Analysis Finds TISA's Benefits Are 'Insignificant', Points Out That Costs Of Deregulation Are Completely Ignored

from the anyone-remember-TISA? dept

Back in 2014, Techdirt first wrote about TISA, the Trade in Services Agreement, another massive international trade deal that was being negotiated behind closed doors with no public scrutiny. Its central aim was to establish a common regulatory framework for services globally. But in doing so, it would circumscribe the ability of governments to bring in their own national laws, since many options would be forbidden by the agreement. For key areas, then, TISA would impose globally-agreed standards for services, with little freedom to diverge, whatever the local populace or democratically-elected politicians might think or want.

During 21 rounds of talks, good progress was made on agreeing what should be in TISA, and it seemed that a final text was quite near. But with the election of Donald Trump, everything went quiet, as TISA negotiators waited to find out what his views on the deal would be. Since then, not much has happened, although TISA's supporters are doubtless hoping that negotiations can be picked up again at some point.

As part of its participation in TISA, the European Commission is obliged to undertake a trade sustainability impact assessment of the likely effects. In this case, the analysis was carried out by the Dutch consultancy ECORYS and the London-based CEPR, both familiar names in this context. The final report was submitted in July 2017, which has given others a chance to examine what benefits the EU expects TISA to bring with it, and the assumptions that lie behind those predictions. The Chamber of Labour, Vienna, commissioned the Austrian Foundation for Development Research (OFSE in German) to produce a report on the report, and this has now been published. Drawing on the sustainability impact assessment's own predictions, the OFSE underlines that TISA is really pretty pointless from an economic point of view:

The economic effects of TiSA according to the SIA study are positive, but insignificant: The economic effects reported are miniscule and do not make for a convincing case for concluding TiSA. EU GDP is expected to increase by 0.1%, exports by 0.2%.

For the US, the figures are 0% for GDP and 0.6% -- in other words, exports rise slightly, but for no overall economic benefit. The average increase for all 23 participating countries is 0.05% for GDP and 0.4% for exports. As the report puts it: "This magnitude of effects is close to statistical insignificance."

These figures taken from the report commissioned by the EU are likely to err on the side of optimism in order to support the European Commission's view that TISA is a Good Thing. But as the Austrian Foundation for Development Research points out, there is a huge flaw in the published analysis. The figures quoted above are the predicted benefits to flow from bringing regulatory systems into alignment. That is typically achieved not by levelling standards up, which would be an acceptable way of accomplishing harmonization, but by levelling down through the removal of stricter regulations. As the OFSE explain:

the benefits of regulation accrue to society at large, insofar as they help to forestall harm from society, for instance by restricting the use of toxic chemicals, or directly confer a benefit, e.g. by increasing the quality of a product or service. Typically, the positive externalities generated by regulation greatly exceed their economic cost. These insights notwithstanding, the empirical trade literature has considered the cost side of regulation only, by conceptualizing regulation as a non-tariff barrier to trade.

As with other trade deals, such as TPP and TTIP, regulations are seen in a purely negative light, as costs borne by businesses, which should be removed for that reason. No account is taken of the fact that they have important benefits for the public -- for example, in terms of protecting their health, and the environment. The Austrian Foundation for Development Research rightly notes that the costs of deregulation must be included alongside the economic benefits in order to arrive at a fair picture of whether trade deals like TISA are worth pursuing. The organization also makes some suggestions for improving TISA and other future trade deals:

Include legal remedies for safeguarding the public interest in EU trade agreements that (i) maintain the right to withdraw commitments in cases of extreme changes in economic conditions, e.g. during a severe economic crisis, or a change in collective preferences due to democratically legitimate regime changes; (ii) reserve the right to impose trade sanctions, e.g. withdrawal of liberalization commitments, for severe breaches of internationally agreed standards and fundamental rights, e.g. with respect to [International Labour Organization] Core Labor Standards or international environmental agreements; and (iii) facilitate access to legal remedies for affected communities and individuals in partner countries, e.g. in cases where the economic activities of EU companies or local companies de-facto controlled by EU companies are in breach of international law or EU legislation.

Although some may see these ideas as evidence that the OFSE espouses a particular political viewpoint, which is probably true, it's larger point about the need to include all the costs and benefits when assessing whether to proceed with TISA is inarguable. No responsible management about to embark on a course of action in a company -- no matter how small -- would consider only the benefits of doing so, without examining the costs and the risks too. Given the far greater economic and social impact of globe-spanning trade deals, the same balanced approach must surely apply to TISA and any future trade agreements.

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Filed Under: benefits, eu, free trade, tisa
Companies: cepr, ecorys