Wednesday

20th Jun 2018

Opinion

Put aside ideology when it comes to TTIP

  • 'TTIP could provide a significant boost in getting us out of the current economic stagnation in Europe' (Photo: Tracy O)

As EU trade commissioner Cecilia Malmström put it, the only valid measure of success for the Transatlantic Trade and Investment Partnership (TTIP) will be whether it improves people's lives.

TTIP is not about the purity of our ideological world views, much as its opponents try to convince us otherwise. It is about unlocking the hidden potential of both the European and American economies and improving opportunities for everyone, starting with workers and small businesses.

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Here is something not many are aware of: Big multinationals don't exactly need ambitious trade agreements. They are, after all, already able to move around existing trade barriers with ease and speed.

It is workers and small businesses that have most to gain.

I am prepared to make these statements because I have looked at what the likely impact of TTIP for Portugal is.

There are many ways to do this, which is why I can only recommend a good dose of methodological pluralism. It is important to talk to individual companies and listen to what they have to say about the trade barriers they face, and the competition they expect from their American rivals.

We should look at economic history and draw the appropriate analogies. But there is a problem with these more qualitative methods. Ambitious trade agreements have a number of indirect, higher order effects.

They are also global in nature. Trade patterns between, say, Vietnam and China are by no means irrelevant to what will happen in California or in Portugal after TTIP.

This is why we must ultimately also make use of well-designed computerised general equilibrium (CGE) models. They are the most powerful instrument we have, provided we use them well.

Over a period of months my office worked with Joseph Francois at the Center for Economic Policy Research (CEPR) to develop a model that was able to take advantage of all the work he and his team have done over more than a decade, modelling very subtle regulatory and other non-tariff barriers, while testing all major assumptions for their political realism and ability to model specific sociological realities.

I am very proud of this study. It seems to me that it comes very close to all we can achieve in terms of predictive power in a very complex economic environment.

The results?

Portugal stands to gain significantly from TTIP. Different scenarios give us slightly different results, but over the long run we will likely be able to add something like 0.75 percent to our GDP, while keeping to modest assumptions about how ambitious the final outcome of the negotiations will be.

Crucially, we are estimating that something like 40 thousand new jobs could be created in Portugal in the short term. TTIP could provide a significant boost in getting us out of the current economic stagnation in Europe.

Of course, some other studies reach rather different conclusions. A recent study by a Tufts team predicts the deal will mean job losses, lower growth, lower wages and a more unstable economy.

But let's look at the model they use. It hardly deserves to be taken seriously. For the Tufts team, the main limitations of a CGE model are that it does not take into account effects on employment deriving from greater competitiveness.

It assumes that expanding sectors are able to entirely absorb all labour supply from the shrinking sectors and that resources do not hold specific features which prevent them from being employed in different sectors.

In addition, the authors also claim that CGE models disregard the distribution of gains and losses, which ultimately might have implications on global demand. But neither of these criticisms actually holds for most CGE models.

Now, to bypass such imaginary limitations, the Tufts team uses an approach that is itself highly unsuitable for the assessment of the effects of trade liberalisation. The Global Policy Model (GPM) used by the authors does not allow for the inclusion of tariffs and non-tariff barriers, which is after all the main variable under analysis.

They comment rather coyly that the GPM does not include data on tariffs. Instead, they rely on estimations from previous studies of the growth of exports and these, incidentally, are not even clearly identified in the paper.

Furthermore, the GPM does not include disaggregated sectors or categories of products, further hindering its predictive power.

There is one conclusion from all this.

There is no actual need to judge TTIP through the narrow lens of ideological beliefs. It is quite possible to have a fairly good idea of what we all have to gain from it, and to reach it with simple, objective and widely available analytical instruments.

Let’s make sure that we use as many of those instruments as we possibly can. This is not about who can win an ideological battle, but how we can improve people’s lives. That is the test for TTIP.

Bruno Macaes is the Portuguese secretary of state for European affairs

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