TRANSATLANTIC
TRADE & INVESTMENT
PARTNERSHIP
25-04-2018
Jacob A. Jordaan
Utrecht School of Economics
j.a.jordaan@uu.nl
Set up today
• Literature
• Context
• Free trade: public opinion
• Free trade best option?
• EU and US: Trade and investment patterns
• TTIP & criticisms
• Discussion
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Literature
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The Geopolitics of TTIP
Hamilton, D.S. (2014) The Geopolitics of TTIP:
Repositioning the transatlantic relationship for a changing
world. Centre for Transatlantic Relations. John Hopkins
University
Novák, T. Chapter 6: TTIP’s implications for the Global
Economic Integration of Central and Eastern Europe
Robertson, C. Chapter 9: CETA and TTIP: Implications and
Lessons learned
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Context
• Theory: Trade is good for welfare
• Global economy is characterised by high level of
globalisation
• Trade in goods and services, international capital investments,
migration flows
• Large majority of countries follow policies that foster
globalisation
• Growing levels of interdependence
• Growing levels of international governance to manage
and foster interdependence
• EU strongest example
• Strong ↑ Regional Trade Agreements
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Recent decades
• Growing dissatisfaction with globalisation and
integration
• 1999 Battle of Seatle
• Eye-opener for economists
• Globalisation seen as one of the causes of latest crisis
• EU: growing indications that citizens are questioning
further integration
• Public is becoming increasingly aware of negative
effects / adjustment costs / inequality of positive effects
of globalisation and integration
• Politicians listen to voters
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Opinions on free trade
• Pew Research Center (http://www.pewresearch.org/)
• Annual surveys, for a lot of countries world wide
• Survey 2014
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Effects of trade
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More powers to EU?
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EU good for prosperity?
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TTIP: the German perspective
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Attitudes to global trade and TTIP in Germany;
Bertelsman Foundation.
Brexit: EU has gone too far?
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What do we see?
• Free trade popular topic again
• Overall, free trade is good
• But persistent minority against
• Less support for positive effects of free trade
(globalisation)
• Level of development affects opinion
• More developed economies already experienced the majority of the
positive effects?
• Growing importance of “non-trade-related” issues
• Brexit outlier or start of economic de-integration?
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Free trade and welfare
• Economics 1.01: free trade is best option!
• Concept of comparative advantage
• (Adam Smith, David Ricardo, Heckscher-Ohlin)
• A country should specialise in product that it, relative to
other countries, can produce most efficient
• Other countries do the same
→ maximisation of production
→ through trade = maximisation of welfare
• Concept of comparative advantage often misunderstood!
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It’s a bit more complex
• Many countries very similar, so who specialises in what?
• Strategic trade policy
• First mover advantage
• Spillovers: everybody wants to have high tech industries!
• Theory different from real cases
• Theory: from no trade to complete free trade
• Not difficult to show that welfare increases
• Different types of trade restrictions
• What happens when trade is liberalised?
• Adjustment costs?
• Gains occur on aggregate: winners and losers
• Redistribution?
• What can a politician do when citizens don’t believe that free
trade is best option?
• Politician wants to get re-elected
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Gains versus costs
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3. EU and US
Context of trade negotiations
• US and EU have problems with recovering from crisis
/ reinitiating growth
• On-going integration in Asia
• Trans Pacific Partnership agreement
• Stagnation trade liberalisation in WTO
• Stagnation gains from integration in EU
• Multinational enterprises are increasing pressure
• Potential of trade agreement between two largest
markets in the world economy
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US and EU in world economy
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GDP/Capita US and EU
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Key role in international trade
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Key role in international investment
Share in worldwide Share in worldwide
inward FDI outward FDI
EU 35%; US 20% EU 40%; US 24%
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Key role multinationals
• US and EU have many multinationals
• Large shares in modern manufacturing industries
• Key role in services
• Dominance in international trade
• Key role in creating new technologies
• International diffusion of technologies
• We cannot ignore this in discussions on trade
liberalisation and agreements
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4. TTIP
• EU-Canada CETA
• Negotiations have been completed, EU parliament has
voted in favour
• Provisional start February 2017
• Now it’s with the national governments
• TTIP
• Transparency and disclosure of information is much
larger compared to previous trade negotiations
• http://ec.europa.eu/trade/policy/in-focus/ttip/
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One of the key issues for TTIP
Where will the gains from trade liberalisation come from?
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Non tariff barriers (1)
• Limiting market access
• Import quotas, export restraints, discriminatory measures against
foreign firms
• Costs associated with operating in different markets
• Approval conditions and procedures
• Environment and health standards; consumer protection
• Industry standards; packaging and information requirements
• How to assess need for NTBs?
• Some of the NTBs exist for good reasons
• Mixture of backgrounds (labour rights, environment)
• Mix of trade policy and other policies
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Non tariff barriers (2)
• Lowering NTBs important to increase gains from TTIP
• Completely removing NTBs is going to be very
difficult
• Alternatives
• Harmonisation
• Mutual recognition
• Public concern: race to the bottom?
• “unfair” competition when NTBs differ: countries will be forced to
accept lower standards
• Is this really the case?
• No relation between trade openness and level of standards
• What about consumer choice?
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Predicted effects of TTIP
• Difficult art of forecasting
• Computable general equilibrium models
• Trade liberalisation = decrease in trade costs → increase
in competition → competitive sectors grow → increase
trade and GDP
• Ecorys (2009) Non tariff measures in EU-US trade and investment- An
economic Analysis. Study for European Commission
• Fontagne et al. (2013) Transatlantic Trade: Whither partnership, which
economic consequences? CEPII
• Francois, J. et al. (2013) Reducing Transatlantic Barriers to Trade and
Investment: An Economic Assessment. CEPR
• FelberMayr, G. et al. (2014) Transatlantic Trade and Investment
Partnership: Who benefits from a free trade deal? Bertelsman Stiftung
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Source: Raza et al. (2014)
Effects according to CEPR
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€ 500 per household in EU
€ 655 per household US
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Additional positive effects
• Consensus on moderate gains
• Additional effects
• Dynamic effects
• Scale economies
• Productivity increases
• Development of new technologies & industries
• Restructuring and flexibilization EU economies
• See problems with recovering from financial crisis
• Positive effects on other countries?
• Increase in world demand & easier access to combined US & EU
market
• Positive effect on trade liberalisation under WTO?
• Pressure on China?
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Criticisms (1)
• Impact studies have received a lot of criticism
• Macroeconomic adjustment costs
• Changing capital flows
• Public sector
• Less income from tariffs → decrease government income
• Needs to be compensated by economic growth
• Unemployment
• More trade, increase GDP → increase employment
• But: sectoral reallocation of labour!
• This takes time, is costly, spatially concentrated, not everyone will
be successful
• Adjustment costs likely to be substantial!
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Criticisms (2)
• How to deal with unequal gains?
• Some countries will benefit more than others
• Coherence in EU?
• Is (Eastern) Europe ready for large increase in competition?
• Effect on third-party countries
• Social costs of regulatory change
• Which NTBs can be removed, harmonised, mutually recognised?
• Change in regulation = cost for firms
• Danger of race to the bottom?
• Horizontal versus sector specific
• Medicines, cosmetics, food, raw materials, motors, etc.
• What are the gains when there are so many exceptions?
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Criticisms (3)
• Investor state dispute settlement system (ISDS)
• System to solve disputes between foreign investors and state
• Many countries have bilateral treaties
• Concern: government constrained in designing policies?
• What about WTO?
• Public services under threat?
• Role of government versus private sector + increasing participation
by foreign firms
• TTIP is made for multinationals?
• Threat to democracy?
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Concluding remarks (1)
• Globalising world economy
• Ongoing liberalisation of trade and investment
• What is the alternative?
• Stagnation WTO → Countries are looking for
alternatives
• WTO has made a lot of progress!
• TTIP: potential trade agreement between the two
largest markets
• Negotiations surrounded by a lot of commotion
• Difficult to appreciate all the arguments
• Substantial minority does not like free trade, even in EU!
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Concluding remarks (2)
Key issues from economic perspective
• Moderate gains versus adjustment costs?
• Tariffs versus NTBs
• Lowering NTBs key for gains
• Harmonisation, mutual recognition, many areas affected
• Unequal gains? Winners and losers?
• Redistribution necessary? Feasible?
• Within and between countries?
• Effects on third-party countries?
• Effect on trade liberalisation under WTO?
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