TTIP and the Economy: It's all About the Non-Tariff Barriers

Economic projections clearly show that TTIP's potential gains are heavily dependent upon the extent to which non-tariff barriers to trade (NTBs) are eliminated. However, this also introduces a lot of uncertainty. Socially, it can sometimes impose costs by allowing economic efficiency and power over global regulatory schemes to trump a society's concerns. Economically, the effects of regulatory coordination are exceedingly difficult to estimate.

In our second TTIP theme week, we invited experts to give their opinions about the possible economic effects that an agreement could have. The editorial team has reviewed the articles and comments, and has drawn three preliminary conclusions on the subject. First, eliminating NTBs must be considered not just in terms of economic costs and benefits, but also social ones. Second, estimating these effects of this part of TTIP is very difficult. And third, communicating the results of said estimations is also very difficult, but failure to do so exacerbates mistrust towards the TTIP negotiations.

Eliminating Non-Tariff Barriers has Secondary Costs and Benefits

While eliminating non-tariff barriers to trade can in many cases have positive results in terms of avoiding redundancy and unnecessary costs, and opening up potential markets for small and medium sized enterprises, it can also lead to non-economic costs and benefits. This aspect of the discussion must begin with clarification of what NTBs actually are. Dr. Martin Myant with the European Trade Union Institute gave three useful examples from the automotive industry:

1. different tastes in cars
2. special taxes on high-consumption vehicles
3. different crash tests

Using the second example, a point made by both Fabian Bohnenberger of the Global Public Policy Institute and Martin Myant can be illustrated quite well. Special taxes on cars that get low gas mileage can be seen as an expression of the will of a people to reduce aggregate gas consumption by making certain behaviors more expensive. Therefore, eliminating this barrier could benefit manufacturers and consumers of a particular good, but it introduces a social cost by denying lawmakers the ability to regulate.

Proponents view regulatory cooperation in a more optimistic light. Rather than seeing cooperation as taking regulation out of the hands of those subjected to it, Dr. Valbona Zeneli and Dr. Kent Hughes argue that TTIP is an opportunity for the West to take control of regulation around the globe by utilizing the sheer size of the American and European markets as incentives to get other regulators to comply with standards that reflect Western regulatory principles. This position depends on the idea that coherent "Western" regulatory principles exist, which is called into question by critics claiming that the guiding principles in the US and EU are fundamentally different, and will be more thoroughly discussed in our last TTIP theme week.

Estimating the Effects of Eliminating NTBs is Very Difficult

Examining the first and third examples helps to demonstrate Myant's argument that macroeconomic projections based on NTBs are highly uncertain. As is shown by the example of different tastes, there are some NTBs that simply cannot be eliminated by treaty negotiations. Meanwhile, the third shows that some divergent regulations can create inefficiencies by, as Hughes wrote, requiring the redesigning of a "large number of parts without there being any functional difference". However quantifying the costs and benefits is difficult.

This argument finds support from the Bertelsmann Foundation commissioned IFO Institute study that was discussed by Myant and Benedikt Heid, which states that, “Even when it is possible to clearly distinguish non-tariff barriers from tariff barriers, it remains unclear which components of the non-tariff barriers can in fact be influenced by free-trade agreements.” The study avoids this difficulty by assuming that the trade creation effects from TTIP will be similar to the effects created by past free trade agreements. By contrast, the CEPR study, which was also referenced by Myant, uses data collected through expert surveys in order to estimate the costs of NTBs, and estimate scenarios assuming that some portion of barriers are eliminated.

Source: atlantic-community