Despite some inaccuracies from the BBC, the trade deal will deliver minimal economic benefit at best. What we are actually seeing is the framework for increased privatisation, investor protection, and a potential new era of finance in which tolls replace lending as the key profit stream.
David Cameron is urging the European Commission to conclude a secretive trade deal with the US that could destroy the NHS and entrust our health to American corporations. This much has been well rehearsed in Open Democracy, but it is only one half of the scandal. The other half is that no-one stands to gain from this so-called “free trade” deal, except the transnational corporations and financiers who are backing it.
According to the BBC a “comprehensive and ambitious agreement” will boost annual GDP growth by 0.5%. Really? Well, no. Not even David Cameron is quite that gung-ho about the deal. In launching the negotiations at the G8 summit he called it a “once-in-a-generation prize” that he is determined to seize, but claimed only that it could add as much as a £100 billion (€120 billion) to the EU economy. In these days of boom, bust and bail-out, trillions are what make a real impression, not mere billions.
The numbers come from the impact assessment report produced by the European Commission to get approval for the negotiations, and the economic study on which it is based. Of the various scenarios examined in the study, the most optimistic produced the widely-quoted increase of €120 billion. This amounts to just 0.5% of EU GDP. It does not occur instantly, and it does not represent a boost to annual growth of 0.5% as reported by the BBC. The EC’s study estimates that it would take ten years for the agreement to have full effect, during which period the impact on economic growth would not be 0.5%, but 0.05%, for ten years only. Furthermore, this is for the most optimistic of the study’s scenarios (or guesses) for what might actually be achieved in the negotiations. For its more realistic scenarios, the study estimates an increase in GDP of little more than 0.1%, i.e. an increase in the GDP growth rate of 0.01% for the ten year period. This is trivial, and the EC knows it. If David Cameron has been properly briefed, so does he. What, then, is the real reason why the EU-US agreement is being pushed so hard?
One factor is heavy lobbying from the EU exporters that stand to gain. For its €120 billion scenario the EC’s study estimates that total EU exports to the US would go up by 28%. This is impressive. However, the effect on EU imports from the US is even more impressive. The study estimates that they would go up by 37%. On both sides of the Atlantic some economic sectors would expand, while those faced with cheaper imports would shrink. In theory, investors would move from the sectors that shrink to the ones that expand, followed by workers, once they have gained the necessary skills. In theory everyone gains in the end, since the expanding sectors are deemed to be more efficient than the ones that shrink. In theory, the whole economy gains - but not a lot. Economic growth goes up, at most, by just five hundredths of one percent.
But lobbying is not the only factor. What the EU’s trade negotiators hope to achieve, urged on by Mr Cameron, is a “comprehensive trade and investment agreement” comprising a great many individual components, most of which are only indirectly related to trade. One fairly minor component is the traditional free trade goal of reducing or eliminating import taxes (tariffs), which, according the EC’s study, would make only a small contribution to the €120 billion as most EU and US tariffs have already been reduced to near zero. The more significant components cover a whole host of other measures (non-tariff barriers) that either inhibit imports or give some kind of preference to domestic suppliers. A review carried out for the EC in support of its economic analysis identified over 600 such barriers, including domestic preferences in government procurement; constraints on cross-border investment; direct and indirect government support for farmers; subsidies for renewable energy; subsidies to Airbus, Boeing and their suppliers; government spending on research and development, and many others. The EC’s economic study took the view that an unidentified half of these so-called trade barriers would probably be “non-actionable”. The study’s €120 billion estimate was based on the assumption that half the rest would be completely eliminated, except in the case of government procurement, where all of the actionable half would be completely eliminated.
Will it happen? Unlikely, not to the extent of getting anywhere near David Cameron’s £100 billion. Does Mr Cameron realise it? Probably. Does he care? Probably not, except for the components in which he is particularly interested. Which might they be? There are some clues.
The full list of measures bears a marked resemblance to the acquis communautaire of the European Union’s harmonised legislation, further harmonised with US federal legislation, and further extended to eliminate many of the remaining differences between the laws of individual EU member states, as well as between those of American states. This should come as no surprise, since the goal of eliminating barriers to trade is the same for the EU-US deal as it is for the EU itself. Mr Cameron would probably agree that most of this is “non-actionable”, if only for the sake of relations with his backbenchers.
Measures requiring a lower level of harmonisation, such as for labelling requirements, product standards or health and safety standards, might be less contentious. However, they cannot be achieved by the EC’s trade negotiators sitting round a table with their American counterparts. All of these measures involve a great deal of work by a great many specialists in their own particular fields, many of whom have been working on the same issues for years, not for the sake of some grand trade deal but with the aim of achieving greater coherence in the entire international standards system. Whether there is anything to be gained from focusing solely on harmonising EU and US standards is debateable. It is equally debateable whether the proposed deal will make any difference to the arguments that have raged for years over the two sides’ subsidies to their strategic industries, nor to their inclination to invest in research and development for their own industries rather than each other’s.
This leaves us with just two items that might be the basis for Mr Cameron’s enthusiasm. These are the removal of domestic preferences in government procurement, and the elimination of perceived constraints on cross-border investment, both reinforced by a proposed mechanism allowing transatlantic investors to sue governments over any subsequent action that reduces their profits. These are the very measures that have been highlighted in previous articles as creating a “corporate bill of rights” for transnational companies and financial institutions, which could destroy the NHS and lock in the privatisation of public services.
The EU and the US are already signatories to the World Trade Organisation’s Government Procurement Agreement, which limits the extent to which government at any level can give preference to local suppliers. The UK has made commitments under the agreement for a wide range of central, regional and local government authorities, and bodies that are financed by them, including the Department for Education and Employment, the Department of Health and the Home Office. The EU-US negotiations aim for the “maximum ambition” in going beyond these commitments, to give even greater access to each other’s suppliers. At the same time an equally wide range of perceived constraints on investment are being targeted for elimination, including minimum domestic input requirements, security-related prohibitions and the use of defensive measures against hostile takeovers. Both aspects of the negotiations are reinforced by a proposed mechanism for investor-to-state dispute settlement, through which investors can sue governments over subsequent changes to legislation that interfere with their expected profits.
These proposals come at a particularly opportune time for the financial industry. As Michael Hudson has explained, the EU and US economies are now in a “post-bubble environment of debt-strapped austerity” in which the financial sector can no longer make its gains by lending money, and has turned instead to charging rent on direct ownership. In doing so it has become what Hudson calls a “neo-feudal rentier class eager to buy roads to turn into toll roads, to buy parking-meter rights, to buy prisons, schools and other basic infrastructure”. Might the proposed EU-US deal be part of this post-bubble, post-bust project? In view of its minimal economic benefit, it is hard to avoid the conclusion that locking in the continued privatisation of public services is not an unfortunate side-effect of the deal, but its specific purpose.