Academic Literature

Canada Europe Free Trade Agreement (CETA) – By 2023, a total of 227,000 jobs would be lost research finds

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% and 0.08% in the European Union and between 0.03% and 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…

Simulating a more realistic liberalization scenario reflecting a “new-generation” trade agreement designed to cut “trade costs and more,” our results show that cost-cutting and competitiveness-enhancing measures induced by CETA have negative long-term effects. Despite improving external balances in Canada and in some EU member states, demand shortfalls resulting from intra-EU trade diversion along with reductions of labor cost (and income), tax revenue, and government spending will generate uncertainty, incentivizing households to increase precautionary saving and businesses to postpone investment as prospects for future sales deteriorate. By 2023, a total of 227,000 jobs would be lost in CETA countries, 204,000 of them in the EU, and 80,000 more in the rest of the world, adding to the already declining labor income share. In the long run, slower wage increases will transfer an additional share of national income from labor to capital owners. By 2023, the share of national income accruing to capital will have risen by 1.76% and 0.66% in Canada and the EU respectively. Consequently, workers will have foregone average annual earnings of €1,776 in Canada and between €316 and €1,331 in the EU, depending on the country. Aggregate demand shortfalls nurtured by higher unemployment will also hurt productivity and cause cumulative welfare losses amounting to 0.96% and 0.49% of national income in Canada and the EU respectively. Besides hurting GDP, these effects induced by CETA will add to rising inequality and social tensions in an already complex and volatile political context.

 

via CETA without Blinders: How Cutting “Trade Costs and More” Will Cause Unemployment, Inequality, and Welfare Losses: International Journal of Political Economy: Vol 45, No 4

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