Ifo Institute Investigates TTIP’s Potential Impact on Third Countries
Jan 23, 2015
TTIP will not only affect its negotiation partners, but will also potentially impact developing and emerging economies. On the one hand, higher income in the EU and the USA will increase demand for goods and services in third countries, which should benefit them. On the other hand, the agreement can be expected to divert trade flows from TTIP partners away from third countries, which will be detrimental to them. In a new study commissioned by the German Federal Ministry for Economic Cooperation and Development, the Ifo Institute in Munich and the IAW Tübingen jointly explore how threats to emerging countries can be minimised and opportunities can be maximised, to turn the agreement into the basis for a new and fair world trading system.
On balance, there will be both winners and losers among the developing countries. However, the effects on both groups will be small; and several parameters can be adjusted to make the winner group as large as possible. Microeconomic analyses report limited negative real income effects for 42% to 80% of third countries. The cumulative prosperity losses over 10-12 years will amount to less than 1% of per capita income. If, however, the trade costs of third countries stand to fall due to TTIP, then the losers’ share will be only 3% to 40%.
Against a background of annual growth rates of 3 to 4%, these effects seem small. The exporters of raw materials or countries that are involved in the value creation chains of EU or US manufacturers tend to be positively affected. By contrast, exporters of clothing, shoes and citrus fruits, for example, tend to be negatively impacted.
Macroeconomic research, which does not take into account that many developing countries export different goods to TTIP countries, indicates higher cumulative losses of up to 2% for some regions over 10-12 years. If, however, trade costs fall thanks to TTIP, in all models the losses fall drastically.
Since TTIP is supposed to prove a success for as many developing countries as possible, the agreement should forego complex rules of origin unless absolutely necessary, expand recognition of transatlantic standards to third countries as far as possible, give developing countries rights to information on the work of the planned regulation boards, prevent the redirecting of protectionist measures towards “TTIP-Outsiders” and develop a credible prospect of third and developing countries participating in the future.
To ensure that TTIP contributes to the development of a fair world trade order, the EU’s long-term international trade policy needs to be oriented towards further lowering the customs and trade barriers for particularly relevant export goods (e.g. textiles, shoes, cotton, tobacco), offering political and technical support to developing countries in forming their own regional free trade agreements, expanding the existing trade agreements between the EU and various developing countries, promoting the involvement of developing countries in global value creation chains with suitable development policy instruments and reinforcing the WTO’s role as the effective advocate of smaller, poorer states.