CETA without Blinders: How Cutting “Trade Costs and More” Will Cause Unemployment, Inequality, and Welfare Losses

Abstract

Proponents of the Comprehensive Economic and Trade Agreement (CETA) emphasize its prospective economic benefits, with economic growth increasing due to rising trade volumes and investment. Widely cited official projections suggest modest GDP gains after about a decade, varying from between 0.003% to 0.08% in the European Union and between 0.03% to 0.76% in Canada. However, all these quantitative projections stem from the same trade model, which assumes full employment and neutral (if not constant) income distribution in all countries, excluding from the outset any of the major risks of deeper liberalization. This lack of intellectual diversity and of realism shrouding the debate around CETA's alleged economic benefits calls for an alternative assessment grounded in more realistic modeling premises.In this paper, we provide alternative projections of CETA's economic effects using the United Nations Global Policy Model (GPM). Allowing for changes in employment and income distribution, we obtain very different results. In contrast to positive outcomes projected with full-employment models, we find CETA will lead to intra-EU trade diversion. More importantly, in the current context of tepid economic growth, competitive pressures induced by CETA will cause unemployment, inequality and welfare losses. At a minimum, this shows that official studies do not offer a solid basis for an informed decision on CETA. AcknowledgementsWe would like to thank Alex Izurieta for suggestions on how to best apply the Global Policy Model and for commenting on earlier drafts, as well as Jeronim Capaldo,

Free Trade, Environment, Agriculture, and Plurilateral Treaties: The Ambivalent Example of Mercosur, CETA, and the EU–Vietnam Free Trade Agreement

“…In general, the welfare gains the Mercosur agreement are expected to be small [9,10] and these gains can be unevenly distributed across sectors and regions (see for a comprehensive critique on the modelling techniques and underlying assumptions [134], [13] (pp. [55][56][57][58][59][60][61]).…”

The Risk of a Second Wave of Post-Crisis Frailty in the World Economy

“…By resisting to fiscal expansionary stances, the widespread recommendation under hyper-globalization is resorting to net export demand to resolve aggregate demand deficiencies. This has been particularly marked in the post-GFC, along with the calls for trade and financial liberalization that inspired the advancement of mega trade and investment agreements (Capaldo 2015;Capaldo and Izurieta 2018;Kohler and Storm 2016). And despite the obvious fact that the world economy is a closed system, hence with no scope for all economies to rely on net external demand, most have made a priority to become net-export winners.…”

Labor Institutions and Development Under Globalization

“…While deregulation may look beneficial from the point of view of one single nation, it leads to a brutal 'race to the bottom' in labor standards when implemented by all nations-and this 'race' has no winners in terms of growth and development (Nissanke 2015). Unfortunately, it is exactly what (multilateral) free trade arrangements do, as is argued and shown by Kohler and Storm (2016) in the context of the Comprehensive Economic and Trade Agreement between Canada and the E.U. and by Capaldo and Izurieta (2018) for the Trans-Pacific Partnership (TPP), even when their proponents claim these are 'gold-standard'.…”