Oireachtas Joint and Select Committees

Thursday, 5 June 2014

Joint Oireachtas Committee on European Union Affairs

Transatlantic Trade and Investment Partnership Agreement: Discussion (Resumed)

2:10 pm

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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I am delighted to welcome Dr. Werner Raza from the Austrian Foundation for Development Research to discuss his analysis and findings on the transatlantic trade and investment partnership, TTIP, agreement, as published in his report entitled, Assess TTIP. We are also joined by Mr. Simon McKeever from the Irish Exporters Association and Mr. Pat Ivory from IBEC who will share their views on the agreement. On behalf of EU member states, the European Commission is negotiating this trade agreement with the USA. Last week the committee began its consideration of the agreement with the Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton, and we hope to delve further into its details with our three guests.
Before we start, I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses, or an official, either by name or in such a way as to make him or her identifiable. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they give to the committee. If they are directed by it to cease giving evidence om a particular matter and continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not make charges against a person or an entity by name or in such as way as to make him, her or it identifiable.
Our first speaker will be Mr. Ivory from IBEC who will share his views on TTIP from an Irish business perspective.

Mr. Pat Ivory:

I am happy to meet members of the joint committee again to the transatlantic trade and investment partnership, TTIP, agreement. As the representative body for Irish business, IBEC is a strong supporter of the negotiations on an EU-US transatlantic trade and investment partnership agreement. For a number of years we have been working with our European business partners to grow business support for these negotiations.

In April a business delegation led by Business Europe's president, Ms Emma Marcegaglia, its CEO, Mr. Markus Beyrer, and me as chair of the US network of Business Europe visited Washington to emphasise the need for the European Union and the United States to show progress and concrete results in the TTIP negotiations in order to retain the support of business. The European business group emphasised its strong commitment to the conclusion of a comprehensive trade and investment agreement. The delegation met the US trade representative, Mr. Mike Froman, Members of Congress and high level government officials from the USTR, the Department of Commerce and the White House. The group also met Mr. Tom Donohue, CEO and president of the US Chamber of Commerce, and other business groups, including the National Association of Manufacturers and the Transatlantic Business Council. The visit took place ahead of the fifth round of TTIP negotiations which took place from 19 to 23 May.

A small subgroup of the delegation, of which I was a member, met the IMF managing director, Ms Christine Lagarde, to discuss economic, trade and financial issues.

IBEC recently launched a new campaign, "An Ireland that Works", which sets out the business priorities for the next phase of recovery. It has five key policy priorities: to reduce the tax burden; better government; to invest in the future; to promote enterprise and entrepreneurship; and to extend Ireland's global reach. Central to the aim of extending Ireland's global reach is completing agreements with the United States, Asia and other trading partners to support trade and investment opportunities for Irish and EU businesses. International trade deals are building blocks of dynamic economies and we need more of them to match the ambition of our companies.

A transatlantic trade and investment partnership, TTIP, agreement has the potential to lay the foundations for a new and dynamic phase of economic renewal in both the European Union and the United States. It would constitute the most important bilateral trade initiative ever negotiated and as a trading nation with strong cultural and economic links with the United States, Ireland is particularly well placed to benefit. It remains one of the world's most open economies. Irish business is increasingly global in focus, based on innovative manufacturing and internationally traded services. Last week I was in the OECD and it was a great pleasure to see that the OECD study of restrictions on services trade across 40 countries in 18 sectors had found that Ireland was below the OECD average - meaning more open - in all 18 sectors. On internationally traded services, this market has been proved to be extremely open. Our prosperity will be determined by important economic and strategic links with global partners. Investment and trade success will be central to our economic recovery and prosperity and we must continue to foster these international linkages.

Although the United States is already one of Ireland's key export markets, a new trade deal has the potential to increase significantly the value and volume of our exports. The potential for job creation, new investment and growth is very significant. Business here would benefit from lower costs, increased opportunities for investment, a reduced regulatory burden and new public procurement opportunities. However, the TTIP negotiations will not be easy, but it is in everybody's interests to have a major trade and investment deal agreed for the long-term benefit of both economies. With a combined population of 800 million people and almost half of the world's GDP, the rewards for Irish business and consumers would be well worth the effort.

The benefits of TTIP for Irish business are wide-ranging and very substantial. TTIP will deliver products to the market cheaper and faster and enable business to be conducted more easily. It will ensure the harmonisation and promotion of high level standards and stimulate creativity and innovation. It will make public contract opportunities more accessible and encourage and protect investment. It will widen the choice of services and help to rebalance raw materials and energy markets.

The benefits of TTIP which have greater significance in an Irish context include tariffs, non-tariff barriers, standard services and investment. Many products made in Ireland and exported to the United States face costly import duties; the same applies to US firms hoping to sell here. From machinery manufacturers to the pharmaceutical and chemical industry, millions of euro and dollars are paid to customs authorities each year, costing businesses and consumers alike. This would be far better spent on much-needed investment. Irish exporters shipped €86.9 billion worth of goods to more than 200 countries in 2013. The United States increased its status as Ireland's largest goods export market, growing by almost 1.3% year on year to some €18.4 billion. Customs duties or tariffs apply to most of these products, which impacts on price. Tariffs, on average, are 4%, which is low. Eliminating these tariff barriers will generate impressive savings owing to large trade flows. The volume of trade flows is very significant and although the tariffs are low, they are still a significant cost. One of the first objectives of TTIP will be to eliminate tariffs for products either immediately or over a period of time.

TTIP will enable business to be conducted more easily. Irish exporters of goods and services sometimes face major problems with non-tariff trade barriers. These obstacles stem from divergences between EU and US regulators such as different technical regulations, specification standards, conformity assessment procedures, licensing procedures and the lack of information on regulatory systems. The vast majority of these regulations are different because they are devised independently, not because of divergent public policy choices on either side of the Atlantic. They do not mean standards are lower in the United States or the European Union, but that they are different and have been drawn up in different ways. Improving co-operation between both administrations and the regulatory authorities will help to eliminate differences and trade to move more freely and efficiently. The potential benefits of regulatory co-operation will vary from sector to sector. The harmonisation of legal provisions will be possible only when standards and licensing procedures are comparable in terms of the level of protection provided and effectiveness. However, sectors of interest to Ireland such as pharmaceuticals, medical devices and technology, financial services and food and drink are set to benefit from greater levels of regulatory co-operation and in such a way that the consumer will not suffer any lack of protection or the lowering of standards.

Small and medium-sized enterprises have much to gain as they cannot afford to navigate two regulatory systems. TTIP is the first EU trade agreement that has committed to including a chapter targeting SMEs and providing for their needs. Such a chapter could establish mechanisms to enable both sides to work together to facilitate SMEs' participation in transatlantic trade after TTIP takes effect. Provisions could also include an SME committee that could engage with the small business community and the development of web-based information and other resources to help SMEs understand the provisions of the agreement and how they can benefit from it.

TTIP will promote the harmonisation and promotion of high-level standards. Differences in approach between the European Union and the United States to standards are a significant impediment to the further integration of the world's two largest markets. They also work against the development of global value chains, which has been highlighted by the OECD, the WTO and the United Nations. Products often need to be tested twice - once against EU standards and once against the equivalent US standards - before being accepted for sale in both markets. This brings about higher costs that deter trade and investment, impacting negatively on consumers and the competitiveness of Irish and European business. Increasing co-operation on standards would lower costs and open markets for business. It would also allow the European Union and the United States to promote high standards in the transatlantic market and beyond.

TTIP will widen the choice of services being offered. Ireland is a strong performer in services exports, which grew by 11% to a value of €90.3 billion in 2012. Services now account for over 50% of the total value of Irish exports. This reflects the growth in ICT and e-business sectors, as well as the services operations of many manufacturing firms, financial services, leasing - in the aviation sector, for example - and international education service companies.

To maintain this trend our services markets must be further integrated, and TTIP can facilitate this by removing the remaining barriers and regulatory-based discrimination by laying down rules to prevent further barriers from arising in future. A key part of TTIP is examining the future and how regulations are developed.

TTIP will make public contract opportunities more accessible. The US public procurement market is, after the EU, the second largest in the world, representing 11% of US GDP. Its growth potential is significant at the federal, state and local level. However, there are barriers which prevent Irish and European companies from realising their full potential in accessing the US procurement market. For example, public tenders often include some "buy America" clauses which give preference to domestic companies, and TTIP offers an opportunity to address restrictions, simplify non-transparent rules and procedures and improve access to markets. This can be done not only at the federal level, but, more importantly, at the state level in the United States. This would enable more Irish companies in sectors such as energy and infrastructure, software, accounting and professional services to participate in US public contract opportunities.

TTIP would also encourage and protect investment. An important consideration for companies when making investment decisions is whether they are adequately protected. A key objective of TTIP would be to ensure that EU company investments would be protected in the US, and US company investments would be protected in Europe. It will grant neutrality in the case of conflict through a comprehensive state-of-the-art investor to state dispute settlement mechanism. This is important not only for the TTIP agreement, but also for other free trade and investment agreements negotiated across the world. If the EU and US can agree to have standards for investment protection in their own agreement, they can be replicated elsewhere in negotiations. Ireland is somewhat of an outlier in an EU context in that it does not have bilateral investment treaties in place. However, this dispute settlement mechanism is a common practice in free trade agreements and in other member states' bilateral investment treaties, which come to a total of approximately 1,400. This provision has enhanced the confidence of EU investors, which are by far the largest group of investors in the world, with more than €4 trillion of stock outside the EU.

For the outlined reasons TTIP is worth the effort, ambition and commitment of both the EU institutions and the US Administration, as it could achieve a ground-breaking deal for both economies.

2:25 pm

Mr. Simon McKeever:

I represent the Irish Exporters Association, the representative body for Irish exporters. We are the voice of these exporters; we provide practical knowledge to Irish exporters through a range of geographical fora and some bodies like the life sciences and food and drink sectors; and we also provide practical connectivity into overseas markets and various agencies at home. We aim to get more Irish companies to export for the first time and more exports from existing Irish and overseas companies based in Ireland. In particular, we speak about competitiveness and the access to finance issue.
Today, I will refer to the impact of TTIP at a macro level, the issue of small and medium enterprises and the dissemination of TTIP or how to get the process to companies on the ground, as there is a bit of a minefield in trying to get the information out. To echo Mr. Ivory's comments, we welcome TTIP enormously as it is an important development which will increase trade through its main tenets of reducing existing tariffs and non-tariff barriers, harmonising regulatory frameworks in food safety, e-commerce and data privacy, although there are such privacy issues within the European Union anyway. It also concerns regulatory frameworks in aviation standards, retail trade, architecture, engineering, finance, procurement and telecoms. From a global perspective, the impact of TTIP will not be confined to the EU and the US, and as this would become the largest trading bloc in the world, it would probably set the standards for the entire world. To trade with either bloc, one would need to adopt the standards of both TTIP regions.
This EU and US trade corridor would create a balance over time for emerging economies and other power blocs around the world and it would facilitate 1.5% growth in both the EU and the US. EU exports to the US and vice versawould increase up to approximately 20% and the process would bring a boost of approximately €100 billion for the EU. As the US is a very important market for Ireland, there would be a particular boost for Irish exports, as 21% of merchandise exports go from Ireland to the US. It is a very important market that is not restricted to merchandise exports, as it takes in services, which make up 53% of what we sell from this country. It is important to consider this global impact, which would have wider implications in the setting of standards around the world and not just in Ireland and the EU.
I will speak particularly to the implications for small and medium enterprises, SMEs. In the EU and Ireland, 90% of businesses are small to medium enterprises and they are a dominant part of the economy in Ireland. There are not enough small to medium enterprises exporting and we would like to see more doing so. SMEs are currently disproportionately affected by the lack of TTIP or a harmonisation process, as it costs proportionately much more for an SME to deal with red tape, customs and other issues for market entry into different countries. The harmonisation of such issues would benefit SMEs in particular. If an SME is building a product or selling a service, it must meet Irish or EU regulatory needs and if it goes to the US, in some cases it must design an entire product but at the least, the product must be tweaked, which involves a cost. For an SME, such a cost is proportionately far greater than that for a very large company. This partnership would reduce such costs and make the SMEs much more competitive. If there is a single set of standards, a product can be built for sale in both blocs.
We have spoken about documentation, customs and hidden barriers, and the time it takes to get a product through various stages of paperwork overseas can sometimes put off SMEs in going to such markets. There must be a resource in the SME to handle such processes, which is an extra cost, whereas large organisations can build it in. Moving to harmonisation and standardisation would reduce such costs for an SME. Many SMEs develop niche products with high technology or a high capacity focused on a niche market. Currently, if the company needs to produce a niche product or service to a set of different standards, it would also cause an increased cost. Moving to similar standards and harmonisation would, therefore, open a new set of markets for niche producers.
SMEs drive job creation and innovation and TTIP would open this process completely, creating a major impact for SMEs. Mr. Ivory has already mentioned this but this could get SMEs into a global supply chain perspective rather than one limited to the EU. Many SMEs have considered getting into overseas operations of some American companies which they supply, and this could open the door considerably for such businesses.
We must watch the government procurement section and although it should lead to more transparency, SMEs tend to fare a little worse on the Government procurement side than the larger counterparts in Europe. We have reached a tipping point in Irish exporting as 53% of exports are now services whereas the majority of them have traditionally been merchandise trade.

The EU and the US are the world's largest service providers. Many service providers are SMEs, comprising engineers, accountants and tax advisers who have a great deal of particular expertise in that area, and this would facilitate their business. We welcome it from those points of view.

If one Googles TTIP one goes through hundreds of websites to find out exactly what it is doing. I do not get many inquiries from our members about TTIP so there is a need to get the information out. While it is incumbent on organisations like ours to share that information, it would be very useful to have a single source where the information is pulled together, where developments within it, and a general understanding, could be pushed out to people.

We absolutely welcome TTIP. The large overseas companies that bring a great deal of inward investment to the Irish economy, as it is currently constructed, would benefit from it. We agree with Mr. Ivory's comments about certain sectors. It could have massive potential for indigenous SMEs.

2:35 pm

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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The next speaker is Dr. Werner Raza from the Austrian Foundation for Development Research. He is here to discuss the findings in his recently published report, Assess TTIP.

Dr. Werner Raza:

I thank Chairman for the invitation to testify before this honourable committee. As the Chairman mentioned I have been invited to present some of the results of a study I undertook together with American academics, Professor Lance Taylor and Professor Rudi von Arnim from the New School University in New York and the University of Utah, respectively. In that study we scrutinised four widely cited reports commissioned by the European Commission, by the German Bertelsmann Foundation and a French study on the supposed benefits of the TTIP agreement. These studies were commissioned during the past two or three years. In addition to assessing the findings of these reports we also discussed some issues which are frequently neglected by trade impact assessments but are nevertheless important from our point of view.

In a nutshell, we see limited economic gains and considerable downside risks. The results of our assessment are as follows. The estimated gains of TTIP will be small, with all four studies reporting small but positive effects on real income as measured by GDP, trade flows and real wages in the European Union. Most studies estimate GDP and real wage increases to range from 0.3% to 1.3% of EU real income. EU unemployment will either remain unchanged, by assumption, in three of the four studies or it will be reduced by up to 0.42 percentage points, that means approximately 1.3 million jobs. This, however, appears unrealistic. This is an outlier. It was in the study commissioned by the Bertelsmann Foundation which uses a different methodology which has been widely criticised by most trade economists over the past year.

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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Is that an increase in employment of 1.3 million jobs?

Dr. Werner Raza:

That is an increase in employment. It is a reduction in unemployment, which is basically an increase in employment.

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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That would be, in a country the size of ours, approximately 13,000 extra jobs.

Dr. Werner Raza:

That depends. It has not been broken down to individual countries. If one did a trade or employment weighted disaggregation, it would perhaps translate to between 10,000 and 20,000 jobs in Ireland. Those benefits are long-term. They will accrue only over a period of ten or more years.

The press mistakenly presented TTIP as giving an economic boost to the EU in the short term. That will not happen. The implementation of the agreement will take time and the effects of the economic gains from the agreement will thus accrue only in the long term.

Second, the estimated gains depend on the reduction of non-tariff measures. The previous two speakers already mentioned that for EU and US industries, this agreement focuses on regulatory harmonisation and alignment. Since the two economic regions are already well integrated because tariff barriers are at very low levels of 2% to 3%, on average, any further economic benefit must come from the reduction of non-tariff measures. In that sense we are no longer speaking about a conventional free trade agreement but it is an agreement about regulatory change or alignment. A total of 80% of the estimated gains I have mentioned will come from the alignment of non-tariff measures, which are all kinds of laws, regulations, technical standards, licensing requirements and processes which differ in the two regions, as elaborated by the previous speakers.

In the studies the assumptions on how much those regulations can be aligned or reduced have been bold; for example, in most of the studies it is assumed that 25% to 50% of those regulations can be aligned to some common standard or harmonisation, or will be subject to mutual recognition. That is a crucial assumption. The other crucial assumption is that it has been commonly assumed in those studies that these regulations present a cost to businesses, which they do. That cost has been assessed by means of surveying company managers and receiving their assessment of the cost of certain regulations to their companies.

The other side of the coin, in terms of assessing the costs and benefits of regulations, would be to assess the social cost of a reduction or elimination of a regulation. This has not been done which in our view is a methodological flaw in most of those studies. It is well established in economic theory that regulation is welfare enhancing in so far as it corrects for market failure or in so far as it is used to secure certain public policy goals - public health, security, environmental protection, social regulation etc. If one changes regulation, either by harmonisation or by abolishing certain regulations, that will have a negative effect on the safeguarding of those public policy goals. That presents a social cost. None of these studies takes account of this. Our conclusion is that it is one-sided. It takes into account the cost savings for companies but not the potential social costs of deregulation or regulatory alignment. Policy-makers in the European Union and the member states must scrutinise it in great detail to establish how far regulatory changes, harmonisation or mutual recognition as introduced by the agreement will lead to changes in the quality of regulation. That is the third point.

The fourth point is that none of those studies takes into account macroeconomic adjustment costs. These macroeconomic adjustment costs can accrue in three areas. They can accrue in the labour market because there will be shifts in employment within sectors, and potentially also between sectors because of the agreement, resulting in unemployment and related costs. That includes long-term unemployment. These costs might be substantial, especially during the ten year transition period. Based on projected job displacement, in a study by CEPR, of between of 400,000 and 1.1. million, a rough and conservative calculation suggests implied costs of €5 billion to €14 billion in unemployment benefit, excluding costs for retraining and skills acquisition. We assume there will be temporary unemployment and that is also assumed by the studies because while some sectors will be negatively affected by the trade agreement through input competition, others will be positively affected by it because it promotes additional exports.

There will, therefore, be sectoral shifts in employment as well as a level of temporary unemployment. We also expect that there will, at least partially, be long-term unemployment as a result of the agreement. There are very different conditions in the various EU countries in terms of the labour market situation, with high levels of unemployment in some. It would be too bold to assume, as some of the studies do, that all of the temporary unemployment that will arise as a consequence of the agreement will be resolved by the persons affected finding new jobs that pay the same wage as before.

If we take that into account in the economic analysis, as we should, we can see there will be adjustment costs in the labour markets. As I said, our estimations suggest that those costs for the European Union as a whole will be between €5 billion and €14 billion in the ten year transition period. In addition, according to our estimation, forgone public income from taxes and social contributions from unemployed persons could accrue to between €4 billion and €10 billion in the same period. Another important factor is the effect of TTIP on public revenue income. We estimate that revenue losses for the EU budget as a result of tariff elimination - tariff income, after all, goes into the public budgets - could be in the order of 2%, or €2.6 billion per year.

2:45 pm

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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Will the United States gain as a consequence of those losses to the EU, or will it also see a loss?

Dr. Werner Raza:

There will be a corresponding loss for the US once it has reduced or eliminated remaining tariffs on manufactured goods and agricultural imports from the EU. Both the US and the EU will lose revenue in the form of tariffs. Reducing tariff rates is the very essence of a free trade agreement and that leads to a reduction in public income. The EU budget will, in all likelihood, experience a loss of €2.6 billion per year. Accumulated over a transition period of ten years, this would accrue to a loss of EU public revenues of at least €20 billion. Part of that loss will be compensated for by increasing exports and output as a consequence of the agreement, but that is a long-term process. In the short term, the net effect on the public budget will be negative.

There could be additional potential negative effects of TTIP. For example, exports from least developed countries, LDCs, to the EU will possibly suffer, with a potential reduction in their real GDP of up to 3%. This is a rather straightforward conclusion from trade theory. If two countries or regions enter into a trade agreement, there will be trade diversion away from third countries or regions, with the latter seeing their exports diminish as a consequence. One could say, therefore, that there will be a negative effect on the rest of the world arising from TTIP. Empirically, the magnitude of that effect is not entirely conclusive. Certainly, given the EU's official commitment to eradicating poverty in LDCs, the results obtained by the four studies warrant a detailed examination of the possible effects of TTIP on developing countries.

Finally, intra-EU trade will probably decrease because of TTIP. Some studies suggest a modest reduction, but one estimation is that intra-EU exports will decline by 30%. That seems a very high figure and perhaps not plausible. On the other hand, it certainly seems likely that trade between EU member states will decrease because it will be substituted by imports from the US, to some extent at least. However, the studies do not give very precise information on this very important issue, which calls for further examination.

In our view, TTIP will, in the long run, give positive but very small economic effects. It has been our aim to show that some of the potentially negative effects which flow from regulatory change and macroeconomic adjustment costs have not been considered to the degree they should by policy-makers. That is the basic message of our study.

Photo of Dara MurphyDara Murphy (Cork North Central, Fine Gael)
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I welcome the delegates. My first question is to Dr. Raza, whose insight into these matters is very helpful. There is a consensus in Europe, and especially in countries like Ireland with small, open economies, that TTIP is unquestionably in our interest. Several of the points Dr. Raza has raised challenge those assumptions. Will he clarify whether his organisation is allied to any group in Austria?

Dr. Werner Raza:

My organisation is constituted as a foundation under public law. We are publicly funded up to 75% by the Austrian Development Agency, which is a public institution. Our study was commissioned by the European United Left group in the European Parliament and involves a co-operation between my organisation and two American academics.

Photo of Dara MurphyDara Murphy (Cork North Central, Fine Gael)
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In the study, all the potential costs of TTIP are highlighted, and Dr. Raza accepts those figures are estimates. There is little emphasis on the potential benefits, other than an observation that the increase in growth will be small. Does Dr. Raza accept that because Europe has bounced along without any growth in recent years, an increase of anywhere between half a percentage point and one percentage point is enormous and to call it small is unfair?

Dr. Werner Raza:

To clarify, when I speak about 0.5% to 1% of GDP, I am not talking about growth but income effects. The two must be sharply distinguished. Free trade agreements increase the purchasing power of households in so far as imported goods and services become cheaper. With a given income, households can afford to buy more. That is what is measured by the studies to which I referred. The figure of 0.5% to 1% of GDP refers to the income gain to households in Europe. It is not a growth effect. A growth effect would only emerge if companies, as a consequence of trade liberalisation, begin to invest more. Then we would have an effect on growth.

Photo of Dara MurphyDara Murphy (Cork North Central, Fine Gael)
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However, is that not what would actually happen in reality? Are we engaging in semantics here? Employment and investment create growth and spending. In regard to the example Dr. Raza cited of intra-EU trade being reduced by virtue of TTIP, the reality is that the extension of the Common Market did the exact opposite to what he is suggesting. There are many aspects of the Union that can be legitimately criticised, but the Common Market is not one of them. In fact, it has been a huge success. Why should we not expect what happened following the expansion of the Common Market also to happen in respect of Europe and the United States?

2:55 pm

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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I welcome our guests. Regarding trade between Europe and the United States, will the benefits that accrue from cost reductions contribute to growth? Notwithstanding the reservations of Dr. Raza, what will TTIP deliver? Dr. Raza suggested certain things cannot happen because they will not improve growth, but this again raises the question of whether a reduction in costs could be an incentive to generate growth. The removal of barriers to trade will allow direct access, smoother operations and a reduction in bureaucracy. Some people say bureaucracy and others refer to red tape, but surely cost reductions mean growth can improve.

Photo of Eric ByrneEric Byrne (Dublin South Central, Labour)
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I thank the witnesses for coming, especially for travelling from Austria. I wanted to restate some of the comments I made here last month before the Minister that Mr. McKeever and Mr. Ivory may not have heard. As a nation and as business interests we sing from the same hymn sheet. If we denied the benefits and huge savings that these reports indicate, we would be deemed lunatics. Having read the memo of the European Commission on the benefits of this deal, how could anyone fail to argue for it?

I was concerned by the fact that the statistics and economic outlines are produced by a group called the Centre for Economic Research, which may be similar to Dr. Werner Raza's group. Economic researchers were commissioned by the EU to produce these figures and I have now heard that the European United Left has commissioned Dr. Raza's company to argue the points he has just made. How do we reach the truth? I think we all agree that tariffs of 3% are not the big issue. Rather, savings of 80% can be made in other fields. I am not an expert in any field but the European Commission has said that standards will not fall. I will take the example of the Irish pharmaceuticals industry, including the Irish Medicines Board, and I have already raised this with the Minister. There are 28 countries in the European Union and I do not know what standards are applied in the other 27. Does the Irish Medicines Board have the highest ranking or the lowest in the European Union? Companies based in Ireland that export to the United States must comply with the stringent conditions of the Food and Drug Administration, FDA. I think the theory that has been presented is to get rid of the FDA, the Irish Medicines Board and their equivalent and replace them with a standard not less than the best that currently exists. How can this be proven?

I welcome Dr. Werner Raza in particular as Ireland has much experience of the arguments of economists from both sides of the fence. Many of these economists did not realise that the Irish economy was experiencing a bubble so it is important we hear the counter-argument commissioned by the European Commission. It seems to me that the Austrian Foundation for Development Research is not arguing strongly that there will not be benefits. Rather, it accepts that there are benefits to be gained while there are also potential risks. A risk may materialise with the worst possible consequences or it may not materialise at all. Can Dr. Raza summarise his position? Is he suggesting the talks should stop and things should remain static because they are fine as they are, or is he saying additional benefits may accrue if we adopt some of his suggestions?

Photo of Seán CroweSeán Crowe (Dublin South West, Sinn Fein)
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I am not an expert and I do not believe any of the committee members are. My concern is that this is potentially a huge deal but there has been no real debate on it. There have been headlines in newspapers but there has been no real information behind them on the talks. A veil of secrecy covers the discussions that are ongoing and what the impact will be. It concerns me that some people suggest that everything will be great because there must be a downside to any agreement. However, nobody has spoken of a potential downside and this signals to me that a debate is required to examine this area. I welcome the fact that this committee is examining this matter because prior to this only headlines in newspapers addressed the topic. People I have spoken to in the United States tell me there is more debate there on the impact this will have, with greater involvement from civil society and interest groups. Why has the same level of scrutiny not applied in Ireland and other European countries? Some feel this matter really relates to deregulation, which can be a good or bad thing. As Deputy Byrne asked, what are we deregulating and what impact will it have?

The headlines say €500 billion or €600 billion, depending on which newspaper one reads, and refer to increased trade, growth and jobs. The perception is that only a mad person would oppose an increase in jobs and growth and the agreement should be signed immediately. However, negotiations are ongoing and there is a lack of scrutiny in the Irish Parliament, the European Parliament and other parliaments. I welcome that the report has been commissioned. I do not think that the fact the report has been commissioned by the European United Left group means the independent researchers will be required to come to negative conclusions. The report does not point out only negative issues.

If we agree this is primarily about deregulation, how can we say there will more regulations or fewer? We have not yet agreed and negotiations are ongoing. There is a concern in Europe and the United States that social and environmental protections will be rolled back as a result of this. Nobody has mentioned the difference in regulation of genetically modified, GM, foods. Ireland has a view on this matter and the United States has a different one. Have the Irish Exporters Association and the Irish Business and Employers Confederation concerns about this? Ireland has attracted multinational companies because it is seen as a gateway to Europe. Will this partnership have an impact on this? What is the point in having the companies, particularly US companies, in Ireland if there is no need to do so? Is this a concern? Perhaps it is not.

Some studies have ignored this area. It is all seen as positive.

There has not been any mention of investor-state dispute settlements. We know from other trade agreements with Canada and Australia that difficulties arise in this regard. This is supposed to empower investors to challenge countries in international courts. The Government's ability to respond on issues relating to climate change or health policy without fear of trade litigation could be compromised. In Canada, a case was taken against the Quebec federal government. In Australia a case was brought over plain packaging of cigarettes. The Canadian case involved fracking. The can is being kicked down the road in regard to fracking in Ireland but a multinational company would be able to take this State to court on the basis that we interfered with its trade. Does that not sound the alarm bells? Are the witnesses concerned that we might be sued over plain packaging of cigarettes? Is that dumbing up or dumbing down health regulations?

It has been suggested that TTIP will reduce trade within the EU by up to 30%. It makes sense that if one throws the balls up in the air, they will land differently. That is what we are doing. There may be a positive outcome for some countries but others will be negatively affected depending on their level of development. Any change, whether through agreement between countries or otherwise, must be examined for the positives and the negatives. We are not hearing those voices. If certain industries are to be deregulated, will that not have a social impact? What is the trade union movement doing in Ireland? We have not heard from it in this debate. We have heard from the employers' federations and others but this is going to impact on workers, particularly those in vulnerable jobs. Is that a good or a bad thing? If there is potential for such huge change in employment levels, why have we not given it more attention?

If we achieve this greater agreement between the two biggest power blocs in the world, the US and Europe, emerging nations and least developed countries will find the environment more difficult. We are being told that the barriers are coming down and that trade between countries will be seamless. It will be harder to break into this bigger bloc.

It is refreshing to have a debate but all of us must put on our thinking hats. I am concerned we may sleepwalk into this agreement without sufficient debate or awareness among Irish companies of its impact.

3:05 pm

Photo of Mary WhiteMary White (Fianna Fail)
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I am not a member of this committee but I am honoured to attend this meeting. Mr. McKeever is the chief executive of my nominating body for the Seanad. I congratulate the Irish Exporters Association on the superb job it does on behalf of small, medium and multinational companies. Its membership comprises an extraordinary group of companies.

It was a pleasure to hear Dr. Raza's fresh perspective on this potential treaty. I agree with Deputy Crowe that the newspapers and political talk in Ireland generally deal with crises or scandals and rarely deal with the reality of economic proposals. They are ignored. They might be announced when a report is launched but there is no public discussion. I speak from personal experience because in the last recession I co-founded Lir Chocolates along with another lady. We did not have a pen or a pencil but we worked 24-7 for 16 years, including Christmas Day and New Year's Day. I have been a full-time politician since 2002 but I am also a board member of Lir Chocolates, which is now owned by a renowned German company. From my experience on the ground, I found Dr. Raza's comments very realistic in terms of things that appear to be attractive to a company considering trade with another company. In our early years we won an award in Japan for the quality of our products and we subsequently received an opportunity to export to that country. It sounded brilliant but there were too many regulatory barriers and layers of bureaucracy because Japan did not want imports.

There is no future for SMEs to expand in Ireland because our market is too small. Most of Lir Chocolate's sales come from exports to Europe and further afield. The key to success for SMEs is to be innovative because they will not be wanted unless they bring something unique to the market. It took me seven years to persuade Baileys to allow us to produce a box of Baileys chocolates because it did not allow its name to be used on anything other than the drink. Every time I came close to doing a deal, the chief executive went off somewhere else and I had to start from scratch. I refer to small and medium start-up companies rather than multinationals or big Irish companies. We have extraordinarily successful and world class agrifood companies. Innovation is key. We were able to grow our business internationally because we made boxes of Baileys chocolates, which were unique. It requires incredible perseverance and creativity to come up with a product that will find a niche.

It was very refreshing to read Mr. Raza's report and to listen to his comments. It sounds like a good idea to bureaucrats in Brussels and the United States, who are not involved in trade. Bureaucrats have always thought it would be a great idea for Europe to draw up a trading agreement with the United States. However, the bureaucrats in Brussels do not have any understanding of the skills required to export. I agree that people will lose out. Over the last 48 hours, a US Democratic Party Senator from New York, Senator Schumer, intervened with Bausch and Lomb, which is seeking to save €20 million in costs and to let 200 people go.

Senator Schumer invited Bausch & Lomb back to Rochester, New York, and we are talking about friendly relations between the US and Ireland. This is a cold-blooded look at the reality of doing trade and I compliment the committee on discussing it. I will raise the reality of it in the Seanad next week. I found the presentation realistic from my experience. We decided not to deal with Japan because it was too expensive. I could talk for a week about where one does and does not do business because of the costs.

3:15 pm

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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Was it expensive due to regulations?

Photo of Mary WhiteMary White (Fianna Fail)
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There were non-financial barriers. There were layers of phoney barriers trying to stop one from selling to the Japanese market. Everybody will be excited about making sales in America. We must get our SMEs to export, and not enough of them are. The IEA wants the existing exporters to grow their exports and new ones to begin exporting. In my experience, Irish SMEs can be reluctant to have the audacity to step up and take risks. What is Mr. McKeever's experience with his members? Do they see it as an opportunity for their companies?

Mr. Pat Ivory:

When I studied economics and econometrics and completed my PhD, I found tariffs were a way of protecting a market, not a revenue-raising measure like other taxes. To eliminate tariffs is not a negative. If one's market is fit to be opened and one can trade without protection, tariffs should be eliminated. A number of members raised the issue of regulation and deregulation. This agreement is not about deregulation but about closer co-operation and alignment of regulation. It is not about lowering standards, deregulating markets or eliminating the European Medicines Agency, EMA, or the US Food and Drug Administration, FDA. Those agencies will continue to exist and apply standards.

Photo of Eric ByrneEric Byrne (Dublin South Central, Labour)
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How does one create a standard that applies across markets?

Mr. Pat Ivory:

I will give an example. We have worked with the pharmaceutical industry in Ireland, Europe and the US and they have agreed on a way of doing regulation that makes more sense, for example, the inspection of plants. A pharmaceutical plant must be inspected to European and US standards. The same plant could be inspected to two different standards by two sets of regulators, bringing regulators across the Atlantic to carry out these tests, for example, on good manufacturing practice. The drugs are sold in Europe and the US and are very safe, so it is not a question of different standards of protection or health for consumers but slightly different regulations. This agreement proposes mutual recognition of each other's standards so the EMA, or the Irish Medicines Board carrying out the work of the EMA, would carry out the tests here. It might carry out tests on a plant using EU standards and then apply the corresponding US standards. Similarly, the regulators in the US could examine the two standards and ensure a factory meets both standards. It is about a more sensible way of doing business and reducing costs.

If one goes to the US and hires a car, one does not feel unsafe driving it. An American who comes to Europe and hires a car does not feel unsafe driving it, yet if one sells a car in the European or US market there are different regulations for windscreen wipers, lights and indicators. They have nothing to do with the safety of passengers or pedestrians. Regulations are different because they have been formulated by a different system. The EU and US car industries have met and agreed to recognise each other's standards, and the cars are still safe for Europeans and Americans to drive.

On Deputy Crowe's question, we are delighted to debate the issues with anybody. We have debated the issues with European parliamentarians. We invited the International Trade Committee of the European Parliament to Ireland and European parliamentarians from across Europe attended. The only one who did not attend was the Irish MEP at that time. As he is not one of the new MEPs, I hope that situation will change. We welcome debate and discussion in any sense. Many economic studies have shown international trade agreements raise growth levels in economies, and this raises investment levels and job opportunities for people.

On the possibility that the least developed countries could lose out because of this major deal between the EU and the US, we must see this in the context of a broader trade agenda here in Europe and in the US. Europe is also negotiating free trade agreement with a range of Asian countries, including developing Asian countries such as Vietnam. I have just come from a session with a minister for Vietnam talking an FTA that is being negotiated between the EU and Vietnam. In the US there is the trans-Pacific partnership which involves a range of Asian countries including Vietnam and Malaysia.

On Senator White's comment on Japan, these trade agreements are attempting to wipe out such regulatory differences and other non-tariff barriers that prevent SMEs from doing business. The regulatory co-operation which is a central part of the TTIP will set the standard for regulatory co-operation in other agreements.

The EU is currently negotiating an FTA with Japan and a central part of the negotiation is the reduction of the non-tariff regulatory issues that prevented the Senator from taking the business opportunity she had.

3:25 pm

Photo of Mary WhiteMary White (Fianna Fail)
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I am sceptical about the success of that agreement because the Japanese are protective.

Mr. Pat Ivory:

Prime Minister Abe's new approach, "Abenomics", is a more a open approach from Japan and there is a genuine engagement. Trade negotiations are tough and they will get to a tough stage but I believe there is plenty of potential.

Mr. Simon McKeever:

One of our members says it takes about seven years for businesses to enter Japan. It is not just the standards issue; it is how the company does business with the Japanese. They like to get to know people first before they will do business with them. However, standards in Japan are particularly high and stringent.

Photo of Mary WhiteMary White (Fianna Fail)
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My experience is not just that there were high standards. For example, food companies in Ireland operate to a high standard but the Japanese have vague and big regulations. The list is long. I only refer to the food sector. Tesco made us in the UK and it has rigid standards. Its representatives can walk into a company unannounced any minute of the day. Japan has vague regulations and one would not know what they mean. The Japanese are determined to mind their own business and their own markets.

Mr. Simon McKeever:

If I made any reference to the Senator not having high standards, that is not what I intended.

Photo of Mary WhiteMary White (Fianna Fail)
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Nobody will want to know a company that does not have high standards.

Mr. Simon McKeever:

Ireland has the highest of food standards.

Ireland's position in global trade is that we are a population of 4.6 million and the Irish economic miracle, bar the past five or six years, has been because we have been an open, trading economy and if any country is an example to put its hand up to say this is what openness and free trade brings, it is us. One needs to be conscious of the fact that we are 4.6 million people while the UK, our nearest and largest trading partner, has a market 15 times the size of ours and the EU has a population of 500 million. Opening the EU market has generated huge growth in Ireland. One needs to think in a global context that 99.93% of the world's population does not live on this island and, therefore, exporting is the lifeblood of growth.

On the costs issue raised by Deputy Durkan, big businesses tend to have global operations that can deal with the different customs and tariffs and non-tariff barriers but if one has a small business and it takes 100 people to run it, one might need to employ another person or to pay a consultant to deal with the barriers. If those barriers do not exist anymore or the regulations are standardised - it is not about deregulation - one does not need to pay to employ that person and, therefore, the business can grow.

On the LDCs, I would like to challenge that point of view because I do not completely agree with it. Rather than having to deal with two sets of standards, it might enable them to trade better because they only have to deal with one set of standards and get their heads around that. If a less developed country has one set of standards to produce its goods and services, surely that will make it easier for the country.

Our members would welcome the TTIP. I agree with Deputy Crowe that while there is not a veil of secrecy about this, the information is not getting out there enough. We have a collective responsibility to get it out there more.

With regard to the impact on FDI, I would be slightly more worried about American tax policy than TTIP.

Dr. Werner Raza:

I thank members for their comments and questions. I will address a few of them. Deputy Barry asked whether I would argue in favour of stopping the talks. Let me make it clear that I am not an activist. I am a researcher and, therefore, I am not talking about stopping the negotiations. I am pointing my finger at some things which have been not highlighted but which should receive more attention from policy makers. The first thing I wanted to highlight was that with every trade agreement, including TTIP, there are winners and losers. In the studies and public debate so far, we have been talking mostly about the winners and the losers will be those obviously negatively affected because, for example, they will lose their jobs or they will suffer a deterioration in consumer standards potentially. We should, therefore, talk clearly about who are the winners and losers.

In terms of the economic case for the trade agreement, I made it clear there will be on balance positive effects on the economy but I made the case that the economic benefit will not be as large as has been reported in many studies published by the European Commission and others. Adjustment costs, which every trade agreement involves, are not taken into account in the modelling exercises in those studies. There will be winners and losers. On average, we should expect positive effects in the long term. They will not follow so much from decreasing prices of imported goods. When one looks closely at price structures and how they evolve, one will find prices are mostly sticky. Price reductions to some extent take place, particularly in the case of advanced countries that produce and export middle and high technology products. Prices are sticky and they will be not be reduced. The advantage in trade agreements in the long run comes from the fact that trade to some extent induces technological advances and innovations. There is a strand of economic discussion called new trade theory, NTT, and the results of the new theory basically say that companies that export the majority of their goods and services are on average more technology driven than other companies that, in the majority, produce for the local market. Trade, therefore, induces technological change and that is the kind of trade that then triggers dynamic effects in terms of value added with high productivity production models. In that sense, trade is positive in the long term. In the short term, the price effects between two highly industrialised regions such as Europe and US are probably negligible. That is my assessment in term of the economic gains to be expected.

The second issue I wanted to address is the regulatory agenda. I tried to highlight that the agreement to a large degree is about regulation. It is not so much about tariff abolition because that has been achieved more or less over the past 50 or 60 years. We are talking about regulatory change.

It is very difficult to estimate the economic effects of that regulatory change because the methods for doing that - cost-benefit analyses, etc. - are not developed to such a degree as to facilitate or provide a secure foundation for making economic assessments of the overall effect of regulatory change. The projected cost savings to companies taken into account in those four studies rest on surveys. Surveys are to some extent prone to bias. However, estimating the social benefits of regulation is also very difficult. We have seen in recent years attempts to do that. The Office of Management and Budget in the US has done impact assessments of the costs and benefits to society in the United States of regulation, including environmental protection regulations and consumer regulations. It tried to estimate the value of those regulations to society. Such exercises are methodically problematic. For example, how does one quantify the value of a life saved because of stringent public health regulations? A lot of things are being assumed to come up as a certain value. Nevertheless, those assessments have shown that, during the past ten to 15 years, the benefits of public regulations outweigh the costs by a factor of up to six. It is important to bear that in mind when discussing those regulatory issues. Public regulation has a benefit to society. If it is proposed to change it, even if it is a change only in technical standards, the question we have to ask is whether that change will affect the social benefit to society of that regulation. If the answer is no, there is no case to be made against harmonisation, alignment or mutual recognition. However, if it is proposed to introduce mutual recognition of different standards, one standard being more stringent than the other, that might lead to regulatory competition, because companies would perhaps move their production capacity to the jurisdiction with the lowest standard. These are tricky issues which go beyond the domain of economic analysis, but they are core issues in those negotiations. The negotiations in the regulatory arena will be complex and involve difficult trade-offs between cost savings for companies and the benefit of regulation to society.

3:35 pm

Mr. Pat Ivory:

Deputy Crowe referred to investor-state dispute settlement. I mentioned that in my presentation - the committee may have missed that part of it. I said that investor-state dispute settlement was about international trade law. Courts at state or province level - I think that Quebec was mentioned - are not always equipped to deal with international trade law because it is complicated and very different from the type of law with which they normally deal. That is a reason for the existence of investor-state dispute settlement. It is important not only within one agreement but in a whole suite of agreements that will span the globe - one might have the same types of provision in free trade agreements with Asian countries, for example.

On the social cost of regulation, I again emphasise that this is not about deregulation but about mutual recognition and closer co-operation. Nor is it being done in a hurry. Many of the issues which we have raised through TTIP with regulators - for example, in the pharmaceutical industry - have been talked about for more than ten years. Pilot projects on those issues have been going on through Transatlantic Economic Council and the EU-US High Level Regulatory Cooperation Forum. All we are asking is that, after all this work over all those years, a decision be made that one can have mutual recognition. It is not being done in a hurry. In no sense is reducing protection being talked about, or reducing standards for civil society or consumers.

Photo of Dominic HanniganDominic Hannigan (Meath East, Labour)
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I thank all our guests for attending today and participating in our discussion. I thank Mr. Ivory, Mr. McKeever and particularly Dr. Raza, who has travelled all the way from Austria. That concludes our discussions on TTIP. We intend now to send a political contribution to the Minister and to the Commission so that they are aware of the committee's deliberations and its views.

The joint committee adjourned at 4.05 p.m. until 2 p.m. on Thursday, 12 June 2014.