Regulatory Cooperation in TTIP: An Economic Perspective · Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective The Crisis and Exports by Region 7 0. 50

Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective

Regulatory Cooperation in TTIP: An Economic Perspective

Jan Van Hove

(KU Leuven, ULB and INFER)

Federale Raad voor Duurzame Ontwikkeling – October 27, 2015

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Outline

• TTIP: some economic considerations

• Impact assessment of regional trade agreements and lessons for TTIP

• Dealing with regulations in TTIP: economic pros and cons of regulatory trade liberalisation

• Some conclusions

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TTIP: SOME ECONOMIC CONSIDERATIONS


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TTIP: why so sensitive?

• Familiarity with the partner

• New type of trade agreement -> future template in US-EU trade negotiations

• Touches upon long-standing issues (e.g., in food sector)

• Strong competitors

• Some proposals are (too) far-reaching 4


TTIP: why worth the troubles?

• Global context: – Lack of progress in World Trade Organisation – Emergence and performance of new players in global

trade

• Idea of global standards is attractive – Global = US-EU in the TTIP philosophy

• Very substantial bilateral trade flow

– Minor relative liberalisation will have large absolute effects.

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TTIP: why worth the troubles?

• Flexibility in terms of topics and timing – Going beyond global trade liberalisation

• Positive welfare effects (?)

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The Crisis and Exports by Region

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0

50

100

150

200

250

300

35020

05Q

120

05Q

320

06Q

120

06Q

320

07Q

120

07Q

320

08Q

120

08Q

320

09Q

120

09Q

320

10Q

120

10Q

320

11Q

120

11Q

320

12Q

120

12Q

3

North America

South and Central America

Europe

Commonwealth ofIndependent StatesAsia

Africa

Source: Based on data WTO, level 2005Q1= 100


0

2

4

6

8

10

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20 TOP-15 EU Export Partners (2014, % of total EU exports, Eurostat (2015))

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0

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18 TOP-15 EU Import Partners (2014, % of total EU imports, Eurostat (2015))

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IMPACT ASSESSMENT OF REGIONAL TRADE AGREEMENTS AND LESSONS FOR TTIP


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Impact Assessment of RTAs

• Many people interested in the impact of RTAs (policy makers, companies, trade unions, employees, customers, researchers, etc.)

• Hard to measure the impact of RTAs

• 2 Methodologies stand out: – Ex ante analysis: based on simulation in a general

equiilbrium model – Ex post analysis: based on analysing differences in RTA-

trade and non-RTA-trade in a partial equilibrium model

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Impact Assessment of RTAs • Theoretical arguments

– RTA impact on trade: trade creation versus trade diversion – RTA impact on employment: follows from the impact on trade (and

investment) – RTA impact on welfare: complex interaction between prices, trade,

volume etc.

• Studies are not conclusive about the trade and welfare impact of RTAs – Various data and periods – Various methods

• Lack of evidence for the EU ! (no direct evidence regarding

regulatory harmonisation)

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Impact of European RTAs on European Exports and Imports

• Based on Soete, S. and Van Hove, J. (2015), Dissecting the Trade Effects of Europe's Heterogeneous Trade Agreements, KU Leuven.

• Research Questions: – How do RTAs affect the EU and EU member states?

• Distinction between exports and imports • Distinction between the intensive margin of trade (intensity of trade)

and the extensive margin of trade (number of traded products) – Which impact have specific RTAs on EU exports and imports?

• Method: augmented fixed effect gravity approach (Baier, Bergstrand and Feng, 2013)

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Impact of RTAs on European Exports

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Impact of RTAs on European Imports

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Lessons for regulatory cooperation in TTIP

• Most RTAs have total positive effects, but the effects may differ across EU member states. – Effects on the margins can be mutually reinforcing

or opposite.

• Effects are relatively small for more important trading partners – hence regulatory liberalisation may be needed to increase the (positive) impact of future RTAs.

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DEALING WITH REGULATIONS IN TTIP: ECONOMIC PROS AND CONS OF REGULATORY TRADE LIBERALISATION


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Impact of Regulatory Differences between Trading Partners

• Regulatory differences, even justified ones,

lead to market segmentation between trading partners.

• Regulation = adaptation cost for producers

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Economics of Regulatory Differences

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Regulatory Differences

Adaptation Costs for Producers

Higher Price, Less Choice or

Late Availability for Consumers

Unfair playing field for

Companies

Home Market Bias

Less Trade or Investment

Price

Differentiation

Inefficiencies maintained


Evidence of Transatlantic Regulatory Differences

• Differences in regulations as well as in regulation philosophy – EU “regulatory hunger” versus market-oriented

approach in Anglo-Saxion countries

• Regulations as instrument of strategic trade policy

• Some regulatory differences are merely red tape!

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Regulatory Cooperation

• Various kinds of regulatory cooperation possible

• NO cooperation, but ACCEPTANCE of differences = mutual recognition

• Full harmonization – common regulations (new or existing ones)

• Partial harmonization: agreement to differ on some aspects

Cfr. process of building the EU internal market

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Regulatory Cooperation

• Economic Perspective: – Adaptation Cost Perspective: full harmonization is

the best option – General Welfare Perspective: it depends…

• Evaluation of trade-off between fundamental

aims of regulation and its potentially devastating impact on trade = long and hard process at detailed levels!

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SOME CONCLUSIONS


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Some Conclusions

• Hard to predict the (exact) impact of TTIP – Because ex-ante simulations are not always reliable (and

very sensitive to the assumptions made) – Because exact content of TTIP is unknown

• Regulatory liberalisation has clear advantages, but full

liberalisation would violate different preferences and traditions in the EU and the US

• Regulatory liberalisation can take many forms, going from mutual recognition till full harmonization.

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Some Conclusions • Objections against regulatory

cooperation/liberalisation shouldn’t determine the final judgement of TTIP. – TTIP is about more than regulations. – Tariff liberalisation and reducing red tape is still very

useful!

• TTIP should be a framework agreement rather than a very precise agreement. – Fast trade & investment deal = bad trade & investment

deal! – Reconciling trade facilitation and other welfare goals takes

time!

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Documents

Regulatory Cooperation in TTIP: An Economic Perspective · Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective The Crisis and Exports by Region 7 0. 50