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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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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
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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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
TTIP: SOME ECONOMIC CONSIDERATIONS
Regulatory Cooperation in TTIP: An Economic Perspective
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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
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
Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
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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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
TTIP: why worth the troubles?
• Flexibility in terms of topics and timing – Going beyond global trade liberalisation
• Positive welfare effects (?)
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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
The Crisis and Exports by Region
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35020
05Q
120
05Q
320
06Q
120
06Q
320
07Q
120
07Q
320
08Q
120
08Q
320
09Q
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09Q
320
10Q
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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
Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
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20 TOP-15 EU Export Partners (2014, % of total EU exports, Eurostat (2015))
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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
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18 TOP-15 EU Import Partners (2014, % of total EU imports, Eurostat (2015))
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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
IMPACT ASSESSMENT OF REGIONAL TRADE AGREEMENTS AND LESSONS FOR TTIP
Regulatory Cooperation in TTIP: An Economic Perspective
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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
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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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
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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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
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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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
Impact of RTAs on European Exports
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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
Impact of RTAs on European Imports
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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
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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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
DEALING WITH REGULATIONS IN TTIP: ECONOMIC PROS AND CONS OF REGULATORY TRADE LIBERALISATION
Regulatory Cooperation in TTIP: An Economic Perspective
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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
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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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
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
Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
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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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
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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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
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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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
SOME CONCLUSIONS
Regulatory Cooperation in TTIP: An Economic Perspective
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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
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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Jan Van Hove © 2015 – Regulatory Cooperation in TTIP: An Economic Perspective
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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