Busting the economic claims being made for TTIP

This page is about the claims the EU is making for projected gains from TTIP to back its overall rhetoric of ‘growth and jobs’, and about the many reasons why these claims cannot be taken at face value. Thus the claims demonstrate the intention to drastically exaggerate supposed gains in order to promote TTIP. Also evident is the complicity of the UK government and that of all UK political parties that repeat the same claims.

The main study on which the promotion of TTIP relies is the 2013 study which the EU Commission itself commissioned from the London-based Centre for Economic Policy Research (CEPR).

CEPR is funded by a long list of central banks and large transnational banks, and corporations that buy ‘platinum membership’ of CEPR can have ‘unique access to some of Europe’s top economists and their research on issues shaping Europe’s economic, political and financial future’.

The TTIP Trade Sustainable Impact Assessment, being carried out by ECORYS, which won the contract for this, has to rely on the econometrics of the CEPR report and not redo them, according to the Terms of Reference for the contract.

The claims EU Commission and the UK government are making for TTIP
The EU claims: An ambitious and comprehensive trans-Atlantic trade and investment partnership could bring significant economic gains as a whole for the EU (€119 billion a year) and the US (€95 billion a year) once the agreement is fully implemented.
(Read the Trade Commission press release)

And that this translates on average to an extra €545 in disposable income each year for a family of four in the EU. (Same press release)
Because tariffs are, on average, already low between the US and the EU, the vast majority of the gains (around 80%) will come from
‘harmonising regulations’, in the most ambitious CEPR scenario. (CEPR report). The Commission also claims that EU health and safety standards, for instance on food, will not be negatively affected. (Various statements by the Trade Commissioner Karel de Gucht and by the chief EU TTIP negotiator Ignacio Garcia-Bercero). The UK government claims: that TTIP will mean potential benefits to the UK of between £4-10b a year, with a potential gain of £100b over 10 years (repeated by the UK government and politicians of all 3 major parties)
Note that the figures above are predictions from the most ambitious scenario that CEPR uses.

What’s wrong with these claims

In relation to the EU figures, this note is given after the table of figures: Note: estimates to be interpreted as changes relative to a projected 2027 global economy. (CEPR report)

So the figures are for 10 years after the signing of the agreement, i.e. in 2027.

In this most ambitious scenario, those projected gains after 10 years, expressed as a percentage, are actually just a 0.5% (i.e. ½ of 1%) increase in GDP with TTIP than without TTIP, even at the top end of the predictions. This is hardly a ‘huge gain’, as the figures have often been described.

The projected figures are a comparative in the tenth year, between a ‘with TTIP’ and a ‘no TTIP’ scenario. Logically, gains in the preceding 9 years will be smaller building to a 10th year figure. Therefore, the projections are actually for much smaller gains than the impression initially given by the 2027 figures.

Because these gain figures relate to the most ambitious projection in the study, this means they rely on very extensive regulatory harmonisation. This would entail extensive harmonising of regulations that are actually very different – which is not likely to happen. This is even more the case when the Commission is denying that regulation in key areas will change.

In this most ambitious scenario, the extra €545 in disposable income each year for a family of four in the EU is similarly a 2027 projection (CEPR report). It is similarly a figure of difference between a ‘with TTIP’ as opposed to a ‘no TTIP’ scenario. Again, it is logical that there would be a build up across 10 years to that projected figure. Therefore the preceding 9 years would have smaller figures of difference between the ‘with’ and without’ scenarios. Projections should also be divided by 4 for an average one-person ‘gain’ i.e. about £120, only after 10 years, but with much smaller gains in the preceding years. There is no redistribution mechanism i.e. for gains to be evenly distributed, anyway. (It is not unknown for proponents of TTIP to omit that this is a figure for a family of 4, when quoting the €545 figure: FactCheckEU)

These claimed benefits are relative to a projected 2027 global economy. How realistic are such projections, when governments can’t correctly predict the economy even one or two years ahead? The very small benefits that are being claimed could be easily swamped by geopolitical changes or changes stemming from the unprecedented changes to our regulatory systems inherent in TTIP.

In regard to the claims for the UK, the 2 claims do not match. The overall figure of £100b over 10 years would only be possible if, from the first year of the agreement, the gains were at the very top of the predicted £4-10b range, and continued to be for each of the 10 years. But gains would logically be lower in the earlier years and build. In addition, all years, including the 10th year, could be at the lower rather than the higher end of the range given, i.e. closer to £4b than the £10b that is being assumed. An inflated overall figure of £100b is therefore effectively impossible and very misleading.

The figures in this and the 3 other studies to which the Commission refers do not take account of costs. See below for costs, and for other studies that do take account of costs.

The disregarded costs include:

  • Costs of unemployment which the CEPR study admits will occur, in loss of tax, and social security contributions and in unemployment payments.
  • Costs from loss of welfare through the lowering of health and safety standards as a result of ‘regulatory harmonisation’.
  • Costs from tariff reductions which shift resources governments in the form of from at-the-border taxes to business.
  • Costs of Investor State Dispute Settlement (ISDS) cases, when governments lose cases or settle out of court and have to pay public money to corporations that have utilised ISDS. There are no possible gains for governments in ISDS as it can only be used by (overseas) companies. Also, win, lose or settle, the costs of defending cases are high. (Note that 75,000 Companies would be in a position to sue government via ISDS in TTIP http://www.citizen.org/TAFTA-investment-map).
  • The significant loss of intra-EU trade as a result of a shift to trading with the US.
  • Costs from strengthened Intellectual Property Rights protection e.g. increased medicine costs from increased patent protection.
  • Re jobs – how about the import factor?

From a Labour party MP to a constituent: ‘The EU-US trade deal could be worth £67 billion to the EU, and could bring 2 million new jobs to the EU. Here in the UK, it is expected to add between £4 billion and £10 billion a year to our economy. That means new jobs for British workers, new contracts for British businesses and stronger, sustainable growth for the British economy’.

There is a repeated emphasis in ‘selling TTIP’ on expansion of the car industry, via tariff and Non-Tariff Barrier (NTB) reductions, primarily regulatory harmonisation, and the associated jobs. However in relation to this quotation from in the Trade Commission press release:
‘..by far the biggest relative increase in trade would take place in the motor vehicles sector. In this sector, EU exports to the rest of the world are expected to go up by nearly 42% and imports to expand by 43%. The growth in bilateral trade is even more impressive: EU exports of motor vehicles to the US are expected to increase by 149%’ – Source Europa.eu it is certainly questionable whether an increase of 42% in exports while there is an increase of 43% in imports is really so ‘impressive’. With reference to the motor export predictions to the US no corresponding import figure predictions are offered.

With the 20 year anniversary of the 1993 signing of NAFTA, there have been recent analyses of the NAFTA effect on jobs e.g. ‘the combined effect of changes in imports and exports as a result of NAFTA was a loss of 879,280 U.S. jobs’ – Source epi.org

The economist Jean-Luc Gréau notes that every neoliberal breakthrough in the past 25 years — the common market, the single currency, the transatlantic market — was defended on the grounds that it would reduce unemployment. A 1988 report (Défi 1992) announced “we were supposed to have 5m or 6m more jobs, thanks to the common market. But once it was established, Europe, plagued by recession, lost between 3m and 4m jobs” – Source Le Monde Diplomatique

The Commission’s preliminary impact assessment report (March 2013) states (section 5.9.2) that there is likely to be “prolonged and substantial” dislocation of EU workers as a direct result of TTIP. It also concedes that there are “legitimate concerns” that those workers who lose their jobs as a result of TTIP will not find other employment and advises EU member states to draw on structural support funds (EGF and ESF) to compensate those who will find themselves out of work as a result of TTIP.
Impact Assessment Report on the future of EU-US trade relations – Strasbourg 12/03/2013

References to jobs in the CEPR study and 3 others on which the commission relies are based on false assumptions of full employment.
The UK Department of Business, Innovation and Skills (BIS) has not been able to provide any evidence of how any possible TTIP gains will translate into more UK jobs.
Critique of CEPR methodology

The CGE (Computable General Equilibrium) methodology used in the CEPR study and the other studies to which the Commission refers is critiqued by several organisations as being more suited to produce predictions of ‘how much’ difference, from a starting position of anticipating gains, rather than to ascertaining whether there will be gains.

Critical studies

    1. A report by the OFSE (Austrian Foundation for Development Research) commissioned by the European Parliament grouping European United Left/|Nordic Green Left (GUE/NGL) critiques the CEPR study and 3 others[i] on which the Commission also relies. It critiques: the use of the CGE methodology that all these studies use, stating that it is a methodology more suited to produce predictions of ‘how much’ difference, from a baseline of expecting gains, rather than ascertaining whether there will be gains and also the minimal nature of the projected gains. It also identifies predicted losses, attempting to quantify some while accepting that others are unquantifiable. It has a one page short summary of results.
      Read Assessing the Claimed Benefits of the Transatlantic Trade and Investment Partnership (TTIP)
    2. The Austrian Federal Chamber of Labour has produced a Q & A document that is also critical of the methodology used, and of the claimed economic benefits of the TTIP.
      Read The Austrian Federal Chamber of Labour’s report on TTIP
    3. A study commissioned by the UK Department of Business, Innovation and Skills (BIS) from the London School of Economics, considering the economic implications of ISDS, concludes that: ‘There is little reason to think that an EU-US investment chapter will provide the UK with significant economic benefits’
    4. Read How University of Manchester academics also critique the claimed potential benefits.
    5. This UNCTAD report casts doubt on the use of CGE modelling for the analysis of the trade effects of the removals of Non-Tariff Barrier (NTB), the basis of the CEPR report. Has a half page abstract

[i] The 3 other studies that the Commission is relying on:‘Study on “EU-US High Level Working

Group”: Final report’, Rotterdam: Ecorys, October 2012; ‘Transatlantic Trade: Whither

Partnership, Which Economic Consequences?’, Paris: CEPII, September 2013;

Transatlantic Trade and Investment Partnership (TTIP): Who benefits from a free trade

deal? Part 1: Macroeconomic Effects, Gütersloh: Bertelsmann Stiftung, 2013.