Maltese exports to the US would increase by 23 per cent by 2030 as a result of an agreement between the US and the EU on trade – but its GDP and investment would decline.
A study by the World Trade Institute on the effect of the TransAtlantic Trade and Investment Partnership (TTIP) currently being negotiated between the US and the EU showed that the deal would increase the GDP in all the member states by an average of 0.5 per cent – except in Malta which would see a decrease of 0.3 per cent.
“The reason for the national income decline for Malta is that it is situated along the Chinse-Western Europe trade route, and trades more with China and Canada.
“As such, some small trade diversion effects away from China and Canada – who are not in TTIP – could explain this decline,” the report says.
TTIP is the most ambitious trade deal ever tackled
The US is Malta’s second largest market for goods exports outside the EU (11.8 per cent) and for services (14 per cent). Around 2,000 jobs in Malta are linked to US-controlled firms compared with the 25,700 from all foreign firms, although the 2011 figure for US investment in Malta showed only €0.8 billion.
The deal would bring other benefits to the EU, such as reduced consumer prices, wage increases and a small decline in income inequality. Some sectors would be affected more than others, the study found.
The report said that prices could go down in Malta by 0.7 per cent for cars and by 0.6 per cent for chemicals, and that electrical machinery exports would increase by €38 million. Overall, consumer prices in Malta would go down by 0.2 per cent, the third highest drop among the member states.
TTIP is the most ambitious trade deal ever tackled, representing a third of world trade. The US exports €160 billion to the EU, while the EU exports €187 billion across the Atlantic. TTIP would increase that by eight per cent for the former and six per cent for the latter, no small matter when you consider that the bilateral trade already sustains some 15 million jobs.
Although it will remove tariffs across a wide range of products and services, these are already very low on average between the EU and the US, so much of the impact will come from non-tariff barriers: from lengthy and complex customs procedures to frustrating certification and duplication of regulatory inspections.
This is expected to have a disproportionately positive impact on SMEs which often do not have the resources to cope with these barriers – and who tend to give up early in the export process.
Since the deal is between countries with similar levels of development, with high standards of quality and consumer protection, as well as labour laws, it is seen as a blueprint for future deals.
“The consequences of failure are bigger than just economics. I think this is an important symbol of the US and the EU standing together. It’s about our ability to work together to bring our ideas of openness, public participation in government, and of a market economy, and to show that you can take two systems that are not identical and find a way forward that preserves their integrity, but also find a way to creatively mesh those two systems in a deeper way,” US Under Secretary of State Cathy Novelli explained to The Business Observer.
The consequences of failure are bigger than just economics
Most other US trade deals involve countries with lower living standards – resulting in a haemorrhage of jobs along with pressure to reduce wages, which has made them deeply unpopular in many states.
Since the US and the EU have roughly similar standards, this would not be the case with TTIP, which would see both high-skilled wages and low-skilled wages increase in all but three member states (Romania, Czech Republic and Estonia).
The WTI study is far from the first about TTIP but, as negotiations continued, it adopted a less ambitious – and therefore more realistic – model.
The 14th round of talks has just concluded in Brussels, with the bulk of the issues already sorted, but as with any deal, these represent the quick wins and least contentious while the last few issues will prove harder nuts to crack.