Potential impact of TTIP on developing and emerging countries
Client: Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung (BMZ) •
Project period: October 2014 – December 2014 •
Department: Ifo Center for International Economics
|Project team:||Prof. Gabriel Felbermayr, Ph.D. |
Dr. Rahel Aichele
Dr. Erdal Yalcin
Günther Klee (IAW)
|Research Professor:||Prof. Dr. Wilhelm Kohler |
German Federal Ministry for Economic Cooperation and Development (BMZ)
|Project period:||October 2014 – December 2014|
The future prosperity of Germany and Europe crucially depends on easy acccess to international markets. An open, reliable and well-regulated partnership between the EU and the USA can act as a major stimuli to world trade, as well as providing it with a sustainable basis.
TTIP represents a traditional free trade agreement on the one hand, and contributes to shaping the rules for world trade in the 21st century on the other, especially in the area of regulatory cooperation.
TTIP directly affects around 45% of value creation and 30% of world trade. Current estimates indicate a long-term increase in real per capita income of 1.0 - 3.5% thanks to TTIP.
However, third countries will also be impacted by TTIP. With the exception of energy raw materials, the EU states import more from developing countries than the USA, Canada, Japan and China put together. However, the USA is also an important market for developing countries. 30% of all third countries account for over 50% of the export revenues of TTIP partners.
The negotiating mandate of the EU Commission repeatedly underlines sustainable development as one of the partners' key goals and basically commits itself to designing TTIP in a development policy-friendly manner. An ongoing dialogue with civil society should also promote the agreement's sustainability from a development policy point of view.
The project will investigate whether and how TTIP can become the core of a fair, new multilateral world trade system. The conditions required to achieve this goal should be taken into consideration in the negotiations.
The study draws on analyses of literature, expert interviews and case studies.
It proceeds in five steps: firstly existing theoretical literature on the trade diversion and trade creation effects of preferential trade agreements is presented and examined in relation to TTIP. This is followed by 12 expert interviews with key representatives from business and civil society. Based on this conceptual groundwork, the results of several existing quantative studies are evaluated. Finally, nine detailed case studies are made of countries that are interesting from a development policy point of view. Based on this work, the study ends with ten policy recommendations.
Data and other sources
Relevant literature, CEPII BACI data set, WITS/TRAINS
The sheer size of the transatlantic economy means that TTIP will have an impact on 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. 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. Even if the trade costs of third countries stand to fall due to TTIP (“spillover effects”), then they will decrease by 3% to 40%. The cumulative prosperity losses over 10-12 years will amount to less than 1% of per capita income. 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. The presence of spillover effects dramatically reduces the losses in all models.
Since TTIP is supposed to prove a success for as many developing countries as possible, the agreement should (1) forego complex rules of origin unless absolutely necessary, (2) expand recognition of transatlantic standards to third countries as far as possible, (3) give developing countries rights to information on the work of the planned regulation boards, (4) prevent the redirecting of protectionist measures towards “TTIP-Outsiders” and (5) 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 (1) further lowering the customs and trade barriers for particularly relevant export goods (e.g. textiles, shoes, cotton, tobacco), (2) offering political and technical support to developing countries in forming their own regional free trade agreements, (3) expanding the existing trade agreements between the EU and various developing countries, (4) promoting the involvement of developing countries in global value creation chains with suitable development policy instruments and (5) reinforcing the WTO’s role as the effective advocate of smaller, poorer states.