Stopped TTIP? Its potential impact on the world and the role of neglected FDI

Abstract

The Transatlantic Trade and Investment Partnership (TTIP) seems to be a doomed half-negotiated trade deal with Donald Trump in power. If it were definitely abandoned, the effects of what could have been the largest trade agreement in history would disappear. In this paper we analyze its potential impact on the world and on insiders and outsiders of the agreement using a Computable General Equilibrium (CGE) model. In our simulation, TTIP consists of reductions of tariffs, non-tariff barriers and a previously neglected component, namely, barriers to Foreign Direct Investment (FDI). The impact of the FDI component would be larger for the US than for the EU. In the US, it would contribute to nearly half of the overall impact of TTIP, while in the EU it would be nearly one third. Insiders would heavily benefit from TTIP but the effects could potentially be very slightly negative for outsiders (Middle East, Sub-Saharan Africa, Latin America, Southeast Asia and Other Advanced Countries), with the exception of the big Asian economies (China, Japan and India). The latter would remain unaffected. However, all the slightly potential negative effects would turn into positive with an “inclusive TTIP” (i.e., one avoiding third country discriminating rules and standards). An inclusive TTIP would benefit both insiders, who would gain more, and outsiders, who would be better off than without the TTIP. Welfare, GDP, wages, as well as aggregate imports and exports of the world economy would clearly increase following either a shallow or a deep TTIP agreement.