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TTIP: Emperor's New Clothes

by Simon Theurl Thursday, May. 01, 2014 at 10:33 AM

Welfare state achievements, quality and environmental standards as well as consumer interests are up for negotiation..For Austria, an annual jobs gain of 0.06% is forecast...93% of the consultations were with lobbyists.



By Simon Theurl

[This article published on December 11, 2013 is translated from the German on the Internet, http://blog.arbeit-wirtschaft.at.]

Since the summer of 2013, the US and the EU have officially negotiated the creation of the largest worldwide free trade zone, the so-called “Transatlantic Trade and Investment Partnership” (TTIP). The planned agreement will be greater spatially and more extensive and far-reaching substantively while setting new liberalization standards. Since the average tariffs between the US and the EU are very low, the liberalization debate is oriented in reduction of so-called non-tariff trade barriers (NTB). Welfare achievements, quality- and environmental standards as well as consumer interests are up for negotiation. The European Commission has designed its own PR-strategy to manage this and avoid civil society protests as much as possible. The goal is to maintain definitional power and make clear from the start what the TTIP is: a measure for “economic growth and more jobs.”


Various economic simulations that estimate the long-term effects of a comprehensive trade agreement form the core of the liberalization PR. The European Commission expressly mandated two studies that predicted an additional annual growth of 0.03 percent in a time-span of 10 years for the Euro zone in the case of the realistic but less “ambitious scenario.” One study that refers especially to Austria and envisions an annual growth of 0.2 percent (also for the period of 10 years) comes to more optimistic numbers as well as two studies of the Ifo-Institute and the Bertelsmann foundation that promise a higher economic output of 0.47 percent for Germany, 0.49 percent in the EU average and 1.34 percent for the US. Although the last-named studies clearly predict greater effects, they amount to a trifling increase in jobs. For Austria, an annual employment gain of 0.06 percent for the period of 10 years is forecast. Within the whole EU, 400,000 new jobs should arise in a period of 15 years.

The studies neglect distribution effects and questions of actual labor mobility. For example, if one considers the study on the expected effects in Austria, the accumulated employment growth refers back to a tremendous rise of jobs in the automobile sector (around 9%) while job reductions up to 1.9% are envisioned in the wood-, paper-, chemicals- and transportation industries. An adequate taxation and distribution model is needed to compensate the “losers” of the TTIP. However such political-economic measures are not part of the market-centered picture of the world of TTIP advocates.


The results of the PR studies are based on the assumption that NTB should be reduced alongside the hardly existent tariffs. Through the broad definition of these NTB, areas of the public sector, services in health, finances, transportation and subcontracted labor are up for debate, areas of general interest that were hardly advanced with the past liberalization efforts in the scope of the WTO negotiations – on account of the resistance of civil society. That 93% of the consultations in the preparatory negotiations of the European Commission were with lobbyists of big business reflects the undemocratic character of the negotiations.

In addition the agreement will contain a chapter on investment protection. This includes exclusive rights for investors enabling them to sue nation states if they see their expected profits cut by measures like minimum wages, ecological standards and the like. The IMK researcher Sabine Stephan sees here the suspending of labor-, social-, consumers- and environmental protection standards.

The risks connected with the TTIP do not seem to be in any relation to the trifling expected profits.


Not surprisingly these themes are avoided in the public debates according to the PR strategy of the European Commission. Instead the TTIP should be praised as an economic measure, a wonder cure that creates growth and employment quasi free of charge without increasing state spending. If the risks and costs of the agreement are faded out, the plausibility of the prognoses of the PR studies is put in question. In the past, CGE models were criticized for often greatly overestimating the expected effects.

The strategy of creating approval for liberalization measures with the help of economic studies is nothing new like the questionable quality of the studies that assume a priori that deregulated markets will automatically create prosperity for everyone. A glance back shows that the promises of the 1988 “Ceccini reports” in creating the 1993 European Domestic Market were not fulfilled at all. This is also true for America regarding the North American Free Trade Agreement (NAFTA). The positive effects on work and growth predicted in 1993 turned out to be wishful thinking for the US that did not exist beyond the fantasy model-worlds of varied economists.

Another essential reason for the poor performance of the CGE models in the PR studies of the European Commission lies in the assumption that export streams and their changes can be sufficiently explained by the change in trading costs. Reducing business costs would then automatically lead to more production, revenue and thus more prosperity for everyone. The problem is in the question how this prosperity is distributed and who bears the costs of trade liberalization. The problem is not in the assumption that trade liberalizations lead to more prosperity in the long term.

In reality, the world market share of the EU and the US has declined in the last decades. The two regions can build their trade linkages but they lose significance for one another and in the world market. This is substantiated in the strong catch-up process of the threshold countries, above all China, East- and South Asia and Mexico. Both the EU and the US could profit from the increasing demand for goods of these countries and intensify trade relations with them. This suggests trading streams can be better explained through demand-effects than through trading costs.

The construction of NTB as a cost factor is ultimately based on incomplete things of dubious quality. NTB are vaguely defined. Deviations from statistically estimated average trade streams are then correlated with this NTB data and interpreted as trading costs. Thus the reduction of NTB by definition leads to more trade. For those who can influence the contents of the TTIP negotiations, namely big businesses, this blurry and unclear definition of NTB makes possible interpreting all their liberalization desires in the definition of NTB irrespective of the validity of the PR studies.




"Profiting from Injustice," 76pp, November 2012. How law firms, arbitrators and financiers are fueling an investment arbitration boom. Corporate Observatory




Public Citizen, Trade Agreements Cannot be Allowed to Undermine Financial Reregulation


Verdi German union, TTIP Attacks on Wages, the Social and the Environment

The ideology of free trade. The belief that growth and prosperity for all people are promoted by free trade is as old as capitalism. This is often wonderfully represented in the model worlds of economists. But reality looks different. Specific particular interests are sold as the general interest.
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