Finding the right balance across EU’s FTA: benefits and risks for EU economic sectors

Project description:

A surge of populism globally has taken aim at the benefits of free and open trade, with politicians across the world taking advantage of and stoking anti-trade sentiment for their own benefit. While US public opinion polls show 72% support for free trade as an opportunity for the US, President Donald Trump has not been as supportive of trade deals and many of his supporters are more against US participation in the global economy than in favour of it.  Coupled with the collapse of the Doha Round of the World Trade Organization (WTO), the prospects for multilateral trade liberalization appear bleaker than at any point since the General Agreement on Tariffs and Trade (GATT, the WTO’s predecessor) was founded in 1947. Even high-profile regional agreements such as the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP), showing momentum just 18 months ago, have either stalled (TTIP) or have fallen apart (TPP) due to the withdrawal of the United States.

Against this backdrop, and with an eye on keeping trade momentum moving forward, the European Union (EU) has been a notable exception to these protectionist impulses, negotiating preferential trade agreements (PTAs) across the globe. Indeed, far from becoming ‘Fortress Europe’, the EU has been leading the way in fashioning comprehensive ‘WTO-plus’ arrangements with South Korea, Central America, Canada, and others, with more planned for the coming years. The Commissions ‘Trade for All’ agenda from 2015 has also made it clear that this approach to open markets continue, dedicating the EU to negotiating effective and substantial agreements with developing and developed countries.

With the EU standing almost alone in making the political and moral case for free trade, it is an opportune time to examine the economic effects of these agreements on the EU, its Member States, and particular sectors of the EU economy. While the economic case for free trade is one of the only areas in economics which has universal approval, the specific effects on a sectoral and/or country basis, especially in relation to preferential agreements, are still subject to some debate. At the aggregate level, any move towards trade liberalization brings benefits, but there may be some specific sectors or skill-levels which suffer through a period of dislocation before benefits accrue. Similarly, the move towards ‘WTO-plus’ agreements, encompassing investment, procurement, environment, and other non-traditional ‘trade’ areas, has also not been studied for its effects across economies (in either partner).

A stock-taking, to understand how these agreements are benefiting Member States and how they could be better-organized, is thus well-timed, in order to help improve the EU’s trade strategy and to foster a liberal, global rules-based trading order. While the EU has been pressing open trade in nearly every region of the world, it too is not immune from the anti-trade sentiment building around the globe; as recent research from the CASE Team for the Vision Europe Summit has shown, where dislocation is persistent, future trade liberalization may be threatened. Thus, is it imperative that the EU understands how its move towards trade openness has affected the structure of the EU economy and how it can design agreements in the future to minimize dislocation and maximize benefits?

Objectives of the project:

Given this background, the objective of this study is to provide the European Parliament and in particular the Committee on International Trade (INTA) with an estimate of the economic costs and benefits of the various FTAs that the EU has completed, will complete, or is contemplating. Building on previous work by CASE for INTA examining the issues of overlapping PTAs, this work will create a holistic look at the EU’s trade strategy and synthesize the effects of these agreements on specific sectors across Member States. Coming from a policy angle and accessible for policymakers and negotiators, but still comprised of rigorous economic methodologies and based on proven techniques, this study will help to inform the EU’s trade strategy moving forward.

Project funding: European Parliament

Project leader: CASE