I am familiar with these studies and the economic models on which these studies are based. The Ecorys 2009 study addresses the technically and analytically complex task of calculating the impact of non-tariff barriers in transatlantic trade. Non-tariff barriers include licences, standards, administrative rules or other measures that make it difficult or impossible for firms to sell into new markets. The aim of the EU US free trade agreement is to break down as many non-tariff barriers as possible.
The Ecorys study presents a detailed qualitative and quantitative estimate of these NTBs using a multi-faceted methodology combining literature reviews, business surveys, econometric analyses, consultation with regulators businesses and sector experts. This was also used by the European Commission’s assessment of the likely benefits of a new free trade agreement between the EU and US which was conducted by the Centre for Economic Policy Research (CEPR).
The study commissioned by my Department on the impact of a new deal in Ireland was prepared by Copenhagen Economics who are independent and renowned external experts in this field. The study is based on the best available techniques of economic modelling and uses the same model and methodology as the CEPR study, to facilitate direct comparison.
The CEPR and Copenhagen Economics studies use a computable general equilibrium (CGE) model to simulate the impact of TTIP. These are standard tools for trade economists that create a computerised simulation of the world economy and model what happens when changes are introduced.
The CGE model is state-of-the-art. It needs to make assumptions about the economy in order to work but these are as reasonable as possible to make it as close to the real world as possible. For instance, it is able to account for the effects of economies of scale, different skill-levels of employees, imperfect competition between companies and many other features of the real world economy.
Like any model, the CGE model has limitations. The figures are an indication of the economic effects rather than precise predictions of exactly what will happen. But the model is not able to take all effects on productivity into account, for example, nor the positive effects on foreign investment by multinational firms, which is very significant for international trade in services in particular. This suggests that the estimated benefits of an Agreement are conservative.
Alternatives to the CGE approach may have their merits but none has yet proven to be sufficiently reliable for an ex-ante analysis of economy-wide effects of trade policy changes.
