Can Europe Make It?

TTIP: the next phase of the austerity agenda

A recent report by the Austrian Foundation for Development Research has critically assessed many of the claims about the supposed benefits of TTIP, finding them to be flawed, unrealistic and ideologically biased. Here we speak with the foundation's director, Werner Raza.

Werner Raza Thomas Fazi
8 December 2014

Demonstration against TTIP in Madrid. Demotix/Marcos del Mazo. All rights reserved.

Most of the impact assessments on TTIP commissioned by the various European member states and by the European Commission describe the signing of the EU-US trade deal as an ‘economic El Dorado’ that will bring about more growth, more exports and more employment, and will almost single-handedly drag Europe out of the crisis.

A recent report by ÖFSE - Austrian Foundation for Development Research - commissioned by the GUE/NGL group of the European Parliament, critically assesses these findings, showing that they are based on unrealistic and flawed assumptions, methodological errors and ideological biases that seriously downplay the risks deriving from the agreement, while grossly overestimating the potential benefits. Werner Raza, director of ÖFSE, highlights the report’s main findings.

Thomas Fazi: Could you sum up the main findings of the study on TTIP that you co-authored for ÖFSE? How do they square with the conclusions of the “official” studies (CEPR, CEPII, Bertelsmann, etc.)?

Werner Raza: Firstly, the estimated economic gains of TTIP studies on income and growth are small – in general less than 1% of GDP –, and accrue only over a transition period of 10-20 years. Hence, TTIP will not be a short-term boost for the lagging EU economy.

Secondly, with transatlantic trade and investment already largely liberalised, the economic gains critically depend on the reduction and/or alignment of non-tariff measures (NTMs). The latter include a wide range of standards, regulations and laws, and include sensitive public policy issues, e.g. public health and security, consumer protection, social and environmental regulations, etc.

Thirdly, the socials costs of NTM reductions/alignments due to TTIP might be substantial, and have been completely neglected in the economic impact assessments so far.

Fourthly, macroeconomic adjustment costs are not negligible and are particularly relevant with regard to unemployment costs and losses of public revenue.

Lastly, potential adverse effects include: trade and income reductions for least developed countries (LDCs) because of trade diversion in favor of the US and EU; and a reduction of intra-EU trade with detrimental effects upon EU integration.

TF: Of particular concern to many is the planned inclusion in TTIP of the controversial investor-state dispute settlement mechanism, or ISDS.

WR: ISDS is arguably the most problematic aspect of TTIP, giving private investors the possibility to sue governments before international investment tribunals. ISDS is a form of privatised international jurisdiction with severe deficits in terms of democratic accountability and due process. It tends to privilege investors’ interests over the common good.

With EU and US investors traditionally being the most pro-active claimants, ISDS will constrain the policy space of EU governments to regulate in the public interest. Though heavily criticised during the recent public consultation, including by the German, French and Austrian governments, the Commission seems poised to retain ISDS in the agreement.

A second and related aspect has to do with what official trade negotiators describe as regulatory cooperation. With TTIP a process will be set up that threatens to transfer the political discussion on regulatory initiatives into technocratic bodies, which lack democratic accountability. This will eventually give both the corporate sector on both sides of the Atlantic as well as the US government a greater chance to influence EU regulation in the making.

TB: A point that you highlight, and that other reports totally omit, is the economic consequences of the elimination of the few barriers that still remain, which you state could have a serious impact on the EU budget, i.e. more austerity. Could you expand on this?

WR: TTIP will quite likely lead to a more or less complete elimination of all remaining tariffs in US-EU trade. In 2012, according to the European Commission, tariffs levied on US imports amounted to €2.6 billion, or 12% of EU tariff income. If during the ten year implementation period of TTIP these tariffs will be phased out – with the process complete by 2027 or so, depending on the scenario assumed –, this will result in an annual loss of public income between €2 billion and €4 billion for the EU budget.

Though in the long-term a part of this loss will be eventually compensated for by higher VAT income from the sale of US imports, in the short term this reduction of public income will need to be compensated for, either by expenditure cuts or by additional sources of income. My guess is that EU member states will not be willing to transfer more money to Brussels, thus the Commission will have to make some hard choices.

TB: The debate on TTIP usually pits those who say the agreement will be “good” for the economy and those that say it will be “bad”, whereas your report stresses a crucial point, and that is that, quite simply, in purely economic terms some sectors of the economy – and some countries in Europe – stand to benefit from the agreement (at least in relative terms), while others stand to lose from it. Could you tell us which sectors of the economy and which countries you think will benefit the most from the TTIP?

WR: In general, I would expect export-oriented countries with a specialisation in capital intensive high-quality products like Germany, the Netherlands or Sweden to benefit mostly from the agreement. Countries with a specialisation in energy and labour-intensive industries as well as agriculture will tend to lose from the agreement.

TB: What is your interpretation of the dynamics at play in Europe: which governments are pushing for the agreement? Which ones are resisting it? And what are such decisions based on, in your opinion? Are they mostly dependent on the structure of the country’s economy, i.e. more mercantilist, export-led economies are more favourable to the agreement?

WR: In general both export-led economies, above all Germany, as well as countries with internationalised service sectors, in particular the UK, are the most pronounced supporters of the agreement. However, the major drivers behind the negotiations are not governments per se, but the corporate sector in the EU and US. Large transnational corporations push strongest for TTIP.

TB: Do you see the TTIP as related in any way to the strategy of austerity and internal devaluation which is being imposed across Europe, and which appears to be aimed at transforming the continent into a giant, export-led economy modeled around the German system? 

WR: Well obviously, TTIP is an essential part of the Global Europe strategy, the latter linking EU trade policy explicitly with the competitiveness agenda of the Europe 2020 strategy. So yes, I would consider the new trade agenda as an element of an EU crisis policy that emphasizes the need to increase external competitiveness in order to install an export-led growth model all over the EU, particularly in the eurozone.

Needless to say, I think that this is fundamentally misguided. If anything, the EU should try to stimulate its internal demand via investment programs that facilitate socio-ecological transformation and redistribution policies which aim at combating the widespread impoverishment of the population, particularly in the crisis countries of the Southern and Eastern periphery.

TF: Would you agree with those that say that TTIP is part of a wider strategy aimed at dismantling the so-called “European social model”?

WR: To the extent that this export-led growth model is linked to the flexibilisation of labour markets, low corporate taxation and wage deflation as key elements of so-called structural reforms, I would clearly see a connection to the dismantling of the welfare state, which we have witnessed during the last years. TTIP contributes to this in particular by further shifting the balance of social forces in favour of the corporate sector, and by locking-in the neoliberal reforms of the last two decades, in particular the privatisation of public services.

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