EconoMatters, Rethinking Globalization

TTIP Rhetoric and Reality: Europe’s Regulations at Risk

The real agenda is not eliminating lingering trade barriers, but compelling downward harmonization.

Credit: John Kehly Shutterstock.com

Takeaways


  • Trade liberalization can create economic benefits. They have already happened.
  • The real agenda of TTIP negotiations is to create pressure for downward harmonization of regulations.
  • Harmonization means imposing lax US rules on European countries that want to have stricter regulations.
  • The benefits of chemicals policy and renewable energy are as valuable as the entire economic benefit of TTIP to Europe.
  • As Janis Joplin might have put it, is free trade just another word for nothing left to lose?

During the final week of April 2016, New York City is playing host to U.S. and European trade negotiators for the 13th round of talks on the proposed Transatlantic Trade and Investment Protocols agreement (TTIP).

That it is still even under discussion reflects not only the vast political influence of multinational corporations, but also a certain automatic orthodoxy among many economists. The latter assert that trade liberalization can create huge worldwide economic benefits.

If those benefits sound important, I hope you enjoyed them – because they have already happened. In the “bad” old days – think 1990 or earlier – there were real barriers to international trade. Tariffs, import quotas and many varieties of protectionist legislation did appear to limit the flow of goods between nations.

But then, NAFTA and CAFTA (the Central American Free Trade Agreement equivalent) opened up Western Hemisphere trade. Next, China joined the World Trade Organization (WTO), and WTO rules lowered worldwide trade barriers. Also, a longstanding textile quota agreement was allowed to expire as well.

Meanwhile, the European Union continued to expand its single market across more and more of Europe. Bilateral and regional trade agreements, too numerous to mention, continued to pop up on every continent.

TTIP negotiations

Paul Krugman, who received a Nobel Prize in economics for his work on trade theory, thinks past gains from liberalization were important, but now says that cutting the tiny remaining barriers to trade “isn’t going to give you a boost that you’ll be able to tell from statistical noise.”

Yet noise, statistical and otherwise, continues to surround the topic of trade liberalization. An important and implausible example is the proposed Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union.

As I document in my recent report on TTIP, tariffs now average less than 3% on transatlantic trade, in both directions.

The real agenda of the TTIP negotiations is not to eliminate the last few trade barriers, but to create pressure for downward harmonization of social and environmental regulations, adopting the weaker of American or European standards.

Special-purpose tribunals, outside the judicial systems of any of the participating countries, could allow corporations to sue foreign governments for damages allegedly caused by strict national regulation.

Innocuous-sounding mechanisms for “regulatory coordination” would ensure that corporate perspectives and preferences are reflected throughout the process of drafting and adopting regulations.

American standards are usually, though not always, weaker than European ones. Thus downward harmonization frequently means imposing lax U.S. rules on European countries that have had, or would prefer to have, stricter regulations.

The debate usually overlooks the very real, if hard to quantify, benefits of regulation that Europe would lose in this process.

Europe ahead of US

My analysis shows that there are enormous benefits from multiple areas of European regulation. In chemicals policy, the EU requires manufacturers and importers of chemicals to provide well-defined evidence on the safety of their products.

In the U.S., unfamiliar chemicals are treated as innocent until proven guilty, with almost no requirements for safety testing.

In climate change and renewable energy, Europe is far ahead of the United States. Thanks to feed-in tariffs and other policies that promote renewables, more than 25% of EU electricity now comes from renewable energy.

This has climate benefits, because it avoids CO2 emissions from conventional generation (usually coal-fired, in Europe). It has health benefits, because it avoids the other pollutants caused by coal combustion.

And there are more than 1.2 million jobs in renewable energy industries throughout the EU.

The benefits of just these two areas of European regulation, chemicals policy and renewable energy, are almost as valuable as the entire economic benefit of TTIP to Europe (as estimated by TTIP advocates).

So suppose that Europe accepted TTIP and gained as much income as the trade optimists predict. If this came at the price of downward harmonization to U.S. standards, Europe would lose about as much in the benefits of chemical safety and renewable energy as it gained in higher incomes.

Losses outweigh gains

Since many other valuable areas of regulation would also be at risk, the overall losses from downward harmonization would greatly outweigh the optimistic estimates of the gains from slightly expanded trade.

The rhetoric of trade liberalization lives on. Only the reality has changed. As Janis Joplin might have put it, is free trade just another word for nothing left to lose?

We need another word for orderly, democratically governed trade between sovereign nations that are free to protect their citizens from social and environmental harm. TTIP and similar proposed treaties have nothing in common with the international agreements we need to promote the common good.

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About Frank Ackerman

Frank Ackerman is a principal economist at Synapse Energy Economics in Cambridge, MA.

Responses to “TTIP Rhetoric and Reality: Europe’s Regulations at Risk”

Archived Comments.

  1. On April 26, 2016 at 8:17 pm 20eric responded with... #

    Re TTIP, if the Europeans and every other nation are stupid enough to do the dirty work for big companies, they deserve no better! Where are the people, workers to prevent that purely greed driven nonsense from happening?

  2. On April 27, 2016 at 5:21 am John responded with... #

    Mr. Ackermann your claims that the TTIP provisions for regulatory cooperation will lead to downward harmonisation of regulation are false. There are explicit exemptions for health and the environment among others.

  3. On April 27, 2016 at 8:03 am magda brown responded with... #

    Which exemptions are they – and is there room for changing them should the need for it arise?

  4. On April 27, 2016 at 8:04 am magda brown responded with... #

    We are here, dangerously playing for time.

  5. On April 27, 2016 at 9:19 am John responded with... #

    The following are proposed:
    ” i) public health; human, animal and plant life and health; health and safety; working conditions; animal welfare;
    ii) the environment;
    iii) consumers;
    iv) social protection and social security;
    v) personal data and cybersecurity;
    vi) cultural diversity;
    vii) financial stability;”
    This is a very exhaustive list. For all those who see the new apocalypse in any cooperation on regulation there has been cooperation on Technical Barriers to Trade under the GATT and the WTO since the 1970s.

  6. On April 28, 2016 at 4:06 am John responded with... #

    I read the links. Clearly the contributor does not understand the Technical Barriers to Trade agreement from the 1970s and the SPS agreement from the Uruguay Round. I did not realize that the Globalist embraces populist anti-globalism like Trump and Marie Le Pen.