TTIP: Exaggerated Benefits and Shaky Estimations
Arguments for TTIP that are founded on the available economic projections should be viewed with skepticism for two reasons. First, popularized reproductions of technical research papers are very generous in terms of highlighting the expected benefits. Second, the bulk of benefits are rooted in the expectation that non-tariff barriers to trade will be reduced. These barriers are sometimes not removable and often have costs that are difficult to quantify.
Claims have been made of enormous benefits to come from TTIP. These are justified with reference to two sets of studies, one commissioned by the European Commission and undertaken by the Centre for Economic Policy Research (CEPR) and the other based on a study commissioned by the German Ministry of Economics and Technology and undertaken by the IFO institute of Munich. This produced both a detailed report and more popular versions with less detail and explanation. Claims of great benefits from TTIP made on the basis of these studies lack plausibility.
1. Inaccuracy of Popularized Versions of Technical Papers
Policy makers, and sometimes researchers, overstate the results of studies that they have commissioned or undertaken. The European Council stated on 14 June 2013 that there would be an increase of European GDP of 0.5% ‘every year' for ten years. In fact, the study commissioned by the European Commission showed a one-off increase of 0.48% in total by 2027 under an ‘ambitious' scenario, or 0.27% under a ‘less ambitious' scenario (p.46).
Even more remarkably, the popular version of the German study claimed that more than 2 million additional jobs could be created by TTIP (Table 11). The estimate from the detailed study for the scenario considered plausible was an increase in employment of about 124,000 in the EU and 69,000 in the USA (Table III.13, section C). Other oddities in these studies include a claimed increase of 5% in ‘average real income', which turns out to be a measure of ‘equivalent variation' while their data for GDP point to a 1.2% one-off increase over 15 years. There are further inconsistencies within and differences between versions of their studies which are not pursued further here.
2. The Extreme Difficulty of Estimating the Effects of Reducing Non-Tariff Barriers to Trade
Tariffs are a simple and measurable addition to costs. Differing regulations do not appear in such simple, measurable form and any conversion requires estimates and guess work. The CEPR study built from responses to questionnaires to firms and other expert opinions. That gave a hierarchy of how important barriers were considered to be, but could show neither their costs nor benefits from their removal.
The point can be illustrated with reference to the motor-vehicle industry, one which figures very prominently in this study as a major area for potential gains from trade. Barriers identified by businesses include different tastes in cars, taxes on high-consumption vehicles and differences in crash tests. The first of these is hardly a barrier that can be reduced by negotiation. The second relates to environmental policies and its removal could be regarded as a cost rather than a benefit. The third is an additional cost, as tests will have to be done on both continents to satisfy different sets of rules. Harmonisation could well make sense, but the final cost savings would be small.
Putting a money value on these kinds of barriers is not possible in any precise way. Estimating the impact on trade is also open to exaggeration when multinational companies already manufacture on both sides of the Atlantic and do not need to resort to trade to supply markets. If they were to do so, it would presumably lead to lower production in the other continent making any net gain very small indeed.
3. How Much Can Non-Tariff Barriers Actually Be Reduced?
It is difficult to estimate the extent to which barriers can realistically be seen as reducible in view of the differences in principles underlying regulatory systems. The CEPR study addresses this by an assumption that only half, or in their ‘less ambitious' estimate a quarter, of the cost of barriers would actually be removed. The first of these is the basis for the one-off 0.48% GDP increase, the ‘ambitious' scenario.
That benefits from TTIP should be small and uncertain is not surprising in view of the low level of formal barriers to trade between the two blocs, the close integration through mutual investment and the lack of evidence that coping with the existing differences in regulatory systems imposes major costs. Claims of great benefits have been built partly by selective reading of the conclusions of studies and partly by the room for exaggeration within those studies themselves.
Dr. Martin Myant is Senior Researcher and Head of the European Economic, Employment and Social Policy Unit at the European Trade Union Institute.
This article was published in the second of three theme weeks for our project "TTIP: Myths vs Reality". An introduction of the articles for the week can be found here, and introductions of the other two weeks can be found at the top of the TTIP Forum.
Read Benedikt Heid's rebuttal to Dr. Myant's criticism of the Bertelsmann study.