Tuesday, 26 May 2015

TTIP is not a conventional free trade agreement

David Begg: Since the collapse of the DOHA round of multilateral trade negotiations the focus of global trade policy has shifted towards regional or 'plurilateral' agreements involving groups of countries.

The United States is the main driving force behind this initiative with the aim of being at the centre of an integrated trade zone, covering nearly two-thirds of the global economy and almost 65 per cent of US goods trade, according to the US Council of Economic Advisors (Wolf, 2015).

Its priority at the moment is the Trans-Pacific Partnership (TPP) concerning which President Obama has been finding the going difficult due to opposition from the left wing of his own Democratic Party, led by Senator Elizabeth Warren of Massachusetts. This opposition, so far at least, has denied him Trade Promotion Authority (TPA) or ‘Fastrack’ powers to do the deal himself and then refer it to Congress for ratification. Experience of the Clinton era NAFTA has left unions and workers sceptical of the benefits of free trade agreements and concerned for ‘the great sucking sounds’ of jobs being outsourced to low cost locations. These concerns are reflected in the opposition within the Democratic Party.

The same worries apply to the second of the Administration Trade Policy Objectives, the Trans-Atlantic Trade and Investment Partnership (TTIP) which is a proposed free trade agreement between the US and the EU. This is also being strongly pushed by the European Commission although Germany has reservations. This is significant in global trade terms too because the EU accounts for 46 per cent of Global output and 28 per cent of Merchandise Trade as well as being a market of 500 million customers.

That Ireland strongly supports TTIP is hardly surprising given that trade openness has been settled policy for over fifty years. With the first Programme for Economic Expansion which covered the period 1959-1963 the country moved from a position of near isolation in the world on to a path which led initially to the Anglo Irish Free Trade Agreement of 1965 and ultimately to membership of the EEC in 1973 (Maher, 1986). There were huge adjustment costs associated with this transition, particularly job losses in the indigenous sector of the economy.

On the other hand the Single European Act of 1986 made Ireland a market for multinational companies seeking to access European markets. Moreover, a small open economy like Ireland has more to gain from a rules based International Trade Regime than does a larger stronger country like Germany.

That said, it is important to understand that TTIP is not a free trade agreement of a conventional type. Tariff barriers are not a huge impediment to trade between Europe and the US and TTIP is mostly about regulatory convergence. The case for it is that, because of the failure of the DOHA round of multilateral negotiations, plurilateral agreements are the only practical way forward, and they will bring significant gains.
The problem is that there is no certainty about the magnitude of these gains. In fact there are counter arguments that suggest considerable losses.

Jeronim Capaldo (2014) of Tufts University argues that the proponents of TTIP have used an inappropriate econometric model –The Computable General Equilibrium Model- for trade analysis and forecasts based on it for economic gains from TTIP are unreliable.  He argues that using the United Nations Global Policy Model offers a more plausible analysis based on more realistic assumptions in the context of protracted austerity and low growth in the EU and US. This latter economic model gives a more pessimistic forecast of outcomes including, Inter Alia; 600,000 job losses in Europe, a reduction in the labour share of income, losses in terms of net exports and a reduction in GDP. Interestingly, the analysis points to a paradox for EU Policy makers in that TTIP appears to create pressures for economic dis-integration, rather than integration, in Europe. Thus TTIP would have a negative net effect on the EU.

Apart from economic considerations some unease has been caused by the proposed inclusion in the TTIP of Investor-State Dispute Resolution (ISDR) machinery. In a worst-case-scenario the fear is that multinational corporations could challenge governments on social legislation or other public policy legislation inimical to their interests, in secret arbitration tribunals involving corporate lawyers and outside the judicial system.

To be fair, both President Juncker and Commissioner Malström seem to be very aware of these concerns and the latter presented a concept paper to the European Parliament on the 6th May aimed at addressing them. However, the fundamental question remains why, given the independence of the judicial systems in both the EU and US, it is necessary to have alternative dispute resolution systems at all? This question is made more acute by the knowledge that ISDS provisions in existing trade agreements have been linked by multinationals to extract large sums from governments by way of compensation for social and environmental legislation.

The fact that the focus of TTIP is regulatory convergence presents a risk of levelling down, perhaps even a race to the bottom, in labour, environmental and food standards. There is a risk that public services like health and education could be forced open to private business by litigation. Assurances have been given on all these points, and no doubt they are genuine, but there is always the danger of unintended outcomes.

Finally, for those who believe in a political economy approach, there must be a concern that TTIP will accelerate the process of disembedding the markets from society with all the consequences that portends. TTIP requires a lot of public debate.

  • Capaldo, Jeronim (2014) ‘The Trans-Atlantic Trade and Investment Partnership: European Disintegration, Unemployment and Instability ‘. Global Developments and Environment Institute, Tufts University, Medford MA. Working Paper No 14-03
  • Maher, DJ (1986) ‘The Tortuous Path: The Course of Ireland’s Entry into the EEC 1948-73’. Institute of Public Administration.
  • Malström, Cecilia (2015) ‘Concept paper – Investment in TTIP and beyond: The Path and Reform’ European Commission.

No comments: