Tagged: trade

Mathis Lohaus

Predicting the Effects of TTIP, or: Whose Crystal Ball Can We Trust?

In a paper called “TTIP: European Disintegration, Unemployment and Instability”, economist Jeronim Capaldo argues that there are flaws in four prominent studies on the effects of the proposed TTIP agreement between the U.S. and the European Union. The problem is two-fold. First, all studies use similar models and data, which means that they all share the same set of assumptions and should thus not be treated as independently reaching similar conclusions:

Methodologically, the similarities among the four studies are striking. While all use World Bank-style Computable General Equilibrium (CGE) models, the first two studies also use exactly the same CGE. The specific CGE they use is called the Global Trade Analysis Project (GTAP), developed by researchers at Purdue University. All but Bertelsmann use a version of the same database (again from GTAP).

A detailed discussion of the shared heritage of the different CGE models can be found in a paper by Werner Raza and colleagues (pp. 37-49), which Capaldo cites.

He then goes one step further and alleges that the underlying econometric models are simply false, or at least inappropriate. According to him, CGE models rely on several flawed assumptions:

  • High labor mobility is supposed to allow workers in less competitive industries to switch to those that benefit from trade liberalization, which are assumed to grow enough to absorb the new workforce.
  • Overall, the gains for workers with the right skills are supposed to outweigh the losses for others.
  • The model assumes that new trade between countries/regions is created (rather than diverted from elsewhere, which would be a zero-sum result).

While I have no training in economics and don’t know the econometrics literature, I realize that all large-scale models of social science need to rely on simplified assumptions. Nevertheless, it seems to me that Capaldo has a point. If his account is correct, then European policymakers should look for more diverse academic input. More generally, if the most widely used models really are blind to potential downsides for labor, then that goes against the interest of European citizens. (As they ought to be very loss averse when it comes to employment as well as skeptical about the distribution of pay-offs from economic gains.)

So how do we come up with an estimate that pays more attention to potential negative effects? Capaldo uses the UN Global Policy Model (GPM), which models economic activity as demand-driven, explicitly models different regions, and includes an estimate of employment. (Again, I lack the knowledge to assess how this works and how much sense it makes.) In this model, unemployment and household income are projected to deteriorate in the long term (2025) for several European countries, as aggregate demand is lowered due to trade diversion (see pp. 10-19 for this and other findings).

capaldo-figure4
Jeronim Capaldo, “The Trans-Atlantic Trade and Investment Partnership: European Disintegration, Unemployment and Instability”, Global Development and Environment Institute Working Paper No. 14-03, October 2014, p. 14.

Capaldo is pretty transparent about the limitations of this approach:

  • the non-TTIP baseline scenario (which serves as a comparison) might be wrong
  • the chosen model might be as ill-specified as the ones he is criticizing
  • policy responses down the road are not included (and that’s hardly possible)
  • …and the paper completely ignores the investment dimension of TTIP (which is a weakness shared by the CGE models, according to Raza et al., p. 49)

So the headline “TTIP will lead to a loss of 600,000 jobs” does not really do the paper justice, although the author himself uses pretty strong language in the conclusion.

No matter which forecast turns out to be better in the end, this discussion shows that policy decisions should not rely on a single strand of academic analysis. There is a lot of uncertainty involved in these negotiations, and I don’t see how there can be a confident forecast of net effects.

One final note for the political debate in general: TTIP opponents should not forget that the status quo will not necessarily be maintained or improved just by inaction. The people likely to lose from TTIP are probably heading for difficult times anyway, leading to questions about how to compensate them. Whether European leaders will decide in favor or against TTIP, they are making high-stakes bets on how globalization will play out over the next decades.

Thanks to Zoe for pointing me to the study. And if anyone can add insight regarding the comparison between the different models, please let me know!

Zoe Williams

Trade Agreement Trends

Three expansive and controversial trade agreements – the Trans Pacific Partnership, the Transatlantic Trade and Investment Partnership and the Comprehensive Economic and Trade Agreement – are currently in the negotiation or ratification stages. These three (with some overlap with the EU, US and Canada) involve some of the world’s biggest economies and, if successful, will implement rules that critics claim go far beyond traditional trade agreements. However, the fate of all three agreements remains uncertain. CETA still needs to be ratified by the EU parliament as well as 28 member states, while TTP and TTIP are bogged down in negotiations.

All these acronyms can get confusing, so, who is involved in these agreements and what are the points of contention?

Trans Pacific Partnership

The TTP began as a proposed agreement between Chile, New Zealand, Singapore and Brunei. In January 2008 the US joined negotiations, followed by Australia, Vietnam, Peru (2009) and Malaysia (2010) and Canada and Mexico (2012). In 2013 Japan entered negotiations and Taiwan, South Korea and even China have expressed interest. All told, these countries make up 40% of the world’s GDP.
Continue reading

Mathis Lohaus

Links: Mandela and Great Leaders; WTO deal in Bali; How Money Works

Frederik de Klerk with Nelson Mandela - World Economic Forum 1992
Frederik de Klerk and Nelson Mandela in Davos, 1992. (CC) World Economic Forum

On December 5, Nelson Mandela passed away. For political scientists, discussing  Mandela’s legacy is of course connected to questions about the role that great leaders can play in world politics. Or, more generally: how to analytically deal with individuals.

  • Alex de Waal argues that “[t]he way he has become idolized and idealized tells us more about the world’s need for such a figure, than about Nelson Mandela himself.”
  • Joshua Tucker writes that waiting for great persons to come along and single-handedly push democratization “has the potential to lead to dramatic lost opportunities”.
  • Also at the Monkey Cage, Stephen Dyson replies: “A worthy goal of science is to provide systematic, rigorous knowledge about issues of social importance. But science should also engage with the moral and empathetic possibilities that come from taking leaders seriously.”

Dan Drezner comments on the WTO: “Why the Trade Deal in Bali Was A Game Changer”. Drezner happily points out that positive news on the WTO are in line with his forthcoming book, which argues that post-Lehman financial governance has worked quite well:

Of course, not everyone shares this view, and there has been no shortage of arguments that say the opposite.  One of the strongest data points in their empirical quiver has been the failure of the Doha round of WTO talks to be completed.  Indeed, for the past five years, “Doha” has been wonk shorthand for “dysfunctional global governance that accomplishes nothing but gridlock.”

It shouldn’t come as a surprise that other observers (#1, #2) are not too excited about the outlook for future WTO negotiations.

From the WTO, we move on to finance – and somewhat away from political science. Forgive me, but you will thank me as soon as one of your relatives brings up “the financial system” and/or Bitcoin at the next family reunion. I highly recommended reading the next three items in preparation:

Mathis Lohaus

Links: Cyber Attacks, Trade Negotiations, Combat Drones

A Siemens device used to control centrifuges (via Wikimedia commons)
A Siemens device used to control centrifuges (by “Ulli1105” via Wikimedia commons)

Small anniversary: Link post #25. By the way, do you find these useful?

On cyber attacks, I would like to recommend three pieces that might not be for everyone, but are interesting to get a more technical understanding of what is going:

  • Ralph Langner has written a fascinating account of “Stuxnet”. It turns out that the U.S./Israeli (?) attack on Iranian nuclear centrifuges consisted not of one, but two separate types of computer virus, with trade-offs between effectiveness, predictability and stealth. The newer version used a less sophisticated way to damage centrifuges, but a much more sophisticated way to gain access in the first place and then spread across systems.
  • Nicholas Weaver summarizes the steps taken by U.S. intelligence agencies to access/hijack communications through the Internet’s backbone. This discussion of the NSA QUANTUM program is not too technical, but introduces a couple of phrases you might hear more often in the future. (via Bruce Schneier)
  • Jim Cowie discusses a different form of attack, in which internet traffic is redirected to get access to sensitive information. Fascinating for laypeople: Since we’re talking about milliseconds, “[t]he recipient, perhaps sitting at home in a pleasant Virginia suburb drinking his morning coffee, has no idea that someone in Minsk has the ability to watch him surf the web”. (But keep in mind that this comes form a private IT security company and is phrased to maximize PR effects.)

Two items on free trade negotiations:

First, Philip Murphy, the former U.S. Ambassador to Germany, is very confident that President Obama will manage to get approval from Congress for the Transatlantic Trade and Investment Partnership TTIP (via AICGS / Tobias Bunde).

Second, regarding the other U.S. free trade effort currently under negotiation – the Trans-Pacific Partnership TPP – you’ve probably heard that the part dealing with intellectual property rights was leaked last week. GWU PhD candidate Gabriel J. Michael has analyzed the way in which different countries proposed changes to the document (which is visible in the leaked text) and offers the following summary:

  1. The U.S. and Japan are relatively isolated in their negotiating positions.
  2. There appears to be a strong negotiating network between Singapore, Chile, Malaysia and New Zealand.
  3. Canada is up to something!

Some commentators pointed out that he might be neglecting an alternative explanation: that the U.S. and Japan are simply happy with the current document, as they have had a bigger say in creating the draft.

Irrespective of the arguments about causality, Michael’s blog post is a great example of what can be done with leaked documents and visualization! (via The Monkey Cage, where you can find more comments).

Finally, a quick follow-up on last week’s post on combat drones, again by Charli Carpenter at the Duck:

The Campaign to Stop Killer Robots secured an important victory last week when delegates of States Parties to the Convention on Certain Conventional Weapons (CCW) voted unanimously to take up the issue (…).

(…)

While this is an important and promising moment, the shape and trajectory of norm-building efforts will depend a great deal on the tenor and outcome of next May’s CCW meeting. And one thing is sure: if that meeting results in weaker norms that hoped for my human security advocates, NGOs may simply take their cause elsewhere.