UK Government Study Tries To Gloss Over TAFTA/TTIP's Problems With Impossibly Precise Figures

from the but-does-it-make-cents? dept

As Europe gets back down to business after its traditional summer break, the second round of the negotiations for the proposed TAFTA/TTIP treaty is beginning. And so is the pro-treaty propaganda. Here, for example, is a 70-page document entitled "TTIP and the Fifty States: Jobs and Growth from Coast to Coast" (pdf). It comes from the British government, and is aimed at convincing the US states that TAFTA/TTIP will be good for their economies and citizens.

The UK has gone to this trouble because it is likely to be the main European beneficiary of any such treaty. At least, that's what a recent study commissioned by the German Bertelsmann Foundation found. The Bertelsmann Foundation is also involved with the current publication, as is the Atlantic Council. Here's the main claim: This study estimates that all states could gain jobs and increase their exports to the EU under a comprehensive and ambitious TTIP. In the state of Virginia alone, successful implementation of a comprehensive TTIP could boost exports to the EU by more than a quarter and increase net employment by almost 21,000 jobs. The whole of the US could see a net employment gain of almost 750,000 jobs. That is equivalent to the entire working population of New Hampshire. The report offers no details of the calculations, but refers to work done elsewhere. Instead, it gives a state-by-state breakdown of the claimed benefits from TAFTA/TTIP. For example, in California it predicts the following job growth in key sectors there: Business Services +15,752 jobs

Financial Services +1,543 jobs

Non-Electric Machinery Mfg. +1,395 jobs

Metals and Metal Products Mfg. +1,187 jobs And gives as the "bottom line": Since 2006, California's pharmaceutical exports to the EU have increased by 61 percent. By reducing barriers to trade and investment, TTIP would facilitate future growth, increasing anticipated US chemical exports by a further 34.2 percent As you can see, those claims are surprisingly exact: precisely 1,187 jobs will be generated in the metals and metal products manufacturing sector -- are they really sure it won't be 1,186 or 1,188? And the growth in chemical exports is given as 34.2%, that is, to three significant figures. Good mathematical hygiene requires you to know the fourth significant figure if you are going to round it up to three, which means the British Government's report implicitly claims to be able to predict with an accuracy of one part in a thousand the future growth in US chemical exports as a result of TAFTA/TTIP.

This is plainly absurd. In fact, the problems with the analysis run far deeper than just this question of exaggerated precision. An illuminating Public Citizen post singles out five particularly serious issues here. 1. The "new" study is not really new. It is largely a recycled version of another recycled version of a study that appeared in 2009. That suggests our understanding of the underlying economic mechanisms of these agreements hasn't really advanced much in four years -- hardly encouraging when it comes to making predictions about them. 2. The study confirms again that TAFTA is not about trade. Since tariffs (an actual trade issue) are "already quite low" between the EU and U.S., pro-TAFTA government officials have readily stated that TAFTA's primary goal is not tariff reduction, but the "elimination, reduction, or prevention of unnecessary 'behind the border' " policies, ranging from Wall Street reforms to milk safety standards to GMO food labels. This is a key point. There are so few tariffs between the US and EU, that very little benefit can be gained by eliminating those that remain. The only way TAFTA/TTIP will have any major impact on the respective economies is if other "barriers" are removed. Although these are called "non-tariff" in the various studies, a better name for them would be health and safety standards. Removing them will indeed allow companies to make more money, but at the expense of the public's health and welfare. 3. The study assumes zero downside of eliminating consumer and environmental safeguards.Today's study assumes that TAFTA would eliminate one out of every four "non-tariff barriers" -- from the Volcker Rule at the center of Wall Street reform to safety standards for children's toys to the ban on beef linked to mad-cow disease -- at no cost to consumers. In addition to an obvious social and environmental toll, such a degradation of safeguards would also result in quantifiable monetary costs for U.S. consumers and the broader economy. Omitting possible costs of TAFTA/TTIP inevitably biases the calculations in favor of it, just as leaving out the negative externalities of burning coal or oil in terms of environmental damage skews calculations about the "cheapest" form of energy. 4. The study uses contested models with assumptions that can turn economic losses into gains. While ignoring costs, today's study strives to capture all theoretically plausible benefits by relying on assumptions-laden methods, such as using a computable general equilibrium (CGE) model to assess removal of "non-tariff barriers" (NTBs). A U.N. study has questioned the reliability of this inchoate approach. In other words, never mind the accuracy of the figures, the entire theoretical model may be flawed. 5. The study assumes a massive rollback of Buy American and Buy Local policies. Another assumption of today's study is that TAFTA would eliminate one half of all "procurement barriers," a euphemism for popular policies like Buy American and Buy Local to ensure that U.S. government projects, funded by U.S. taxpayers, are used to create U.S. jobs. It is rather fanciful to think that the U.S. Congress, state legislatures, or the U.S. public would accept such a clear-cutting of policies that enjoy 90% support. Indeed, today's study assumes an even greater undercutting of Buy American and Buy Local than the EU negotiators themselves are hoping for. In a leaked EU position paper on government procurement, the EU explicitly names 13 U.S. states and 23 U.S. cities it is targeting for rollback of Buy Local policies. Today's study assumes that the U.S. will offer to eliminate Buy Local in about twice as many states as the EU itself requested. This, of course, is the principle reason why the British government has produced this document: to try to convince US states to allow the Buy Local policies to be sacrificed for the sake of other supposed gains. But before they do so, they might like to consider a further analysis put together by Public Citizen that examines the claims about substantial economic gains for everyone in closer detail (pdf). Here are the main points: Even under the most starry-eyed scenario that the study's authors can envision for the economic impact of tariff reduction, TAFTA would result in a mere 0.5 percent increase in U.S. gross domestic product (GDP) when fully implemented. But that "impact" is unrealistically high, given that it assumes a contentious proposition of tariff reductions causing strong "dynamic" economic growth, a theory that academics have repeatedly assailed with empirical evidence showing no such trade-growth causation. After dropping this dubious assumption, the study notes that the theoretical TAFTA-prompted increase in U.S. GDP of $182 billion shrivels to just $20.5 billion, a statistically invisible 0.06 percent blip. By comparison, economists estimate that the introduction of the fifth version of Apple's iPhone delivered a GDP increase up to eight times higher than the projected TAFTA effect. And here's what that would mean on average for US citizens: TAFTA's trivial trade impact shrinks even further when examining the study’s projection of what the deal would mean in terms of actual income. The pro-TAFTA study projects that total annual U.S. national income would be just $4.6 billion higher under the deal. Even this number is likely too high, given that it assumes that 100 percent of existing tariffs between the EU and the U.S. would be fully eliminated under the deal, an unlikely scenario given that the EU has already stated that sensitive products should be afforded exemptions from tariff reductions. But proceeding with this inflated figure still results in deflated "benefits." TAFTA, if ever concluded, would take years to negotiate, get past Congress and implement. After adjusting for inflation and population growth in the interim, the projected $4.6 billion boost would amount to an extra three cents per person per day. Expect to see plenty more studies from both sides of the Atlantic trying to convince the public it's worth giving up a few old health and safety rules, and some silly Buy Local schemes, in order to enjoy those three cents extra each day.

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Filed Under: free trade, predictions, tafta, ttip, uk