Poor method and no context from NUPI on TTIP
On Wednesday Nov. 2, NUPI stated that Norway will reap substantial benefits from the Transatlantic Trade and Investment Partnership (TTIP) negotiated by USA and EU. However, the report is hampered by poor methodology and low contextual understanding.
In a newly published book about TTIP, Gabriel Siles-Brügge and Ferdi De Ville address several shortcomings in the EU Commission’s economic modelling of benefits from TTIP. On the one hand, the Commission exaggerates potential gains by citing only the upper econometric estimates of benefits. On the other hand, the models they apply downplay the potentially high social costs of free trade.
In their report, NUPI commit many of the same sins. We can read that the benefit from TTIP per Norwegian is assumed to be approximately2600 NOK per year. Aside from the fact that 7 NOK a day is not an overwhelming benefit, the report lacks communication on the uncertainty that is associated with these estimates.
Like the Commission, NUPI applies computable general equilibrium (CGE) models when calculating possible benefits from TTIP. These models are notoriously poor at estimating the social costs of freer global trade (like costs associated with health and environmental challenges, and the transition costs associated with increased unemployment). Moreover, they assume full employment and mobile, flexible workers. This has no root in reality. For example, the increased unemployment in the Norwegian agricultural sector that will follow from acceding to TTIP is likely to bring about major costs for the social security net in Norway.
There are also other, more problematic issues associated with the CGE models applied by NUPI. They do not consider the effects of free trade on economic inequality. It is by no means given that the 2600 NOK will be distributed equally across all Norwegians; quite the contrary. As Thomas Piketty has discussed at length, the profits are likely to disproportionately benefit the owners of capital. In that conjuncture, it is baffling that NUPI refers to the North American Free Trade Agreement (NAFTA) without commenting on the extreme increase in inequality the agreement has contributed to in the US and Mexico.
It is also striking that NUPI avoids mentioning how the inclusion of investor state dispute settlement (ISDS) in NAFTA has led to a wave of lawsuits from multinational corporations, targeting public policy areas such as environmental regulation. Instead, NUPI is marginalizing the phenomenon of ISDS. It should therefore be noted that in the context of TTIP Norway will not only be a capital exporter, but also a capital importer. This entails a very real possibility of having to defend costly lawsuits from powerful multinationals in a wholly privatized legal system.
Lastly, the report fails to mention at what point the estimated benefits from TTIP will be realized. The Commission assumes that the profits from TTIP for the EU as a whole will materialize from 2027 and onwards. We have no reason to believe that the time frame will look any different in Norway.
It is startling that NUPI utilizes an economic model that assumes perfect markets, free competition, and full employment when analyzing TTIP. Overblowing the economic benefits of free trade while simultaneously underestimating the social costs can have major consequences – like a Donald Trump in the White House or a Great Britain out of the EU. A more useful analysis would have communicated the uncertainty associated with benefit estimates, reflected on the social costs of the agreement, and discussed the distribution of the potential gains across the population.
The article is a translation of the Norwegian original, published on page 24 in Klassekampen Nov. 24.