ttip:%small%gains,%high%risks%? · agenda 1. mul/lateral$deadlock 2. underu/lized$trade$poten/als...

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

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

Ifo Ins/tut

SINCE 1995: VERY LITTLE PROGRESS ON WTO LEVEL

Source: Heritage Founda/on.

Freedom to trade internaQonally, WTO average, Index 0-‐10.

4

3

4

5

6

7

8

9

10

1970 1975 1980 1985 1990 1995 2000 2005 2011

WTO

Ifo Ins/tut


3

4

5

6

7

8

9

10

1970 1975 1980 1985 1990 1995 2000 2005 2011

SINCE 1995: VERY LITTLE PROGRESS ON WTO LEVEL Freedom to trade internaQonally, WTO average, Index 0-‐10.

WTO

123 members

159 members

Ifo Ins/tut


3

4

5

6

7

8

9

10

1970 1975 1980 1985 1990 1995 2000 2005 2011

Singapore (9.3)

Germany (7.9)

China (6.6) Russia (5.9)

Venezuela (3.4)

WTO Average

6

USA (7.7)

HETEROGENEITY AMONGST WTO MEMBERS Freedom to trade internaQonally, WTO average, Index 0-‐10.

WTO

AGENDA



EU-‐US TRADE: STILL SOME UNTAPPED POTENTIAL ? Ifo Ins/tut 8

22,4%

23,0%

0% 5% 10% 15% 20% 25%

Hyp. Benchmark

Obs. EU-‐US trade

US GDP

EU GDP

Shares in World GDP, current USD, 2012

Source: World Bank, ifo calcula/ons.

?

Ifo Ins/tut 9


1,4%

22,4%

23,0%

0% 5% 10% 15% 20% 25%

Hyp. Benchmark

Obs. EU-‐US trade

US GDP

EU GDP

Source: World Bank WDI, WTO Interna/onal Trade Sta/s/cs 2013, ifo calcula/ons.

US Exports to EU: 455 World GDP: 71,697

EU Exports to US: 550 USD bn.

EU-‐US TRADE: STILL SOME UNTAPPED POTENTIAL ?

Ifo Ins/tut 10


10,3%

1,4%

22,4%

23,0%

0% 5% 10% 15% 20% 25%

Hyp. Benchmark

Obs. EU-‐US trade

US GDP

EU GDP

Source: World Bank, WTO Interna/onal Trade Sta/s/cs 2013, ifo calcula/ons.

AssumpQons •  No trade costs •  Iden/cal preferences •  Na/onal product

differen/a/on


Ifo Ins/tut 11


10,3%

1,4%

22,4%

23,0%

0% 5% 10% 15% 20% 25%

Hyp. Benchmark

Obs. EU-‐US trade

US GDP

EU GDP

Source: World Bank, WTO Interna/onal Trade Sta/s/cs 2013, ifo calcula/ons.

Trade costs ∆: 8.9%


Missing trade puzzle

BREAK DOWN OF TRADE COSTS WITHIN OECD Ifo Ins/tut 12

3%

6%

7%

8%

14%

21%

0% 5% 10% 15% 20% 25%

Security

Informa/on

Language

Policy barriers

Currency

Transporta/on

Source: Anderson and van Wincoop (JEL, 2004), p. 693; US trade with industrialized countries.

total: 74%

Ad valorem tax equivalents

Tariffs: 2.5% NTMs: 5.5%

HAVE TRADE AGREEMENT REDUCED TRADE COSTS ? Ifo Ins/tut 13

Trade elasQcity

3 7

Baier & Bergstrand (JIE, 2007) -‐25 -‐10



Egger et al. (AEJ, 2011) -‐50 -‐19

Magee (BEP, 2003) -‐108 -‐37

Note: All es/mates from published papers, significant at the 1% level; comprehensive recent samples (year 2000-‐2005; >100 countries; all no/fied RTAs); all es/mates from published refereed ar/cles.

Causal average effects, changes in ad valorem trade costs (%pts)

HOW HAVE TRADE AGREEMENTS ACHIEVED THIS ? Ifo Ins/tut 14

3%

6%

7%

8%

14%

21%

0% 5% 10% 15% 20% 25%

Security

Informa/on

Language

Policy barriers

Currency

Transporta/on

… through formal policy changes and changed incenQves

Tariffs and NTMs

Private and public investment

Source: Anderson and van Wincoop (JEL, 2004), p. 693; *Egger et al. (AEJ, 2011), assuming a trade elas/city of 7.

total: -‐19%pts*

EVALUATING AN AGREEMENT THAT DOES NOT YET EXIST Ifo Ins/tut 15

Ex post performance of standard CGE models disappoin/ng: „models dras-cally underes-mated the impact of NAFTA on North American trade” (Kehoe, 2005)

•  Right trade model? •  How define an appropriate scenario ex ante?

ifo Approach

−  „Guess“ likely/realis/c scenario? −  Use measured effects of past agreements.

AssumpQon: TTIP lowers trade costs by as much as exisQng agreements have

ADVANTAGES OF THE ifo APPROACH Ifo Ins/tut 16

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

AGENDA



Ifo Ins/tut 18

Source: updated ifo calcula/ons; *Cos/not & Rodriguez-‐Clare (2014), Handbook of Int‘l Econ.

EU: + 3.9%: EUR 1.005 p.a./cap.

LONG-‐RUN EFFECTS ON REAL PER CAPITA INCOME, EU 28 Base year 2012, equivalent variaQon, %

Large? Total gains from trade for Germany ~52.9%

for 2011*

EU28: WHAT SHAPES THE WELFARE EFFECTS?

Ifo Ins/tut 19

Source: updated ifo calcula/ons.

AUT

BEL

BGR

CYP

CZE

DEUDNK

ESP

ESTFIN

FRA

GBR

GRC

HRVHUN

IRL

ITALTU

LUX

LVA

MLT

NLD

POL

PRT

ROU

SVKSVN

SWE

23

45

6

EV (%

)

9.5 10 10.5 11log per capita income in international dollars

AUT

BEL

BGR

CYP

CZE

DEUDNK

ESP

ESTFIN

FRA

GBR

GRC

HRV HUN

IRL

ITA LTU

LUX

LVA

MLT

NLD

POL

PRT

ROU

SVKSVN

SWE

23

45

6

EV (%

)

20 40 60 80 100Merchandise trade over GDPIniQal trade openness

AUT

BEL

BGR

CYP

CZE

DEUDNK

ESP

ESTFIN

FRA

GBR

GRC

HRVHUN

IRL

ITALTU

LUX

LVA

MLT

NLD

POL

PRT

ROU

SVKSVN

SWE

23

45

6

EV (%

)

9.5 10 10.5 11log per capita income in international dollars

AUT

BEL

BGR

CYP

CZE

DEUDNK

ESP

ESTFIN

FRA

GBR

GRC

HRV HUN

IRL

ITA LTU

LUX

LVA

MLT

NLD

POL

PRT

ROU

SVKSVN

SWE

23

45

6

EV (%

)

20 40 60 80 100Merchandise trade over GDPIniQal per capita income

Ifo Ins/tut 20

POTENTIAL CHANGE IN REAL PER CAPITA INCOME Long-‐run effects, %, base year 2012


4.9 3.9

World: + 1.6

RoW: -‐0.9

AGENDA



TTIP: TRADE CREATION AND TRADE DIVERSION Ifo Ins/tut 22

Ceteris paribus results from introducQon of TTIP, base year 2012

Source: ifo calcula/ons.

•  Trade up in all 56 EU-‐US links (e.g., USA-‐GER: +98%)

•  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%)

Trade CreaQon

Trade Diversion

•  Trade down in EU (e.g., FRA-‐GER: -‐24%) •  Trade down within exis/ng EU/US bilaterals

(e.g., USA-‐MEX: -‐16%)

Preference Erosion

Ifo Ins/tut 23

POTENTIAL CHANGE IN REAL PER CAPITA INCOME


-‐1.0

-‐0.5

-‐2.0

-‐0.3

-‐0.5

-‐2.6

-‐1.7

-‐0.1

-‐3.1

-‐1.6

-‐0.8

Long-‐run effects, %, base year 2012

NEGATIVE THIRD COUNTRY EFFECTS ?

•  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

Ifo Ins/tut 24

Theory and evidence

But large PTAs affect trade policy incenQves of countries… •  Mul/lateral reform (Bali 2013!)

•  Further crea/on, deepening and consolida/on of PTAs

AGENDA



Ifo Ins/tut

EU AND US TRADE AGREEMENTS IN THE FUTURE: OVERLAP

Source: WTO and USTR, current nego/a/ons as announced at WTO.

26

FROM TTIP TO WTO 2.0 ?

•  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

Ifo Ins/tut 27

The logic for consolidaQng our deep mega regionals

•  An ambi/ous, open core

•  Openness of TTIP is decisive: „make trade, not war“

A world trade order of different „speeds“ ?

THANKS FOR YOUR ATTENTION

SINCE 1995 WE HAVE THE WTO… Ifo Ins/tut 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?

Ifo Ins/tut

Source: Polity IV project (polity IV index +8 to +10), ifo Berechnungen.

0

10

20

30

40

50

60

70

1960 1970 1980 1990 2000 2010 2012

Share of fully democraQc GATT/WTO members

30

HETEROGENEITY AMONGST WTO MEMBERS

REFERENCES •  Anderson, James and Eric van Wincoop (2004), Trade Costs, Journal of Economic

Literature 42(3); 691-‐751. •  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: 113-‐143.

•  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, 2013. (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): 49-‐60.

•  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.

Ifo Ins/tut 31

1,3%

24,6%

28,0%

0% 10% 20% 30%

Gravity norm

EU-‐US trade

US GDP

EU GDP

EU-‐US TRADE POTENTIAL AND THE REALITY Ifo Ins/tut 32

Shares in World GDP, 2009

Source: World Bank, WTO-‐OECD TiVA Sta/s/cs, ifo calcula/ons.

US Exports to EU: 327 World GDP: 58,704

EU Exports to US: 422 In VA terms (2009)

0%

20%

40%

60%

80%

100%

120%

140%

3 4 5 6 7 8

TRADE COSTS IN EU-‐US TRADE Ifo Ins/tut 33

… ad valorem tax equivalents, %

Source: ifo calcula/ons.

Trade elasQcity

74% for US trade with OECD countries,

Anderson & van Wincoop (2004, JEL)

VA-‐trade, 2009

HOW MUCH DO TRADE AGREEMENTS LOWER TRADE COSTS? ECONOMETRIC EVIDENCE

Ifo Ins/tut 34

0% 10% 20% 30% 40% 50% 60% 70%

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

0.68 (B&B, 2007) 1.15 (ifo, 2011) 1.52 (C&S, 2010)

Average trade cost savings from exisEng trade agreements

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).

Point esQmates

CHANGES IN REAL PER CAPITA INCOME Ifo Ins/tut 35

Long-‐run effects, equivalent variaQon, %


EU28: WHAT SHAPES THE WELFARE EFFECTS?

Ifo Ins/tut 36


-4-2

02

46

EV

(%)

-20 -10 0 10 20 30Change in share of trade over GDP, % points

TTIP

RoW II

RoW I

Welfare change (EV, %)

Change in trade openness, % points

T-‐TIP: BIG EFFECTS. WHY ? Ifo Ins/tut 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)

DIFFERENCES BETWEEN ifo AND CEPR STUDIES

Ifo Ins/tute 38

ifo CEPR

AggregaQon 130 countries, macro view 10 regions, 40 sectors

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

ReallocaQon Intra-‐sectoral Inter-‐sectoral

Focus Poten/als „Realis/c“ effects

Market Structure Monopolis/c compe//on Perfect compe//on

Ifo Ins/tut

METHODS: EU COMMISSION VS ifo

CalibraQon •  Expenditure shares •  Broad trade costs

EU Commission ifo

NTBs •  Bosom-‐up •  Top-‐down, trade costs

TTIP Scenario

•  No tariffs •  ad hoc reduc/on of

iden/fied NTMs •  Spill-‐over effects

for third countries

•  No tariffs •  Trade costs (policy-‐

induced, others) fall as in exis/ng agreements)

39

Approach

•  CGE Model •  New Quan/ta/ve Trade Theory

AggregaQon •  10 regions •  173 countries

Ifo Ins/tut

TTIP: EU COMMISSION vs. IFO – LONG RUN EFFECTS

Source: ifo.

EU Commission

Germany +3.48%

ifo

+0.48% EU +3.94%

+0.39% USA +4.89%

+0.03% China -‐0.50%

ASEAN +0.89% -‐0.07%

World +0.14% 1.58%

(real per capita income, 2012 baseline)

(GDP in 2012 prices(?), 2027 baseline)

40

HÄUFIGE MISSVERSTÄNDNISSE Ifo Ins/tut

•  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.

41

Ifo Ins/tut

AIM 1: FREE TRADE IN THE OECD (TTIP + TPP + BILATERALS)

Source: WTO and USTR, current nego/a/ons.

42

AIM 2: OPEN CLUB AND „WTO 2.0“

?

Ifo Ins/tut

PTAs OF EU AND US IN 1990

Source: WTO and USTR.

43

Ifo Ins/tut

Source: WTO and USTR.

44

PTAs OF EU AND US IN 1990

ttip:%small%gains,%high%risks%? · agenda 1. mul/lateral$deadlock 2. underu/lized$trade$poten/als...

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