TTIP: SMALL GAINS, HIGH RISKS?

Transcription

1 TTIP: SMALL GAINS, HIGH RISKS? Prof. Gabriel Felbermayr, PhD Ludwig Maximilians Universität München 13th Munich Economic Summit May 16, 2014 Ifo Center for InternaQonal Economics

2 AGENDA 1. Mul/lateral Deadlock 2. Underu/lized Trade Poten/als 3. TTIP: Substan/al Possible Gains 4. Trade Diversion and Losers 5. From TTIP to the WTO 2.0

3 AGENDA 1. Mul/lateral Deadlock 2. Underu/lized Trade Poten/als 3. TTIP: Substan/al Possible Gains 4. Trade Diversion and Losers 5. From TTIP to the WTO 2.0

4 Ifo Ins/tut 10 9 SINCE 1995: VERY LITTLE PROGRESS ON WTO LEVEL Freedom to trade internaqonally, WTO average, Index WTO Source: Heritage Founda/on.

5 Ifo Ins/tut SINCE 1995: VERY LITTLE PROGRESS ON WTO LEVEL Freedom to trade internaqonally, WTO average, Index WTO 159 members members Source: Heritage Founda/on.

6 Ifo Ins/tut 10 9 HETEROGENEITY AMONGST WTO MEMBERS Freedom to trade internaqonally, WTO average, Index WTO Singapore (9.3) Germany (7.9) USA (7.7) WTO Average China (6.6) Russia (5.9) Venezuela (3.4) Source: Heritage Founda/on.

7 AGENDA 1. Mul/lateral Deadlock 2. Underu/lized Trade Poten/als 3. TTIP: Substan/al Possible Gains 4. Trade Diversion and Losers 5. From TTIP to the WTO 2.0

8 Source: World Bank, ifo calcula/ons. Ifo Ins/tut EU- US TRADE: STILL SOME UNTAPPED POTENTIAL? Shares in World GDP, current USD, EU GDP 23,0% US GDP 22,4%? Obs. EU- US trade Hyp. Benchmark 0% 5% 10% 15% 20% 25%

9 Source: World Bank WDI, WTO Interna/onal Trade Sta/s/cs 2013, ifo calcula/ons. Ifo Ins/tut EU- US TRADE: STILL SOME UNTAPPED POTENTIAL? Shares in World GDP, current USD, EU GDP 23,0% US GDP Obs. EU- US trade Hyp. Benchmark 1,4% 22,4% USD bn. EU Exports to US: 550 US Exports to EU: 455 World GDP: 71,697 0% 5% 10% 15% 20% 25%

10 Source: World Bank, WTO Interna/onal Trade Sta/s/cs 2013, ifo calcula/ons. Ifo Ins/tut EU- US TRADE: STILL SOME UNTAPPED POTENTIAL? Shares in World GDP, current USD, EU GDP 23,0% US GDP Obs. EU- US trade Hyp. Benchmark 1,4% 22,4% AssumpQons No trade costs Iden/cal preferences Na/onal product 10,3% differen/a/on 0% 5% 10% 15% 20% 25%

11 Source: World Bank, WTO Interna/onal Trade Sta/s/cs 2013, ifo calcula/ons. Ifo Ins/tut EU- US TRADE: STILL SOME UNTAPPED POTENTIAL? Shares in World GDP, current USD, EU GDP 23,0% US GDP 22,4% Obs. EU- US trade Hyp. Benchmark 1,4% : 8.9% Missing trade 10,3% puzzle Trade costs 0% 5% 10% 15% 20% 25%

12 Source: Anderson and van Wincoop (JEL, 2004), p. 693; US trade with industrialized countries. Ifo Ins/tut BREAK DOWN OF TRADE COSTS WITHIN OECD Ad valorem tax equivalents 12 Transporta/on Currency Policy barriers Language Informa/on Security total: 74% 8% 7% 6% 3% 14% Tariffs: 2.5% NTMs: 5.5% 21% 0% 5% 10% 15% 20% 25%

13 Ifo Ins/tut HAVE TRADE AGREEMENT REDUCED TRADE COSTS? 13 Causal average effects, changes in ad valorem trade costs (%pts) Trade elasqcity 3 7 Baier & Bergstrand (JIE, 2007) Baier & Bergstrand (JIE, 2009) Baier & Bergstrand (JIE, 2009) Egger et al. (AEJ, 2011) Magee (BEP, 2003) Note: All es/mates from published papers, significant at the 1% level; comprehensive recent samples (year ; >100 countries; all no/fied RTAs); all es/mates from published refereed ar/cles.

14 Ifo Ins/tut 14 HOW HAVE TRADE AGREEMENTS ACHIEVED THIS? through formal policy changes and changed incenqves Transporta/on Currency total: - 19%pts* 14% 21% Private and public investment Policy barriers 8% Language Informa/on 6% 7% Tariffs and NTMs Security 3% 0% 5% 10% 15% 20% 25% Source: Anderson and van Wincoop (JEL, 2004), p. 693; *Egger et al. (AEJ, 2011), assuming a trade elas/city of 7.

15 Ifo Ins/tut EVALUATING AN AGREEMENT THAT DOES NOT YET EXIST Ex post performance of standard CGE models disappoin/ng: models dras-cally underes-mated the impact of NAFTA on North American trade (Kehoe, 2005) 15 Right trade model? How define an appropriate scenario ex ante? Guess likely/realis/c scenario? Use measured effects of past agreements. AssumpQon: TTIP lowers trade costs by as much as exisqng agreements have ifo Approach

16 Ifo Ins/tut 16 ADVANTAGES OF THE ifo APPROACH 1. Top- down strategy on trade costs! No need to es/mate non- tariff measures (NTMs)! Comprehensive measure 2. Data- defined scenario for TTIP! Capturing actual direct and indirect effects! Poli/cal feasibility 3. Easily applicable on very large country samples! 173 countries, i.e., 29,756 country pairs

17 AGENDA 1. Mul/lateral Deadlock 2. Underu/lized Trade Poten/als 3. TTIP: Substan/al Possible Gains 4. Trade Diversion and Losers 5. From TTIP to the WTO 2.0

18 Source: updated ifo calcula/ons; *Cos/not & Rodriguez- Clare (2014), Handbook of Int l Econ. Ifo Ins/tut LONG- RUN EFFECTS ON REAL PER CAPITA INCOME, EU 28 Base year 2012, equivalent variaqon, % 18 EU: + 3.9%: EUR p.a./cap. Large? Total gains from trade for Germany ~52.9% for 2011*

19 Source: updated ifo calcula/ons. Ifo Ins/tut 19 EU28: WHAT SHAPES THE WELFARE EFFECTS? EV (%) ESP GBR PRT MLT FIN IRL CYP GRCSWE EST LVA BGRLTU ITA ROU FRA HRV DNK DEU POL HUN SVK SVN CZE AUT NLD LUX BEL EV (%) ESP GBR PRT MLT IRL FIN ESTCYP GRC SWE LVA BGR LTU ROU ITA HRV HUN POL SVK FRA DEU DNK CZE SVN AUT NLD BEL LUX EV (%) ollarsmerchandise trade over GDP IniQal trade openness log per capita income in international d IniQal per capita income

20 Source: updated ifo calcula/ons. Ifo Ins/tut POTENTIAL CHANGE IN REAL PER CAPITA INCOME Long- run effects, %, base year RoW: World: + 1.6

21 AGENDA 1. Mul/lateral Deadlock 2. Underu/lized Trade Poten/als 3. TTIP: Substan/al Possible Gains 4. Trade Diversion and Losers 5. From TTIP to the WTO 2.0

22 Source: ifo calcula/ons. Ifo Ins/tut TTIP: TRADE CREATION AND TRADE DIVERSION Ceteris paribus results from introducqon of TTIP, base year Trade CreaQon Trade up in all 56 EU- US links (e.g., USA- GER: +98%) Trade Diversion Trade down between EU/US and third countries (e.g., GER- BRA: - 8%; USA- CHN: - 33%) Trade up between many third countries (e.g., CAN- CHN: +46%) Preference Erosion Trade down in EU (e.g., FRA- GER: - 24%) Trade down within exis/ng EU/US bilaterals (e.g., USA- MEX: - 16%)

23 Source: updated ifo calcula/ons. Ifo Ins/tut POTENTIAL CHANGE IN REAL PER CAPITA INCOME Long- run effects, %, base year

24 Ifo Ins/tut NEGATIVE THIRD COUNTRY EFFECTS? Theory and evidence Preferen/al tariff liberaliza/on discriminates (Viner, 1950) Lower trade costs: discriminatory, but welfare gains more likely Regulatory cooperaeon Spillovers conceivable Everything depends on rules of origin (RoO)! WTR 2012: evidence points towards discriminaeon But large PTAs affect trade policy incenqves of countries Mul/lateral reform (Bali 2013!) Further crea/on, deepening and consolida/on of PTAs 24

25 AGENDA 1. Mul/lateral Deadlock 2. Underu/lized Trade Poten/als 3. TTIP: Substan/al Possible Gains 4. Trade Diversion and Losers 5. From TTIP to the WTO 2.0

26 Ifo Ins/tut EU AND US TRADE AGREEMENTS IN THE FUTURE: OVERLAP 26 Source: WTO and USTR, current nego/a/ons as announced at WTO.

27 Ifo Ins/tut FROM TTIP TO WTO 2.0? 27 The logic for consolidaqng our deep mega regionals Asenuate nega/ve effects of trade diversion and minimize complexity (e.g., RoO) Ensure mutual compatability of agreements! Free trade, plurilateral governance amongst OECD countries! Other major plurilaterals with wider coverage: e.g., TiSA A world trade order of different speeds? An ambi/ous, open core Openness of TTIP is decisive: make trade, not war

28 THANKS FOR YOUR ATTENTION

29 Ifo Ins/tut SINCE 1995 WE HAVE THE WTO 29 But, in the meanqme, world trade has changed Growing role of global produc/on chains Trade in increasingly complex products New distribu/on channels The need for improved global governance Services, mobility of people Standards & norms Intellectual property rights Defend freedom of the new global common: internet! Is the WTO as we know it able to deliver on this?

30 Ifo Ins/tut HETEROGENEITY AMONGST WTO MEMBERS Share of fully democraqc GATT/WTO members Source: Polity IV project (polity IV index +8 to +10), ifo Berechnungen.

31 Ifo Ins/tut REFERENCES 31 Anderson, James and Eric van Wincoop (2004), Trade Costs, Journal of Economic Literature 42(3); Egger, P., Mario Larch, Kevin Staub, and Rainer Winkelmann, 2011, The Trade Effects of Endogenous Preferen/al Trade Agreements, American Economic Journal: Economic Policy 3: Felbermayr, G., M. Larch, L. Flach, E. Yalcin, S. Benz and F. Krüger, Dimensions and Effects of a Free Trade Agreement Between EU and US", ifo Forschungsberichte 62, (in German; study for the German Federal Ministry for Economics and Technology). Felbermayr, G. and M. Larch, 2013, "The Transatlan/c Trade and Investment Partnership (TTIP): Poten/als, Problems and Perspec/ves ", CESifo Forum 14 (2): Felbermayr, G. and M. Larch, 2013, "Transatlan/c Free Trade: Ques/ons and Answers From the Vantage Point of Trade Theory", CESifo Forum 14 (4), forthcoming. Felbermayr, G., B. Heid, and S. Lehwald,, 2013, Transatlan/c Trade and Investment Partnership (TTIP): Who Benefits From a Free Trade Deal?, Bertelsmann Founda/on. Fontagné, L., J. Gourdon and S. Jean, 2013, Transatlan/c Trade: Whither Partnership, Which Economic Consequences?, CEPII Policy Brief 1. Francois, J., et al., 2013, Reducing Transatlan/c Barriers to Trade and Investment: An Economic Assessment, Report for the European Commission.

32 Source: World Bank, WTO- OECD TiVA Sta/s/cs, ifo calcula/ons. Ifo Ins/tut EU- US TRADE POTENTIAL AND THE REALITY Shares in World GDP, EU GDP 28,0% US GDP EU- US trade Gravity norm 1,3% 24,6% In VA terms (2009) EU Exports to US: 422 US Exports to EU: 327 World GDP: 58,704 0% 10% 20% 30%

33 Source: ifo calcula/ons. Ifo Ins/tut TRADE COSTS IN EU- US TRADE ad valorem tax equivalents, % % 120% 100% 80% 60% 40% 20% 0% 74% for US trade with OECD countries, Anderson & van Wincoop (2004, JEL) Trade elasqcity VA- trade, 2009

34 Ifo Ins/tut HOW MUCH DO TRADE AGREEMENTS LOWER TRADE COSTS? ECONOMETRIC EVIDENCE Average trade cost savings from exiseng trade agreements 70% 60% 50% 40% 30% 20% 10% 0% Point esqmates 0.68 (B&B, 2007) 1.15 (ifo, 2011) 1.52 (C&S, 2010) 3,0 3,5 4,0 4,5 5,0 5,5 6,0 6,5 7,0 7,5 8,0 8,5 9,0 Trade elasqcity Sources: C&S: Cipollina and Salva/ci, 2010, Review of Interna/onal Economics, B&B: Baier and Bergstrand (2007, 2009), Journal of Interna/onal Economics, Ifo es/mates (Egger et al., 2011, American Economic Journal). 34

35 Source: updated ifo calcula/ons. Ifo Ins/tut CHANGES IN REAL PER CAPITA INCOME Long- run effects, equivalent variaqon, % 35

36 Source: updated ifo calcula/ons. Ifo Ins/tut 36 EU28: WHAT SHAPES THE WELFARE EFFECTS? Welfare change EV (%) (EV, %) RoW I RoW II TTIP Change in share of trade over GDP, % points Change in trade openness, % points

37 Ifo Ins/tut T- TIP: BIG EFFECTS. WHY? 37 1.Comprehensive trade cost measures 2. Ambi/ous catch- all scenario to gauge poten/als 3. Lower trade costs save ressources: higher welfare gains than from tariff reform 4. EU and USA are top export desenaeons for most countries 5. No mul/lateral spillovers from bilateral coopera/on 6.Trade diversion due to EU cutoms union or NAFTA partly undone 7.Trade creaeon and trade diversion are linked, so are gains and losses (- > redistribu/on effects)

38 Ifo Ins/tute 38 DIFFERENCES BETWEEN ifo AND CEPR STUDIES ifo CEPR Focus Poten/als Realis/c effects AggregaQon 130 countries, macro view 10 regions, 40 sectors Market Structure Monopolis/c compe//on Perfect compe//on ReallocaQon Intra- sectoral Inter- sectoral Trade costs Comprehensive defini/on Poli/cs, transporta/on Scenario Trade cost reduc/on as in exis/ng agreements Zero tariffs, some lowering of certain NTBs NTBs Trade costs, bilateral Trade costs, rents, mul/- lateral spill- overs

39 Ifo Ins/tut METHODS: EU COMMISSION VS ifo EU Commission ifo 39 Approach CGE Model New Quan/ta/ve Trade Theory CalibraQon Expenditure shares Broad trade costs AggregaQon 10 regions 173 countries NTBs Bosom- up Top- down, trade costs TTIP Scenario No tariffs No tariffs ad hoc reduc/on of Trade costs (policy- iden/fied NTMs induced, others) fall Spill- over effects as in exis/ng for third countries agreements)

40 Ifo Ins/tut TTIP: EU COMMISSION vs. IFO LONG RUN EFFECTS Germany EU Commission (GDP in 2012 prices(?), 2027 baseline) ifo (real per capita income, 2012 baseline) +3.48% 40 EU USA China +0.48% +0.39% +0.03% +3.94% +4.89% % ASEAN +0.89% % World +0.14% 1.58% Source: ifo.

41 Ifo Ins/tut HÄUFIGE MISSVERSTÄNDNISSE 41 Der EU- US Handel ist heute schon barrierefrei. FALSCH. Die HandelspotenQal ist nur zu 8-10% ausgelastet. Geringer gegenwär/ger Handel der USA mit EU macht hohe Wohlfahrtsgewinne der USA unmöglich. FALSCH. In allen bekannten Modellen korreliert das Handelsvolumen im Ausgangsgleichgewicht negaqv mit der Höhe der möglichen Handelsgewinne. Die Höhe der vom ifo berechneten Effekte ist unglaubwürdig. FALSCH. Die moderne Literatur beziffert den Wohlfahrtsgewinn durch Handel mit 30-50% für Deutschland (CosQnot & Rodriguez- Clare, 2004). Die ausgewiesenen bilateralen Handelseffekte sind nicht konsistent mit den Wohlfahrtseffekten. FALSCH. Was für die Wohlfahrt zählt ist nicht der Wert des Handels (Menge x Preis), sondern allein Menge und Qualität.

42 Ifo Ins/tut AIM 1: FREE TRADE IN THE OECD (TTIP + TPP + BILATERALS) AIM 2: OPEN CLUB AND WTO ? Source: WTO and USTR, current nego/a/ons.

43 Ifo Ins/tut 43 PTAs OF EU AND US IN 1990 Source: WTO and USTR.

44 Ifo Ins/tut 44 PTAs OF EU AND US IN 1990 Source: WTO and USTR.