In the newest SEENDICO report for the Ministry of Economic Development we evaluate the TTIP impact assessment presented by the European Commission in a report prepared by Ecorys. We show that the projected additional growth of Polish GDP resulting from the adoption of the agreement will be negligible (between 0.04%-0.06% in 2030 in comparison to no TTIP scenario). Similarly the impact of this agreement on wages and household incomes will not be significant. The report does not show, however, the clear impact of TTIP on employment in Poland and, in practice, this issue is omitted in the report. Greater impact TTIP may have on the Polish trade with the US. Nonetheless, the share of trade with the US in total Polish exports and imports is small. Thus the agreement at issue will not have a crucial importance for the Polish foreign trade and the economy. It should be noted, however, that according to estimates of Ecorys Polish imports from the US will grow more than Polish exports to the US. As a result, the agreement will deepen the Polish deficit in trade with the US. The impact of TTIP on small and medium-sized enterprises (SMEs) can be twofold. On the one side it can be positive – because of reductions in technical barriers for trade with the US which are burdensome for Polish SMEs. On the other side, however, Polish SMEs can also face an increased competition on their home market as a result of TTIP. The greatest weakness of the TTIP impact assessment prepared by Ecorys for the European Commission is the fact that it omits short and medium-term effects of TTIP for the EU economies. These effects, in fact, may involve the relocation of resources between sectors – including labor resources – and may lead to transitional economic problems, including unemployment and diminishing output in industries vulnerable to TTIP. These negative consequences will not be – most probably – dramatic, but certainly they can occur.
The Ecorys report completely ignores the assessment of the potential negative social consequences of TTIP, its short- and medium-term macroeconomic costs as well as other negative effects of economic liberalization for less developed countries or regions. As a result, discussions about the TTIP are lacking of possible policies aimed at minimizing the negative effects of TTIP. There are also no measures supporting structural changes or compensation payments for regions and economies not benefitting from TTIP but experiencing costs of it. Such policies have been natural in EU policies up to now and their omission should be regarded as unacceptable and contrary to the interests of the Polish economy.
The interviewed experts have different opinions on the effects of TTIP for Poland. These were divided into three groups: moderately optimistic – supporting TTIP, realistic – analytical and cautious and strongly pessimistic – against TTIP. In the perspective of the authors of this report, the most reasonable seems to be a realistic approach, which strives to carefully consider the pros and cons of various aspects of TTIP and may constitute a good basis for formulating recommendations for the direction of negotiations and work on TTIP, or similar agreements. However, voices of pessimists cannot be ignored because they show possible negative consequences of TTIP, and reflect fears of TTIP opponents. Each time, when analyzing impact of TTIP on the EU economy, one have to take into account the state of development of the Polish economy and ask questions about whether and to what extent the TTIP will help in facing Polish developmental problems. In example, one can ask whether the TTIP hampers the pursuit of an active industrial policy aimed at fostering the development of infant industries or developing comparative advantages in innovative and high value added industries.
The analysis of the impact of TTIP on industries leads to the conclusion that the agreement can bring both positive and negative consequences – depending on the final shape of the agreement and agreed measures for various industries. According to previous studies as well as opinions of interviewed industrial experts the agreement may be especially beneficial for these industries that are currently actively involved in trade with the United States, or for those whose access to the US market is limited by high tariff and non-tariff barriers.
Agriculture and food industry is very important for the Polish economy, but also very sensitive to measures that will be adopted in TTIP. There are tremendous differences between the structure and nature of this industry in the EU and the US. Moreover, there are also significant differences in production capacity and standards that are source of concern. The agreement with the United States creates some opportunities related to the access to the US market and access to cheaper raw materials for food production. However, taking advantage of this chance depends also on the access to the distribution channels for food products in the United States. Unfortunately, the fragmentation of Polish agriculture and food industry makes the development of the distribution network in the US very difficult and challenging. Moreover, there are important threats for the analyzed industry that may arise as a result of the adoption of TTIP related to the expansion of the very strong and big US food and agriculture companies to European markets what may result in very high competitive pressure in those agriculture and food industries in which the production costs in the US are lower.
Key challenges faced by the European automotive industry during its expansion to the US market are related to non-tariff barriers, associated with technical standards and regulations (including environmental standards and safety standards for cars). Similarly to the above mentioned industries, regulatory differences between the EU and the US are source of additional costs. As a result, companies willing to sell their products in the EU and the US are forced to pay double fees and comply with two kinds of procedures. For this reason, the TTIP will be beneficial for automotive industry if it results in unification of standards. Polish companies operating in this industry may benefit from the direct export of parts and automotive accessories to the US market. Moreover, Polish companies may indirectly benefit from TTIP agreement, as suppliers of parts and automotive accessories to other EU countries exporting to the US.
The Polish energy sector is dominated by coal and lignite. The country lacks other domestic sources of energy. High energy costs reduce the competitiveness of Polish enterprises in comparison to both US and other EU companies. The most significant barrier to trade between the US and the EU is the licensing of exports of hydrocarbons from the US. As a result of this restriction, as well as shale gas revolution in the US, the American companies have a competitive advantage over other European players in the form of lower energy costs. This is particularly important for energy-intensive industries. Key benefits of TTIP for the Polish economy may result from the release of barriers to the export of crude oil and natural gas, which would result in the inflow to the Polish cheaper energy resources. As a result, the United States would lose some competitive advantage to the EU. Poland would benefit from such a solution by improving its energy security and improving the operating conditions of companies in the chemical and petrochemical industry. Such a change could also have a positive impact on the Polish negotiating position in the process of concluding contracts with existing suppliers of gas and oil.
In the case of the chemical industry key problems created by the TTIP are related to the fact that the Polish chemical industry is largely dependent on imports of energy materials, especially gas and oil. This limits the possibilities of a flexible pricing policy. The prices of gas and oil in the United States are significantly lower than in the EU, and in Poland. The result is that without the abolition of restrictions on the export of gas and oil from the US to the EU, many branches of the Polish chemical industry would not be able to compete with the US companies. It should also be noted that the regulatory environment in the EU is the source of much higher administrative costs in the chemical industry in Poland than these imposed on the US companies. In the EU, the most important regulations in chemical industry result from the REACH Regulation, while in the US from Toxic Substances Control Act (TSCA). Under REACH European companies are obliged to register all chemicals used in the manufacturing of products sold on the European market in the European Chemicals Agency. The TSCA is much less demanding and burdensome. Moreover, the US companies are not obliged to buy CO2 emission allowances, as it is in case of European chemical companies. These regulatory differences make European companies less competitive than their US counterparts.Polish cosmetics industry is rapidly developing part of the Polish economy, and so far relatively well copes with expansion into European markets. However, there are significant limitations in the possibility of expansion to the US market. This is due to the fact that the definition of cosmetics in the US is different than this in the EU. As a result, over 60% of European cosmetic products in the United States are classified as OTC drugs (drugs sold without a prescription). For this reason, entering the US market requires European companies to be registered as a pharmaceutical company. This, in turn, is expensive and takes a long time. In addition, cosmetics defined as OTC drugs should bear the costs related to the registration of each product, lengthy clinical trials, additional testing of products and an analysis of the content of active ingredients. Therefore, the adoption of TTIP may be beneficial for the Polish cosmetics industry, only in case of simplifying mentioned procedures, and reducing the costs of introducing the European cosmetic products to the US market, which in the EU are not drugs but cosmetics. Without harmonization of the definition of a cosmetics or at least partial harmonization of legislation with respect to mentioned products, Polish companies do not gain easier access to the US market, so the benefits of TTIP for Polish companies will be negligible.TTIP may also be beneficial for the Polish pharmaceutical industry. Especially important for the pharmaceutical industry is the regulatory cooperation. The aim of such cooperation should be to improve the processes and procedures associated with the introduction of innovative medicines to the market. The development of this industry would be fostered by the reduction of duplication of control activities. For example, reduction of cost of multiple inspections on the spot or reduction of unnecessary double clinical trials. It would also be beneficial to harmonize the data fields of clinical trials and to develop common approach to requests for changes in production after approval.
The opening up of public procurement markets may bring both risks and opportunities. It should be noted, however, that the European Union is now more open in this respect than the United States. Moreover, Poland – in comparison to other EU countries, not to mention the US – is very open to foreign entities on the public procurement market. This means that the US companies have much better access to the European and Polish public procurement market than European (and Polish) companies to American one. In the US, the main barrier to accessing the public procurement market is Buy American Act of 1933, which obliges the US administration to give preference to products and services from domestic suppliers. Another example is Berry amendment 1941, which gives preference to domestic companies in military contracts in the US. There are also state regulations that are the source of similar restrictions. It is also important to remember that TTIP can only affect federal regulations and it will not affect state regulations concerning public procurement. The opening up of the US market for public procurement to EU companies can create some opportunities for Polish companies. Nevertheless, in the opinion of interviewed experts, increased access to the US market for public procurement will not be very important for Polish companies because they do not have enough power to win the competition with the US companies. The only winners in this area may be mainly the largest companies from Western Europe offering complete solutions for industry, in particular infrastructure. Another threat for Poland is the increase of public procurement procedures if the TTIP obliges the Polish authorities to publish invitations to tender in English.
The harmonization of regulations between the EU and the US can bring both opportunities and threats. As mentioned above, the harmonization of standards for the production and marketing of cosmetics, medicines and harmonization of regulations in the automotive industry may contribute to improving conditions for business and allow the expansion of Polish companies to the US market. The main threats identified in the study relate to lowering standards to the detriment of the interests of the consumers and environmental protection. Moreover, in the case of mutual recognition of standards, Polish entities may lose competitive advantage in comparison to the US, as they will have to bear the higher costs associated with stricter EU standards. Moreover, harmonization of regulation also creates a dangerous trend towards looking only at the cost side of law-making and circumvent other aspects of this process, including social, which could mean a threat to the effectiveness of the functioning of the EU member states.
When assessing the investor-state dispute settlement and protection of investment it should be noted that the TTIP cannot worsen the situation in Poland as far as protection of investors and dispute settlement is concerned. Poland has signed the bilateral investment agreement with the US, in which the ISDS mechanism is included. This is not a convenient solution for Poland therefore restriction on the use of ISDS or its conversion to another way of dispute settlement would be beneficial for Poland. European Commission efforts to change the ISDS to Investment Court System (ICS) are desirable for Poland. ICS replaces arbitrators with highly qualified judges who meet the requirements to work for the Appellate Body of the WTO or the International Courts of Justice. Moreover, they may not participate in other investment trials or in other cases resolved within the ICS. This way of a dispute resolution would ensure the neutrality of the whole mechanism. The European Commission has also proposed the introduction of a new body of appeal – the appeal tribunal similar to the one which operates in the WTO system. The adoption of such solutions would improve the protection of American investors and strengthen the position of the Polish government in relations with them. The current system based on the ISDS, which results from an agreement between Poland and the US is not beneficial for Poland.
The impact of Brexit on the negotiations of the TTIP is multidirectional. It can threaten the signing of this agreement, but it can also create an opportunity for greater inclusion of Polish interests in the negotiation process. The United Kingdom was one of the key proponents of TTIP particularly strongly interested in promoting the interests of the financial industry in the TTIP. Thus, Brexit can cause a change of the priorities in the negotiations. Following the departure of the United Kingdom the Polish priorities, for example in agriculture and food industry, may be taken into a greater account. Brexit however, can also mean a weakening of the EU, because it result in reduction in size of the EU economy, making it less attractive partner for US.