Richard North, 17/06/2013  

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The upcoming G8 summit in Enniskillen, Northern Ireland, has the Daily Mail focusing on the "£10bn free trade deal with US", telling us that Mr Cameron will use the summit "to launch talks that could net every British household £380".

This is the transatlantic trade and investment partnership (TTIP), but the supposed benefits may not be evenly spread, if a current Financial Times report is any guide. This suggests that the US and not the EU would be the main beneficiary of a trade deal, enjoying a 13.4 percent increase in per capita income, as opposed to a five percent rise across the EU.

Further, and more politically troublesome, the benefits will not be uniformly spread across the EU. Spain and Greece would reap better than average boosts to growth but trade flows inside the EU would fall as more goods and services travel across the Atlantic. German trade with the UK, France and Italy would shrink, as would the UK's trade with Ireland, Spain, France, Italy and Germany.

For its source, the FT cites the Bertelsmann Foundation, which has commissioned a study from the Munich-based Ifo institute. The full 52-page report is here, unfortunately available only in German.

Ulrich Schoof, project manager at the Bertelsmann Foundation, says that the disparities are not a big problem from an economic point of view, but, he says, "from a political point of view if something like this happens, it will be difficult to hold countries together".

There would also be damage around the world from a sweeping US-EU deal. Advanced countries such as Canada, Australia and Japan would suffer, as would many emerging economies.

Mexico and Chile, which have strong trading ties with the US, would be among the worst hit, along with most of Africa, Asia and Latin America – with the exception of Brazil. China’s trade flows with the US would shrink but the hit to Chinese global income per head would be only 0.4 percent.

The biggest EU beneficiary under a "deep liberalisation" scenario would be the UK, which would see its global gross domestic product per head rise 9.7 percent. France would see a smaller gain – of 2.64 percent. Germany's benefits would also be below average, at 4.68 percent. There would be other EU winners, including the "tiddlers", Sweden, Ireland, and Finland, which would be above the mean.

Unemployment in the OECD would decrease by 0.45 percentage points on average. It would fall in the four crisis countries, ranging from of 0.57 percentage points in Italy to 0.76 percentage points in Portugal. The deal would create 1.1 million jobs in the US, 400,000 in the UK and 100,000 to 200,000 each in Germany, Italy, Spain and France.

A more comprehensive list of winners and losers is here, showing that other countries, such as Norway, Jamaica, Israel, Jordan and Australia, would suffer badly.

Given the uneven distribution of benefits, and the political impact on the losers, negotiations are by no means guaranteed an easy ride at a country-wide level. Then there are going to be quite wide disparities between different sectors, with manufacturing industries reacting differently than, say, agriculture.

In that latter sector, for instance, where the development of GM crops in Europe has effectively stalled, with the US powering ahead, US agriculture would be more likely to benefit from trade liberalisation than EU producers. But such is the power of the EU agri-lobby – allied with anti-GM campaigners – that this could be enough to scupper any deal.

We must also factor in the growing energy gap, where cheaper energy costs in the US could give the United States a considerable trading advantage, and one which is likely to grow as Europe delays exploitation of its unconventional gas reserves.

Nevertheless, the Bertelsmann Foundation argues that TTIP is not a zero sum game. If it works, it will reduce trade costs, so that in principle all countries can benefit. Worldwide, average per capita income could rise by as much as 3.3 percent.

Any such overall advantages, though, will have to take into account the political power of the losers, many of whom would be quite willing to scupper the deal. There is a long way to go before we see the light – if ever.


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