International shield

The Transatlantic Trade and Investment Partnership – better known as TTIP – is the proposed trade agreement between the European Union and the United States of America.

It is opposed by many on the left and has some of us on the right worried too – mainly on national sovereignty grounds. However, there’s also a free trade case to be made against TTIP, despite its free trade billing.

One person making it is Theodore Bromund of the Washington-based Margaret Thatcher Center for Freedom. He summarises his argument in a post for Cap X. Firstly, he points out that the potential gains to growth are less than spectacular:

“The Centre for Economic Policy Research (CEPR) estimated in 2013 that, if an extremely ambitious TTIP had been signed immediately, U.S. GDP would grow about one-third of a percentage point by 2027. By the same date, the EU’s GDP would be about half a percentage point larger. In both cases, GDP gains would be worth about €100 billion…

…if you make £40,000 today, TTIP is like me promising you a raise in 2029 to £40,200. That is not a big effect.”

This isn’t a claim that free trade makes little difference, but that “trade between the U.S. and the EU is already mostly free”:

“TTIP is simply not like the post-1945 GATT, which was negotiated in a world where tariffs were relatively high and quota discrimination was widely practiced…

…TTIP is not going to rescue the Euro, restart the EU’s economic growth, save NATO, or do any of the other miraculous things that have been claimed for it, for the simple reason that, no matter how hard you squeeze, there is just not enough juice in the orange.”

Most tariff barriers having already gone, TTIP is mainly about regulatory harmonisation – which, in theory, might seem like a good thing. Mr Bromund, however, implores us to consider the likely practice:

“…regulatory harmonization will be a free-for-all of industry, interest, and ideological groups lobbying the European Commission and Washington, DC, to secure favorable rules. As Ezra Klein recently pointed out, modern trade deals ‘can only really be navigated by politically sophisticated, highly-motivated actors… [which] leads to deals jam-packed with individual provisions that look a lot like giveaways.’”

Regulatory harmonisation is far more complicated than tariff reduction, thus providing a target-rich environment for well-funded lobbying operations:

“Contrary to the conventional wisdom of the left, the firms of today often like regulation, because it makes life harder for the firms of tomorrow. Most firms, after all, have a short lifespan: if they can prolong it by using the power of government to exclude competitors, they will. There is a term for this kind of thing: crony capitalism.”

But if high-level deals like TTIP are vulnerable to lobbyists, how else can we tackle non-tariff barriers to free trade?

The best way forward, argues Bromund, is regulatory competition. Assuming a regulatory level-playing field (in which traders are treated equally regardless of their country of origin), there’s a clear incentive for each nation only to regulate where necessary – because you can’t tie-up foreign firms in red tape without doing the same to your own. Similarly, there’s an incentive not to under-regulate, because countries can gain competitive and reputational advantages by ensuring high standards. However, if regulatory harmonisation goes too far, then the trial-and-error dynamic of regulatory competition disappears.

As we’ve learned to our cost within the European Union, the elimination of national differences can easily do more harm than good.

7 comments for: Heresy of the week: The free market case against TTIP

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