The five things you need to know about TTIP

The Transatlantic Trade and Investment Partnership (TTIP) is a free trade agreement currently being negotiated between the EU and the US. I think it’s a good idea. Here’s what you should know about it:

1. Abolishing tariffs is only a small part of TTIP.

Tariffs are generally low between the EU and US, but for some sectors they are very high. The EU currently imposes a 10% duty on car imports from the US, and the US imposes tariffs as high as 40% on some clothes from the EU, like shoes. Getting rid of those high sectoral tariffs will allow for greater economic specialisation, and the EU and US economies are so large that even reducing small tariffs overall would boost wealth levels a bit.

2. The biggest costs to trade are from so-called ‘non-tariff barriers’, and getting rid of these could have a big effect.

Most of TTIP is designed to harmonise regulation where there is redundant double-regulation (or ‘regulatory incoherence’) of firms operating in both the EU and the US. For instance, cars may be just as safe in the US and the EU (or not – nobody’s sure yet), but have to adhere to completely different safety requirements to achieve that. Harmonising car safety regulations could make it cheaper to build cars without reducing car safety at all. Because of different rules about egg washing that don’t seem to make a difference to actual safety, US eggs couldn’t legally be sold in the UK and vice versa. Some regulations are simply designed to make it more expensive for foreign firms to sell goods, to protect native firms. Harmonising some of these rules should reduce costs substantially.

Different regulatory regimes might allow for more experimentation, but the feedback mechanisms involved in regulation are so fuzzy that this kind of ‘discovery process’ rarely actually takes place.

3. The economic gains from TTIP could be pretty substantial.

The CEPR estimates that a successful TTIP that removed a lot of these ‘non-tariff barriers’ as well as all existing tariffs would cause an increase to EU GDP by €120bn (0.5% of GDP) and US GDP by €95bn (0.4% of GDP) in total. That’s modest, but would translate into an extra £400 annually for British households. 90% of those GDP gains would come from non-tariff measure cuts.

4. The only regulations that TTIP will prevent in the future are ones that discriminate against foreign firms.

This will include rules that mean that US and EU governments will have to consider foreign firms for public procurement in certain areas (but not publicly-funded healthcare, social services, education or water services). In general the EU is extremely restrictive about the impact TTIP can have on public services. EU governments can organise public services so that only one monopoly provider supplies it (eg, the NHS), and they can regulate whatever they deem to be ‘public services’ at any level of government. The only exception is where an EU government has already opened up a sector to foreign firms (ie, to avoid firms that have already invested from losing their money). This is a pity, I think – I’d like to see EU states sign up to an agreement that stopped them from discriminating against foreign firms in all areas. But TTIP is not that agreement.

5. The Investor-State Dispute Settlement (ISDS) mechanisms in TTIP – the so-called ‘secret courts’ – are nothing new.

Pretty much every free trade agreement signed around the world includes an ISDS provision, which allows firms to challenge states that renege on their part of the deal. Since 1975 the UK has signed 90 ISDS treaties, and 3,400 exist around the world. In that time the UK investors have brought 43 claims against other states. Only two have ever been brought against the UK and both were unsuccessful. What’s more, ISDSes cannot compel a state to change its laws, only to pay compensation to firms if it has broken its treaty obligations. It might seem pointless to have this – the UK and the US both have strong rules of law. But TTIP also includes countries like Greece, Hungary and Romania which have much less reliable judicial systems.

Tribute to Prof John Hibbs

The late John Hibbs was a transport specialist who was a fellow of the Adam Smith Institute and published seminal works with us. A group of his friends and colleagues have put together what they intended to be a 90th birthday tribute book, but alas it became a memorial to him when he died 6 months before then.

“John Hibbs – His journey by bus, coach and train” is a celebration of his life and achievements. It is more than that, though, because the personality of the man emerges through its pages and through what people who knew him say about him. He was a remarkable man, one who changed transport policy. His scholarship and his determined advocacy helped liberate bus transport and free it from a virtual state monopoly. But he also had an impact on train transport, and pioneered road pricing. He was committed to competition and deregulation, and put their stamp firmly on the ASI’s transport output.

We shall miss him at our seminars and conferences, and this tribute reminds us why. It was an extraordinary life and it is entirely fitting that this book, compiled and edited by Michael Goldstein and Cyrrhian Macrae, puts that life on the record for others to admire and appreciate.

 

j-hibbs1

So the entirety of our housing policy is wrong is it?

For decades now we’ve been told that we should all live in mixed neighbourhoods. Mixed in terms of socio-economic class that is. That there should be council houses in the middle of Westminster, that to have the poor living in cheap areas, the rich in rich ones, would be a terrible betrayal of something or other. It now seems that this is entirely wrong:

Britain has prized the ideal of economically mixed neighbourhoods since the 19th century. Poverty and disadvantage are intensified when poor people cluster, runs the argument; conversely, the rich are unfairly helped when they are surrounded by other rich people. Social mixing ought to help the poor. It sounds self-evident—and colours planning regulations that ensure much social and affordable housing is dotted among more expensive private homes. Yet “there is absolutely no serious evidence to support this,” says Paul Cheshire, a professor of economic geography at the London School of Economics (LSE).

And there is new evidence to suggest it is wrong. Researchers at Duke University in America followed over 1,600 children from age five to age 12 in England and Wales. They found that poor boys living in largely well-to-do neighbourhoods were the most likely to engage in anti-social behaviour, from lying and swearing to such petty misdemeanours as fighting, shoplifting and vandalism, according to a commonly used measure of problem behaviour. Misbehaviour starts very young (see chart 1) and intensifies as they grow older. Poor boys in the poorest neighbourhoods were the least likely to run into trouble. For rich kids, the opposite is true: those living in poor areas are more likely to misbehave.

This entirely makes sense. Imagine that it really is inequality that causes so many problems. Inequality is going to be felt most keenly about those one lives cheek by jowl with. Forcing the poor to live in “affordable housing” among the mansions of the rich is therefore going to exacerbate problems, isn’t it?

Not that these facts are going to make a blind bit of difference. Facts never do when ideology is involved.

Economic Nonsense: 18. Capitalism is disreputable because it is based on greed

This is a misinterpretation. Capitalism is based not on greed but on the legitimate aspiration of people to better their lives. Adam Smith spoke of “The uniform, constant, and uninterrupted effort of every man to better his condition,” and of course it applies equally to women. It is this desire to better their circumstances that leads people to forego present consumption in order to achieve greater returns in the future. They invest in order to increase their wealth. That investment supplies funds to companies and provides the capital which they turn to advantage for the benefit of their investors.

This is not greed; it is one of the most benign things that people have done. Far from showing greed to the detriment of others, it gains its returns by providing the goods and services that people want and need at prices they are prepared to pay. It is based not on selfish greed but on co-operation to mutual advantage. The investors make it possible for consumers to satisfy their wants, and they themselves make gains in the process.

Capitalism is benign because it is based on trade, and every act of trade is an exercise in co-operation in which people exchange what they have for what they prefer. Capitalism has to be social; that is how it works. Greed is selfish, not social.

The desire of people to better their lives is part of what it means to be human. We do not adapt to the environment as other animals do; we adapt the environment, and we do it in ways that are calculated to improve our lot. We seek greater security, greater command of the essentials of a decent and acceptable life. Capitalism is the most efficacious way we have yet found of achieving these objectives.

Logical Fallacies: 15. The red herring

 

The latest in Madsen Pirie’s series on Logical Fallacies: ‘the red herring’.

You can pre-order the new edition of Dr. Madsen Pirie’s How to Win Every Argument here