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Potential economic effects of TTIP for the Netherlands

CPB Discussion Paper 331, 14 July 2016

The European Union (EU) and the United States (US) are negotiating a trade agreement under the umbrella of TTIP (Transatlantic Trade & Investment Partnership). The economic effects of this trade agreement are analysed with WorldScan, the general equilibrium model of the CPB for the analysis of long-term issues in the international economy. TTIP is expected to have a positive effect on trade between the EU and the US and on investment and economic growth in both areas. Hence, the Netherlands will benefit with an increase in GDP of 1.7% in 2030.

Negotiations between the EU and the US are still ongoing. To estimate the potential impact of these negotiations, we use a scenario analysis. It is expected that the main economic effects of TTIP are generated by abolishing customs duties and aligning regulations. This harmonization is done without lowering the standards which are non-negotiable according to the European Commission. In the baseline scenario, the existing tariffs are abolished and a partial harmonization of regulations results in a reduction of non-tariff barriers to trade of about 14%. In alternative scenarios, we vary the degree of harmonization, allowing for larger or smaller reductions in non-tariff barriers to trade.

Dutch exports to the US increase by 95% due to the reductions in tariffs and non-tariff barriers to trade. This ultimately has a positive effect on GDP in the Netherlands of 1.7%. These potential benefits are higher than those for the EU and the US (where GDP increases by about 1%). TTIP creates a shift in output and employment across sectors, which is, however, smaller than the normal sectoral shifts. TTIP also creates a shift of trade between countries. Because trade between the EU and the US increases significantly, it will reduce intra-EU trade and trade with third countries. However, the total output and the income effects in these third countries will be relatively small, the output drop is less than one percent and the decline in GDP remains close to zero.

The expected economic benefits can be considered as a lower bound, because we do not consider the potential impact of increased foreign direct investment, nor the dynamic benefits of trade in terms of competition, innovation and productivity. These results are consistent with other studies on TTIP, but are dependent on the final agreement.

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