US Department Of Agriculture TAFTA/TTIP Study: Small Gains For US, Losses For EU

from the remind-me-why-we-are-doing-this-again dept

As we are constantly reminded by its supporters, the TAFTA/TTIP agreement currently being negotiated between the US and the EU is huge: together, the two regions account for around half of global GDP. Given that scale, and the impact that TTIP is likely to have on both the US and EU, you might expect there would be dozens of detailed studies looking at the likely effects -- and whether, on balance, it would be a good idea. And yet such studies are very thin on the ground.

The main one (pdf), produced by the London-based CEPR for the European Commission, dates back to 2013. Initially, its figures were widely quoted to bolster the case for TTIP; and then, almost overnight, it was quietly dropped. It's not hard to see why. Once people started digging more deeply into its oft-cited figures -- an extra €119 billion for the EU's economy, and €95 billion for the US -- it turned out that these were from an "ambitious" deal, and referred to the cumulative effect of TTIP in 2027, after it had been in operation for ten years. Even that best-case scenario worked out at just 0.05% extra GDP per year -- little more than a rounding error. Since then, TTIP supporters have stopped making precise claims about the boost to growth that TAFTA/TTIP will provide, and simply claimed instead that it will be good for the US and EU economies without going into further details.

The embarrassing lack of any compelling economic justification for the deal probably explains why there are so few studies: anything even half-way rigorous would show the same, thin gains, which would hardly bolster the case for TTIP. That dearth of high-quality research makes the recent appearance of a new report from the Economic Research Service of the US Department of Agriculture entitled "Agriculture in the Transatlantic Trade and Investment Partnership: Tariffs, Tariff-Rate Quotas, and Non-Tariff Measures" (pdf) all-the-more welcome.

As you would expect given its provenance, it's a rigorous piece of work, and confirms that the GDP gains from TTIP are likely to be tiny: in the best case, around 0.1% for the US, and 0.29% for the EU. Both of those are cumulative gains, which means that the annual GDP boost for both sides is once more extremely small. What makes the new study particularly valuable is that it naturally concentrates on the agricultural sector, and provides us with the first detailed breakdown of how the proposed agreement is likely to affect what is a very important -- and highly influential -- industry for both sides.

The first scenario the report examines is one where all the tariffs currently imposed by the US and EU on each other's agricultural goods are removed, which is what is typically found in "classical" trade agreements. Here's what the report says might happen:

U.S. agricultural exports to the EU increase by $5.5 billion from base year (2011) levels, while EU agricultural exports to the United States increase by $0.8 billion. Overall, U.S. agricultural exports increase by 2 percent and agricultural imports by 1 percent. EU agricultural exports decrease by 0.25 percent, and agricultural imports rise by 0.5 percent.

To unpack that, this says that the agricultural trade between the US and EU increases for both sides, but that overall, including trade with other nations around the world, EU farmers end up exporting less than they currently do, while the EU as a whole imports more. In real terms, that means EU farmers will have a tougher time under TTIP if tariffs are removed.

The other situation modelled by the USDA study looks at what happens if so-called "non-tariff barriers" (NTBs), termed "non-tariff measures" (NTMs) by the researchers, are removed in addition to the tariffs. This is much more contentious, because those NTBs/NTMs include things like the EU's ban on chickens washed in chlorine water, or the European refusal to accept the use of growth hormones for beef. As that indicates, this is not about traditional monetary tariffs imposed on imports, but cultural choices about how food is produced. Here's what the econometric modelling found in this case:

[T]he additional removal of select NTMs (e.g., meats, field crops, and fruits and vegetables) results in an increase in U.S. exports to the EU by an additional $4.1 billion over gains in the first scenario [to $9.6 billion]. For the EU, the removal of NTMs generates an additional gain of $1.2 billion in exports to the United States [giving a total of $2 billion].

Overall, agricultural imports and exports each increase for the United States by about double the percentage in scenario one [4% and 2% respectively], while EU agricultural imports increase by 1 percent and agricultural exports decline.

As you would expect, removing those NTBs/NTMs does boost agricultural trade between the EU and US. But the bigger picture shows that the US fares better globally, while the EU does even worse than in the first scenario. In fact, the report prefers not to say how much -- just that "agricultural exports decline," which means decline even more, since the tariff-only scenario already saw global exports go down by 0.25%. But the report does make another very significant comment:

The decrease in overall EU agricultural exports in the first scenario is also largely attributable to a reduction in intra-EU trade.

What that means is that if TTIP is implemented, it will cause the agricultural trade between the 28 EU nations to decrease, as trade with the US increases, and EU production is diverted there. But one of the key reasons for creating the European Union's "common market" was to facilitate economic interactions between member states so as to strengthen their political bonds. Put another way, the USDA study predicts that TAFTA/TTIP -- a deal supposed to bolster the EU -- will in fact undermine the European project.

Removing the non-tariff barriers is pretty disastrous for the EU, but is unlikely to happen, since the European Commission has promised that it will not allow chickens washed in chlorine, or beef injected with hormones, to enter the EU. And even if it broke those promises -- surely an impossibility -- the USDA study points out EU consumers might well refuse to buy those US products anyway:

The removal of select NTMs could lead to consumers preferring domestically produced products versus the importer equivalent. Thus, in the third scenario, export gains are smaller for both the United States and the EU.

As a consequence, the report warns:

Potentially, these demand-side effects could erase any gains from the removal of specific NTMs.

That's an important result. It shows that it would be pointless for the US negotiators to fight for the removal of non-tariff barriers for agricultural goods, since doing so is unlikely to bring any benefit for US producers. More broadly, the new study not only confirms that the economic benefits of TAFTA/TTIP are vanishingly small overall, but suggests that the EU's agricultural sector will actually be worse off under the deal than it is now without it. Good luck getting that through the European Parliament....

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Filed Under: agriculture, eu, gains, politics, tafta, trade, ttip, us