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Glyn Moody's look at all levels of the enterprise open source stack. The blog will look at the organisations that are embracing open source, old and new alike (start-ups welcome), and the communities of users and developers that have formed around them (or not, as the case may be).

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TTIP Update XXVII

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It is nearly a year since the TTIP negotiations were launched, and yet things still feel strangely preliminary. Partly that's because everything is taking place behind closed doors, so the public is not actually kept fully up to date with what is going on. Partly, too, that's because things have gone rather more slowly than people probably expected when the talks were started. Indeed, some institutions are still coming to grips with the whole business - like the House of Lords, one of whose sub-committees has just published a major report on TTIP.

It's decent enough as a background document, although I don't think that anyone who has been reading these updates will learn much that is new. Instead, they will recognise many of what have already become rather tired TTIP tropes:

The Transatlantic Trade and Investment Partnership (TTIP) is the most ambitious trade and investment pact ever attempted, due both to its scale—the European Union and the United States together account for nearly half of world GDP—and because in tackling non-tariff barriers to trade, a deal could set the template for a new generation of 21st century trade and investment agreements.

The report also quotes the by-now standard figures:

In their written evidence, the UK Government pointed to the CEPR studies commissioned by the Department for Business, Innovation and Skills (BIS) and the European Commission to suggest that an ambitious, comprehensive TTIP deal could over the long-term be worth up to £10bn (or 0.35 per cent of GDP) annually to the UK, up to £100bn (or 0.5 per cent of GDP) annually to the EU, and up to £80bn (or 0.4 per cent of GDP) annually to the US. The GDP gains would be relative to projected GDP levels without TTIP in place.

However, to its credit, the report also notes some critical voices:

28. The AFL-CIO [American Federation of Labor and Congress of Industrial Organizations] expressed sympathy with the views of Dean Baker, of the Center for Economic and Policy Research, who had noted that the projected GDP increases in the study produced for the European Commission would not materialise in full until 2027, and that they reflected a best-case scenario. In a less ambitious, and "presumably more realistic" scenario, the GDP gain for the US by 2027 would be "roughly equal to a normal month's growth" and thus in Mr Baker's view, "too small to notice".

29. Professor Baldwin advised us to treat the figures with caution for a different reason, pointing out that figures were projected against a "status quo" world, and that experience—for example with predictions on the effect of the North American Free Trade Agreement (NAFTA)—had shown that the status quo world "was nothing like what actually happened, because a thousand things happened". It was consequently "very difficult" to sort out what NAFTA did, and it might in future be similarly difficult to disentangle the effects of a TTIP agreement from other factors. He nonetheless judged that the numbers "will be realistic, but over a medium run."

30. With regard to income gains for consumers, Professor Baldwin told us that it was "basically impossible to say how much this will add to people's income" and suggested that we "take with a large grain of salt any particular numbers on the overall numbers".

In its summary, the House of Lords report contains the rather striking comment:

We observe that, insofar as a public debate on TTIP exists, EU member states are losing it. Proponents have yet to articulate the purpose or possible gains from TTIP in a compelling way, or to offer convincing responses to legitimate concerns.

All-in-all, the House of Lords report is a thorough piece of work that shows good awareness of what is going on. Alas, the same cannot be said for a TTIP debate in the House of Commons, which took place a few months back, but which has only been published recently. Again, the usual misleading figures are trotted out, but this time without the balancing caveats provided by the House of Lords. However, one novelty did catch my eye - the fact that Which? was invoked twice by MPs:

Given that the European Union and the United States account for 40% of global economic output and that their bilateral economic relationship is already the world’s largest, the opportunities are clear for all to see. Between them, they contain more than 800 million consumers, and the TTIP has significant potential for them as well. It is clear from the helpful briefing sent to all Members by Which? that there will be big prizes for them if we can get this right.

And:

let us remember that trade deals do benefit consumers, which is why consumer groups such as Which? are in favour of this trade deal.

Given this invocation of Which? to sanctify TTIP, I was naturally intrigued to know why it was in favour. I contacted Which?, and asked to see the briefing document mentioned in the first extract above. Which? pointed me to a blog post by Peter Vicary-Smith, the organisation's Group Chief Executive, published in the UK edition of the Huffington Post. Sadly, Mr Vicary-Smith has no compelling reasons for supporting TTIP, just the familiar old exaggerations:

It has been estimated that reaching an agreement could boost the EU economy, through growth and job creation, by £99 billion per year - that's £475 per household, hardly an amount to be sniffed at!

But of course, we should sniff at it, because it doesn't pass the smell test, as BEUC, the European consumer organisation, makes plain in a letter addressed to Karel De Gucht, the Commissoner responsible for the TTIP negotiations [.pdf]:

The possible effects of the Transatlantic Trade and Investment Partnership (TTIP) currently under negotiation are an important matter for public debate. It is essential that the expected consequences of an agreement are communicated clearly and in easily understandable language to Europe’s citizens to enable and encourage this debate. People need to be well informed about the range of possible outcomes.

Our belief in the importance of clear communication of the consequences of a TTIP seems to be shared by the European Commission. Official statements by the Commission have repeatedly stressed the need for a fact-based dialogue. In January 2014 you said yourself that the debate on TTIP should be “based on facts, not fear or hyperbole.” Unfortunately, we have noticed that the European Commission has not communicated the results of its own economic assessment clearly. We would like to draw your attention to the following examples of imprecise communication by the Commission.

It then goes on to raise four specific problems:

Exaggeration of the effects of the TTIP: Instead of communicating the full range of results that the Centre for European Policy Research (CEPR) study on the economic impacts of a possible TTIP delivered, the European Commission has almost exclusively used the estimates for the highest scenario, without mentioning the other scenarios also included in the study.

...

Lacking information on the time scale: In many instances, the European Commission makes no reference to the time that it would take for the full effects (of the best case scenario) to be felt. It has even been suggested that these effects could materialise by the end of the negotiations, for example: “When negotiations are completed, this EU-US agreement would be the biggest bilateral trade deal ever negotiated - and it could add around 0.5% to the EU's annual economic output,” rather than in 2027 as predicted by CEPR.

...

Use of unsubstantiated figures regarding the job creation potential: The study which has looked most thoroughly at employment effects expects only 400,000 jobs across Europe for the extremely ambitious single market scenario that goes beyond anything evaluated in the CEPR study. Yet, you stated in a speech in October 2013 that an agreement “would likely translate into millions of new jobs for our workers.”

...

Use of obfuscating language: In many publications the Commission has used language that is very difficult to understand for lay persons and can easily create misunderstandings. For example, the sentence: “Latest estimates show that a comprehensive and ambitious agreement between the EU and the US could bring overall annual gains of 0.5% increase in GDP for the EU and a 0.4% increase in GDP for the US by 2027” is ambiguous at best. It can easily be read as if the agreement could create a yearly increase in GDP of 0.5%. This misinterpretation has indeed occurred even among government officials and renowned think tanks. A balanced presentation of the results would point out that the annual additional growth expected from TTIP amounts to roughly 0.05% between 2017 and 2027, and that no additional growth is expected after that.

Although couched in the politest terms, this is a real slap-down for the Commissioner. It exposes quite clearly how the European Commission has been playing fast and loose with its own research - not only failing to mention that it always talks about the best-case scenario, and that the full benefits will not be until 2027, but glossing over the fact that those benefits are extremely small - despite what all the TTIP cheerleaders would have us believe.

The House of Lords report discussed above mentioned a comment from the economist Dean Baker. His latest blog post on the TTIP negotiations has the provocative title: "Why Is It So Acceptable to Lie to Promote Trade Deals?" Here's what he has to say about predictions of the European Commission-funded study:

Implying that a deal that raises GDP by 0.4 or 0.5 percent 13 years out means "job-creating opportunities for workers on both continents" is just dishonest. The increment to annual growth is on the order of 0.03 percentage points. Good luck finding that in the data.

In addition, there are reasons to believe the growth effect could go in the opposite direction. The model used by the London CEPR does not assume any negative growth impact from higher prices for drugs or other goods that might be more costly due to stronger patent and copyright protections coming out of the deal.

These will likely be a drag on growth. Economists tend to like patents and copyrights (probably because their friends and family members benefit from them), but that doesn't change the fact that they lead to market distortions and have major economic costs. If the price of a drug rises by 1000 percent because we imposed stronger or longer patent protection it has the same effect in the market as if we imposed a 1000 percent tariff on the drug.

In fact, the situation is even worse than that analysis implies. All these claims are based on just two pieces of research, both carried out for the European Commission. At the heart of them lies an econometric modelling technique called Computable General Equilibrium (CGE). An important paper from a pair of economists has this to say about the approach in general, and its application here in particular [.pdf]:

Our central argument in this paper, drawing on the insights from the economic sociologist Jens Beckert, is that these CGE models - and the figures they have produced - represent an important exercising in the ‘management of fictional expectations’. Beckert’s notion of ‘fictional expectations’ implies that although these models are shrouded in uncertainty, as the social world is too contingent to be modeled in terms of the assumptions of neoclassical economics, they are presented as reliable predictions of future outcomes. In this vein, we show how the models make overly optimistic predictions about the ability of the EU and US to eliminate regulatory barriers to trade - which are unlikely to be realized in the face of considerable political opposition. Rather than act as a reliable guide to future outcomes, we show that these models serve the pro-liberalisation agenda of the European Commission and other advocates of the TTIP. These actors are engaged in an exercise of ‘managing’ these fictional expectations by presenting them as incontrovertible evidence in favour of the agreement. Moreover, by glossing over the differences in impact that different forms of liberalization will have - a mutual recognition of standards is more likely to lead to a potential ‘downgrading’ of standards across the Atlantic than regulatory harmonization - and focusing simply on the gains of ill-defined regulatory ‘liberalisation’, the economic studies have been used to privilege the interests of those calling for market access gains over those concerned with a stricter regulation of the market.

In other words, not only does the European Commission use the figures from this research in a highly misleading way, as BEUC's letter spells out in detail, but those figures are not so much an objective prediction of what will happen, but a re-statement of what the European Commission would like to happen, re-fashioned as an economic model. This means that there is simply no basis for the repeated assertions by supporters on both sides of the Atlantic that TAFTA/TTIP represents a "once-in-a-generation prize". One year in to the negotiations, we still have no evidence whatsoever that TTIP will produce any real benefits for either the EU or US.

Full list of previous TTIP Updates.

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