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TAZA Study - Main Version

TAZA Study - Main Version

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05/09/2012

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 A Transatlantic Zero Agreement:
Estimating the Gains from Transatlantic Free Trade in Goods
By Fredrik Erixon and Matthias BauerFredrik Erixon (fredrik.erixon@ecipe.org) is Director of ECIPE and Matthias Bauer is aresearcher at the Friedrich Schiller UniversityECIPE Occasional Paper No. 04/2010
 
 
We gratefully acknowledge financial support for this study  from the Confederation of Swedish Enterprise and theUnited States Chamber of Commerce.
 
 Executive Summary
-
 
T
his study examines the potential gains from a transatlantic zero-tariff agreement on trade in goods.
T
he idea of deeper transatlantic economicintegration has become more attractive in recent years.
T
he hopes for anambitious multilateral trade deal in the Doha Round negotiations havediminished; few countries appear ready to accept ambitious liberalisation on theglobal level. Leaders have increasingly turned to bilateral or regional tradeinitiatives, but few of them are capable of delivering sizeable gains to bigeconomies like the European Union and the United States.-
 
T
ransatlantic economic integration is not likely to spell the end of the DohaRound or the World
T
rade Organisation (W
T
O). In fact, it could have the oppositeeffect. Like big regional initiatives in the past (e.g. the EU Common CommercialPolicy, the EU single market and the NAF
T
A), a transatlantic free trade accord,properly designed, could give the W
T
O and its members the jolt they need to get on track again.-
 
T
ariffs between the EU and the US are comparatively low (they average at 5-7percent). But transatlantic free trade in goods could still deliver sizeable gains.Existing tariffs prevent trade and import competition.
T
he EU and US economiesare big, and bilateral trade is to a large degree composed of intra-firm trade. Boththese factors suggest potential trade gains of great magnitude. As a significant part of the trade is intra industry, competition could increase as a consequence of liberalised trade.-
 
T
he
static
effect on GDP from a transatlantic zero-tariff agreement is estimatedto be 0.01 percent for the EU and 0.15 percent for the US.
Dynamic gains
accounting for improved productivity and reduced trade facilitation costs  areestimated to be
0.32-0.47 percent 
for the EU (or $46 to $69billion) and
0.99-1.33 percent 
for the US (or $135-$181 billion).-
 
T
he estimated
w
elfare gains
 measured as national income effects  are moreevenly distributed between the two economies.
T
he static effect is
$3 billion
forthe EU and
$4.5 billion
for the US.
T
he
dynamic
w
elfare gains
are estimated tobe
$58-$86 billion
for the EU and
$59-$82 billion
for the US.-
 
T
he estimated
change in EU exports
to the US is
7 percent 
(or $28 billion) in astatic scenario and around
18 percent 
(or $69 billion] in the dynamic scenario.
T
he US is estimated to increase exports to the EU by
8 percent 
(or $23 billion) inthe static scenario and
17 percent 
(or $53 billion) in the dynamic scenario.-
 
T
he purpose of the study is to examine if the potential gains from a transatlantictrade accord is big enough to motivate such an initiative. Based on the results of the simulations in this study, the answer is Yes.

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