By Glynn Moody and cross-posted from Ars Technica UK
Last year, Ars provided an extensive introduction to the Transatlantic Trade and Investment Partnership (TTIP) agreement currently being negotiated between the EU and the US. This massive deal—it involves half the world’s GDP and a third of its trade—was launched back in 2013, largely on the basis that it would provide a significant fillip to both economies. The previous EU commissioner responsible for trade, Karel de Gucht, claimed it would be “the cheapest stimulus package you can imagine.” A study published in 2013 by the London-based Centre for Economic Policy Research (CEPR) on behalf of the European Commission predicted that the EU’s economy would be boosted by €119 billion, and the US’s by €95 billion.
However, it soon emerged that those figures were for an “ambitious” outcome—effectively, the best-case scenario; they also referred to 2027, after TTIP had been in place for ten years. The extra 0.5 percent boost for the EU’s economy predicted by CEPR worked out at only 0.05 percent extra GDP growth per year—a figure so small that it is likely to be swamped not just by the vagaries of econometric modelling, but also by major unforeseen future events in the global economy.
Once it became clear that the CEPR study offered no clear justification for pursuing TTIP, the European Commission quietly stopped using it, and moved on to purely anecdotal stories about how great the agreement would be for EU companies. Since it needed to drum up political support for the deal, that’s understandable.
What’s less comprehensible however, given the wide-ranging impact that TTIP will have on half the world’s economic activity and some 800 million humans, is that there have been relatively few detailed studies since the 2013 CEPR report.
That makes a major new report (188 pages!) entitled “TTIP and the EU Member States: An assessment of the economic impact of an ambitious Transatlantic Trade and Investment Partnership at the EU Member State level” particularly welcome. It was sponsored by the American Chamber of Commerce to the EU (AmCham EU), and “brings together the expertise of prominent academics from across Europe,” as the foreword puts it. It consists of two main strands: a country-by-country guide to “the current situation and expected benefits” for each of the EU’s 28 member states, together with chapters that look at key aspects of TTIP as a whole.
The introduction to the key findings provides the following information about how the modelling was carried out:
To calculate our findings, we use a methodology that extends and enhances the most reliable approach to-date: Computable General Equilibrium (CGE) modelling. Utilising the ambitious scenario from the CEPR study … we assume a 100 percent mutual reduction in tariff rates between the EU and US, a 25 percent reduction (on average) in regulatory divergences and behind-the-border non-tariff measures (NTMs) (i.e. assuming that over a 10-15 year period the US could move one quarter towards the level of the EU Internal Market), as well as a 50 percent reduction in barriers to procurement.
As that explains, the new AmCham EU report uses the same assumptions and the same model as the 2013 CEPR report mentioned above. So it comes as no real surprise that the predicted boosts to the EU and US economies are exactly the same: €119 billion for the former, and €95 billion for the latter.
The percentage boost to the EU’s GDP is naturally also exactly the same as CEPR’s figure: 0.5 percent. That’s in 2030, so the time-scale has now lengthened from CEPR’s ten years to 14 years. Nothing wrong with that, of course, although it does mean that the average additional GDP per year is now even less—around 0.035 percent annual boost—as a result of TTIP. The report shows this graphically as follows:
As you may have noticed, the diagram is rather misleading, since it plainly suggests that GDP in 2030 with TTIP will be around double what it would have been without TTIP, whereas it would actually only be
1.05 1.005 times greater in 2030—somewhat different. [Looks like someone needs to readEdward Tufte’s book -Ed]
A problem with the figures
The report then goes on to discuss exports: “one constant is that for all Member States, exports are expected to increase. The range of estimated export increases ranges from Slovakia’s +116 percent and Austria’s +64 percent, to Croatia’s +9 percent and Cyprus’ +5 percent.” For the UK, it would be +17 percent.
There’s just one little problem with those figures. One of the core assumptions of the “Computable General Equilibrium” (CGE) modelling employed by both the earlier CEPR paper and this new AmCham EU report is that any increase in exports is exactly matched by a corresponding increase in imports. So while it may be great news that exports are predicted to surge across the EU as a result of TTIP, it’s important to remember that there is a corresponding surge in imports too. Strangely, the AmCham EU report doesn’t discuss imports…