Economic impacts of
TTIP in Ireland
Department of Jobs, Enterprise and Innovation
Martin H. Thelle
Copenhagen Economics
Dublin, June 2014
Economic impacts of TTIP in Ireland
Introduction
Purpose of the Study
Objectives
● Quantify the sectoral and overall macro-economic
impacts of the TTIP on the Irish Economy
● Identify key sectors
● In-depth analyses of key sectors
Approach
● Large scale model from the CEPR (2013) study
● Adapted to the Irish economy
● Sectors adapted to reflect the Irish economy
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Economic impacts of TTIP in Ireland
Introduction
Approach
What we have done so far
● Stakeholders
● CGE simulations
● Data analysis
What is still to come
● Sector analyses
● Recommendations
3
Background
4
Economic impacts of TTIP in Ireland
TTIP and the Transatlantic Economy
● TTIP aims to link the world’s two biggest economies*
o 22% of global GDP
o 25% of global exports
o 33% of global imports
o More than 50% of global R&D spending
● Will have considerable economic consequences
● Extending beyond the two economies involved
● More than just economic impacts
● Difficult to speculate about detailed outcomes
*) According to Hamilton & Quinlan (2013) The Transatlantic Economy
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Economic impacts of TTIP in Ireland
The transatlantic relationship
● The idea is not new: A transatlantic trade deal has
been discussed before
● Circumstances are new: How we trade and produce
has changed
● About 20% of EU and US trade is with each other
● Most of trade is intermediate products within a very
integrated value chain
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Economic impacts of TTIP in Ireland
New Regionalism
● Global supply chains mean more trade in parts and
components
o Now almost 80% of world trade
● Production spans multiple regulatory regimes
o Almost 20% of EU costs follow from global (extra-EU) inputs
● Demand for progress in areas outside WTO
o Behind the border measures – regulatory differences
o Increased importance of NTBs
o Trade-related IPR issues
o Impact on productivity and wages
● Finding solutions that can be multi-lateralized
o Important to avoid race to the bottom
o Also important to prevent disguised regulatory protection
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Current trade
between Ireland
and the US
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Economic impacts of TTIP in Ireland
Ireland’s trade in goods with U.S.
Billions of US dollars on a nominal basis
45
40
35
Export
30
25
20
15
10
Import
5
0
9
Composition of Ireland’s goods exports (total)
Value of exports 2013
€ billions
0
20
Other primary sectors
1.2
3.7
50.4
Pharma and chemicals
Machinery
10.5
Misc. articles
10.7
Other man. goods
Commodities
60
8.7
Agri-food
Beverages and tobacco
40
1.7
0.5
Note:
Irelands total export to world
Source: Copenhagen Economics based on data from Irish CSO
10
Composition of Ireland’s goods exports to the U.S.
Value of exports 2013
€ billions
0
Agri-food
0.1
Beverages and tobacco
0.3
5
10
15
Other primary sectors
12.8
Pharma and chemicals
Machinery
1.0
3.7
Misc. articles
Other man. goods
0.1
Commodities
Note:
Irelands export to the U.S.
Source: Copenhagen Economics based on data from Irish CSO
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Economic impacts of TTIP in Ireland
Composition of Ireland’s Current Account for services
Current Account by service sector
Current Account Credit
(€ billion)
Current Account Debit
(€ billion)
‘Export’
‘Import’
Transport
4.4
1.6
Tourism and travel
3.3
4.6
Communications
0.7
1.1
Insurance
8.4
5.4
Financial services
7.5
4.7
38.7
0.4
Royalties/licences
4.0
34.9
Business services
27.1
35.7
2013
Computer services
Source:
CSO, Ireland
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Economic impacts of TTIP in Ireland
Ireland’s exports to the US
Composition of Ireland’s bilateral exports to the US (% of total goods + services)
Pharma chemicals
41%
Goods exports
Other machinery
Electric machinery
Processed food
Other man. goods
Dairy
Other special goods
Wood and paper
Metals
Agri-food
Beef
Energy
Vehicles
Service exports
Insurance
Business and ICT services
Finance
Air transport
Other services
Other transport
Personal service
Communication
Sea transport
Construction
Source:
3.4%
1.6%
1.0%
0.3%
0.3%
0.2%
0.2%
0.2%
0.1%
0.1%
0.1%
4.6%
2.8%
1.7%
1.0%
0.9%
0.4%
0.3%
0.0%
0.0%
Copenhagen Economics based on GTAP9 data, 2011 base year
10%
30%
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Current barriers to
transatlantic trade
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Economic impacts of TTIP in Ireland
Tariffs are low
Tariffs applied by the US on imports from the EU
Agriculture average
Industry average
Total average
6.6%
1.7%
2.2%
Tariffs applied by the EU on imports from the US
Agriculture average
Industry average
Total average
12.8%
2.3%
3.3%
15
Source: Cepii (2014)
Economic impacts of TTIP in Ireland
Tariffs are low … but with certain peaks
Tariffs applied by the US on imports from Ireland
Dairy products, average
Pharma and chemicals, average
Metal manufacturing, average
Other manufacturing, average
6.4%
1.9%
2.8%
5.2%
Source: GTAP 9 data (2014)
Irish exporters pay in excess of USD
300m in tariffs to the US Treasury
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Economic impacts of TTIP in Ireland
Non-tariff barriers and regulation
Regulation is legitimate
o ensuring consumer information
o improving health
o product safety
o preserving the environment
Regulation in itself does not hinder trade
… but differences in regulation may increase the cost of
selling in foreign markets
o Familiarisation costs
o Conformity assessment costs
o Certification costs
o Adaptation costs
o Blocking products
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Economic impacts of TTIP in Ireland
Non-tariff barriers estimations
The trade cost impact of regulatory differences
The Ecorys (2009) study represented a concerted effort to
triangulate barriers:
● Firm surveys – including overall rankings and detailed barriers
● Industry, legal, regulatory experts
● Econometrics, fed into models of production and trade
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Economic impacts of TTIP in Ireland
Non-tariff barriers estimations – some basic findings
● Not all regulatory barriers can actually be negotiated and
reduced. For example, the Japanese require legal documents in
Japanese. This concept is called actionability.
● Barriers can be grouped broadly into those are cost creating
barriers, and those that instead are rent generating barriers
(i.e. they generate rents by limiting competition and market
access).
● Current differences and actionability define scope for the
NTB negotiations.
19
Economic impacts of TTIP in Ireland
Non-tariff barriers may affect firms in several ways
NTBs implies both
a) Upfront fixed costs of selling in a foreign market
b) On-going variable costs of exporting to that market
This in turn affect firms’
i) Probability to export
ii) Value of export
iii) Export prices
Impact can measured as a tariff equivalent, but impact
differ from that of a tariff – e.g. NTBs are heavier
burden on SMEs
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Economic impacts of TTIP in Ireland
Cost impact estimates and actionability
Objective:
Achieving greater regulatory compatibility,
without compromising the existing
levels of protection
Cost equivalent of NTBs in the US for imports from the EU
Manufacturing goods average
22%
Cost equivalent of NTBs in the EU for imports from the US
Manufacturing goods average
25%
Source: CEPR (2013)
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Economic impacts of TTIP in Ireland
NTBs differ from sector to sector
Cost equivalent of NTBs in the US for imports from the EU
Food and beverages, average
Pharma and chemicals, average
Motor vehicles, average
Electrical machinery, average
73%
19%
27%
15%
Source: CEPR (2013)
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Scenarios and
model used
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Economic impacts of TTIP in Ireland
Background
The model used: CGE model
●
●
●
●
●
●
●
●
●
Same model as in the CEPR (2013) study for the EU Commission
Using updated GTAP9 data with base year 2011 (can be projected to 2030)
Includes intermediate linkages between sectors (e.g. processed food buying meat)
Includes cross-border linkages between sectors (e.g. pharma MNEs in Ireland using
US inputs)
Includes tariff barriers
Includes non-tariff barriers (NTBs) both cost raising NTBs and rent generating NTBs
Services trade modelled
11 regions, more than 20 sectors (adapted from CEPR 2013 to reflect Ireland’s key
sectors)
Integrates econometric estimates of elasticities and NTBs
Economic impacts of TTIP in Ireland
Background
The scenario analysed
Main scenario
● Tariffs reduced to zero
o Except for food products where only a 50% tariff cut is assumed
● NTBs for goods reduced as in CEPR (2013)
o Half of actionable NTBs, i.e. 25% of the total friction caused by NTBs is removed
● Service barriers reduced as in CEPR (2013)
● Spill overs of NTBs as in CEPR (2013)
o Direct spill overs are modelled at 10 to 20% of direct NTB reductions. Indirect
spill overs are modelled as half of the direct spill over reductions.
Variants of the scenario for key agriculture sectors
● We have simulated multiple experiments which are variants of the main
scenario.
Main results
26
Economic impacts of TTIP in Ireland
Main results
This is an EU-US agreement … not Ireland-US
● TTIP will boost transatlantic economy by €90 bn and
€120 bn in US and EU respectively (CEPR, 2013)
● Realising an untapped potential
● Limited trade diversion
● Trade with third parties will go up
TTIP will change how Irish firms:
● …trade with the US
● …trade with rest of EU
● …trade with the rest of the world
Trade liberalisation – and in particular NTB reductions
– has different impacts on SMEs and MNEs
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Economic impacts of TTIP in Ireland
Main results
Main economic impacts in Ireland: Positive
● Overall export up
● National income up
● GDP increase
● Production will increase
● Real wages will improve for all skill groups
● Investment increase
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Economic impacts of TTIP in Ireland
Macro-results
● TTIP impact on Ireland (DRAFT – NOT for
distribution)
Source:
Copenhagen Economics based on CGE-simulations by prof. J. F. Francois 2014
29
Economic impacts of TTIP in Ireland
Tariff reductions and NTB reductions for goods are main
sources of the GDP gain of 1.1 percent
1.2%
1.0%
Total GDP change
+1.1%
0.1%
0.1%
Spillovers
0.5%
NTBs
services
0.8%
0.6%
NTBs
goods
0.4%
0.2%
0.4%
tariffs
0.0%
GDP
NSource:
Copenhagen Economics based on CGE-simulations by prof. J. F. Francois 2014
30
Economic impacts of TTIP in Ireland
Opportunities for Ireland
Strengthening Ireland’s position as hub for MNEs in the
EU market
o Increased MNE exports to both the US and EU market
o More attraction of FDI (MNEs)
Improving market access in the US for Irish SMEs
Increased demand and competition in EU market
Lower input costs enhances Ireland’s attractiveness as
hub
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Economic impacts of TTIP in Ireland
Opportunities are expected mainly in…
Manufacturing
● Pharmaceuticals and chemical industry
● Electrical machinery
● Other advanced machinery
Services
● Insurance
● ICT
Agriculture and processed food
● Overall increase in exports
● Attention to certain subsectors such as dairy and beef
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Economic impacts of TTIP in Ireland
Trade effects are driven largely by three sectors
Goods trade changes
Predicted increase with TTIP 2011-base
Change from baseline, € millions
Pharmaceuticals, chems
ElectricMachinery
Other machinery
Other transport equipment
Other Manufacturing
Energy and Petrochemicals
Export
Motor Vehicles
Import
Wood, paper, publishing
Metals
-1000
Note:
Source:
0
1000
2000
3000
Results for trade value change from baseline in experiment 1.
Based on CSO goods exports of €91 bn and goods imports of €48 bn.
Copenhagen Economics based on CGE-simulations by prof. J. F. Francois 2014
33
Economic impacts of TTIP in Ireland
Opportunity 1
Pharmaceuticals and chemical industry
A large export sector
● The sector exported around €6o billion in 2011, which by far
is the largest export sector in Ireland
● Pharmaceuticals and chemicals accounted for over 60% of
goods exports in 2011 according to CSO statistics
● Close to half of the export from the sector is pharmaceuticals
and more than a third of the sector export is organic
chemicals
With large impacts from TTIP
● Our simulations the TTIP’s impact in Ireland predict an
increase in export from the sector of €2.7 billion, which is
largely driven by the assumed reduction in NTBs in the
sector
● Tariffs and spill overs are only small contributors to the
export increase. Service liberalisation has a slightly negative
impact for the sector in isolation
Note:
Source:
Results for trade value change from baseline in experiment 1.
Based on total CSO reported goods exports of €91 bn .
Copenhagen Economics based on CGE-simulations by prof. J. F. Francois 2014
Pharmaceuticals and chemical industry
Exports 2011
Other
17%
Pharma
ceutical
47%
Organic
chemics
36%
Source: Irish CSO
Pharmaceuticals and chemical industry
Predicted increase with TTIP 2011-base
Change in exports,
Spillovers
NTBs
goods
Tariffs
NTBs
service
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Economic impacts of TTIP in Ireland
EU Positions on pharma and chemicals
Pharmaceuticals
Chemicals
Mutual recognition of Good
Manufacturing Practice
(GMP) inspections of manufacturing
plants, to avoid duplicating work
●
Prioritise chemicals
for assessment and agree on how
best to test them
●
Classify and label chemicals
●
Exchanging information
●
●
Harmonising requirements for
approving 'biosimilars' - products
similar to already-licensed biological
medicines, such as vaccines
Identify and
address new or emerging issues
●
Share data and protect
confidential business
information more effectively.
●
●
Streamlining systems for
authorising generic drugs
●
Harmonising the terms used, and
carrying out more joint
assessments
●
Working together to revise
the paediatrics guidelines issued
by the International Conference on
Harmonisation (ICH)
Ensuring that current levels
of protection and quality is
obtained more efficiently and
thereby cut firms' costs.
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Economic impacts of TTIP in Ireland
Opportunity 2
Electrical machinery industry
A special export sector
● Sector exports were around €17 billion in 2011
● Sector is heavily reliant on imported inputs and has a high share of
foreign costs in total cost
● The sector is exporting a wide range of mostly high-technology
products (for example computers, mobile phones, iPads and other
such devices).
With large impacts from TTIP
● Our simulations the TTIP’s impact in Ireland predict an increase in
export from the sector of €2.3 billion, which is largely driven by
reduction of tariffs but also fuelled by the assumed reductions in
service barriers
Electrical machinery industry
Predicted increase with TTIP. 2011-base
Change in exports,
NTBs
service
Tariffs
NTBs
goods
Spillovers
● Reductions of NTBs and spill overs are having a negative, but
smaller impact on the sector’s export
● The TTIP’s positive impact for Ireland is different from the EU-wide
sector, which is expected to contract
Note:
Source:
Results for trade value change from baseline in experiment 1.
Based on total CSO reported goods exports of €91 bn.
Copenhagen Economics based on CGE-simulations by prof. J. F. Francois 2014
36
Economic impacts of TTIP in Ireland
Opportunity 3
Other machinery industry
Another high-tech export sector
● Sector exports were around €13 billion in 2011
● The sector is exporting a wide range of mostly hightechnology products such as medical, precision and optical
instruments.
Other machinery industry
Predicted increase with TTIP. 2011-base
Change in exports,
Spillovers
With large impacts from TTIP
● Our simulations the TTIP’s impact in Ireland predict an
increase in export from the sector of €0.7 billion, which is
largely driven by reduction of non-tariff barriers
● Reductions of tariffs and service barriers are having a
negative, but smaller impact on the sector’s export
NTBs
goods
Tariffs
NTBs
service
Note:
Source:
Results for trade value change from baseline in experiment 1.
Based on total CSO reported goods exports of €91 bn .
Copenhagen Economics based on CGE-simulations by prof. J. F. Francois 2014
37
Economic impacts of TTIP in Ireland
Service trade impacts
● Small increase in overall service exports
● Significant increase in service imports
● Service output will expand
Service barrier estimates
Services
Irish service exports are predicted
to increase in
● Insurance (incl. pension funding,
except compulsory social security)
● Financial services (financial
intermediation)
…while decrease in Irish export of
● Business, professional and ICT services
● Other services
EU
US
● Water transport
● Air transport
● Finance
8%
2%
11%
● Insurance
11%
8%
2%
32%
19%
● Business/ICT
● Communications
15%
12%
4%
2%
Source: CEPR (2013) and Ecorys (2009)
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Economic impacts of TTIP in Ireland
Agri-food benefits expected in processed foods
● Exports of primary agriculture, beef and dairy go down
● Exports of processed foods go up
Small overall increase in exports for the agri-food sector
Export changes
Predicted increase with TTIP 2011-base
Change from baseline, € millions
50
€45
millions
40
30
20
10
0
Agri-food
Note:
Source:
Results for trade value change from baseline.
Copenhagen Economics based on CGE-simulations by prof. J. F. Francois 2014
39
Economic impacts of TTIP in Ireland
Ireland will have the means and time to adapt
TTIP will strengthen Ireland’s most productive sectors
Sector composition will change over time.
There is time to adapt and find appropriate policy
responses.
Certain sectors shall be assessed with great care, e.g.
quotas and SPS rules affecting Irish farmers:
● Ensure rules do not pose unwarranted obstacles to
trade
● Ensure that Europeans can continue to enjoy safe,
high-quality beef, pork, poultry, and other products
● Ensure that TTIP will not lead regulatory race-to-thebottom
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Closing remarks
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Economic impacts of TTIP in Ireland
Closing remarks
●
●
●
●
NTBs for goods dominate the impact for trade
Productivity gains from TTIP likely to be important
Scope for regulatory spill overs is also important
Quantitatively TTIP has considerable gains, but
requires timely policy considerations to manage the
long-term adjustment in particular sectors
● Important to position Ireland’s sectors to pursue
opportunities
● The potential benefits are substantial, but hinge on
difficult issues: NTB actionability.
This will not be easy.
42
Contact
Martin H. Thelle
mht@copenhageneconomics.com
Copenhagen Economics A/S
Sankt Annæ Plads 13
DK-1250 Copenhagen K
copenhageneconomics.com
43