Honourable members of the committee, we want to thank you for offering us the opportunity to discuss the findings of our study.
This is an empirical analysis using the United Nations global policy model—“GPM” henceforth—conducted as part of a memorandum of understanding between UNCTAD and GDAE-Tufts University. As such, it should be understood as an academic exercise, not necessarily representing the views of the institutions with which the authors are associated.
In Canada we project that TPP will have virtually no effect on GDP growth and a negative effect on employment, leading to the loss of approximately 60,000 jobs over 10 years.
Our study is different from other model-based studies of the TPP for three reasons.
First, the model that is used, the UN GPM, is not a specialized global trade model, but rather a trade, macro, finance, and policy model of the world economy.
Second, the GPM is not based on the full employment and general equilibrium assumptions of standard trade models.
Third, we focus on aspects of macro-financial adjustments ignored in the standard models. As a matter of fact, most standard trade models do not incorporate macroeconomic dynamics, do not incorporate markup pricing or other frictions, do not capture the role of fiscal or monetary policy, and do not even have a financial sector.
The first difference with studies using standard trade models should be properly understood. International trade is a core part of the GPM, but this model considers import and export equations disaggregated into four main categories: manufacturing goods, primary commodities, energy, and services. Meanwhile, standard trade models usually consider many subsets of traded goods.
Whether trade in these models is better handled depends on various aspects. For example, despite their greater diversity in products, their estimates—that is, the factors that determine the magnitude of cause-effect relationships—are for the most part imposed parameters. Meanwhile, in the GPM these factors are estimated by econometric techniques using data spanning various decades.
Also, as most of the changes contemplated in the TPP are not tariffs per se, but rather non-tariffs and a large number of costs, institutional changes, and regulatory changes, it could be argued that the standard assumption that all such changes are equivalent to tariffs is unreasonable.
Nevertheless, to allow for a useful comparison between our study and those carried out with standard trade models, we took the findings of the latter about trade volumes as our starting assumption. To be clear, we built our projections assuming that standard models are correct about the impact that the TPP will have on trade volumes. If there is a heroic assumption in our work, it was this.
This brings us to our second difference: in the GPM we do not assume that full employment will necessarily be maintained after changes in specialization, preferences, and prices resulting from competition and freer flows of capital. These potential effects of TPP can leave employment, capital, and skills unutilized.
Likewise, in the GPM we do not assume that all savings generated by changing spending and portfolio patterns are fully invested in fixed capital. Neither do we assume perfect competition, and therefore, in the GPM, increases of efficiency or productivity do not translate fully into reduced prices for consumers.
In brief, in the GPM, unemployment can be a lasting effect—called hysteresis in the literature—excess savings can be transformed into speculative finance when demand is weak, and greater profits or markup margins can prevail over benefits for consumers.
Finally, the third difference between our study and standard ones is our focus on non-trade effects of trade and investment treaties, such as deregulation of trade and finance, profit protection, and limitations of government policy sovereignty. Hence, we analyze the impact of TPP on income distribution, aggregate spending and demand, tax rates, and government expenditure on goods, services, and social protection.
We find that GDP growth is not unambiguously positive, as claimed by studies based on the standard model. Jobs are lost in meaningful numbers among TPP members and non-TPP members. Domestic and global income distribution deteriorates as profit shares increase.
Our detailed results, assumptions, method, and the technical aspects of the model are discussed in our paper and in a series of technical studies referenced in it.
Thank you very much.