of the third countries were to be less favourable than predicted. It is clear, however, that the increase in transatlantic trade will cause a decrease of the internal EU trade in all sectors.

Joseph Stiglitz: free reign for multinationals

Nobel Prize winning economist Joseph Stiglitz said in 2014 before the Italian Chamber of Deputies: “The Trade Department is negotiating in complete secrecy, without informing the American congressmen. What is at stake is not the import tariffs between Europe and the United States, which are already very low ... it is the standards for food safety, protection of the environment and generally for consumers. This agreement is not meant to improve a system of standards and exchange, which is positive for US as well as European citizens, but it is meant to ensure free reign for entrepreneurs (especially the American multinationals) that carry out economic activities harmful to the environment and to the people ...”
One really has to wonder why and with what motivation local politicians insist on signing this agreement. However, we will discuss this point later.

NAFTA agreement: experience has not been positive

We now turn to the question of what experiences were made in relation to a similar agreement between the US, Canada and Mexico, the NAFTA agreement.
Clinton, the main protagonist in the implementation, claimed that he had thereby created 200,000 new jobs per annum and an increase of purchasing power for Americans. The Economic-Policy Institute (, however, calculated that 700,000 US jobs were lost. A similar study in Canada comes to the conclusion that there, too, 350,000 job places were destroyed by the NAFTA agreement. In theory Mexico would have benefited, as many North-American enterprises settled there. But in the area of agriculture, the same thing happened that is also to be expected in Europe: In the course of eight years 1,100,000 campesinos were displaced from their workspace. American and Canadian workers were forced to accept lower wages and the purchasing power of American workers fell by 12.2%. At the same time the proportion of poor Mexicans increased from 36% to 50% of the total population. The prices of consumer goods increased seven-fold, while the minimum wage was only four times as high as before.
It is notably this experience with the NAFTA agreement which causes more and more American politicians to start questioning the agreement with the Pacific countries (China excluded) already signed by their government.
If Clinton I was so conspicuously “off the beam”, will Clinton II follow the example of her husband, this time to our disadvantage?     •
(Translation Current Concerns)

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