FOR Communication: The poorest benefit most from free trade
• CETA and TTIP will reduce tariffs in international trade, TTIP also minimizes the harm that standards inflict on trade. Provisions in the agreements that allow foreign investors to sue the state, similar to those of CETA and TTIP, exist in Europe since the 50s. Poland is currently a party to 37 such treaties. There is also no reason justifying concerns about the safety of food imported into the EU.
• Foreign trade is particularly important for the most vulnerable - the less educated and low paid. Thanks to imports, the least-earning Poles can buy much more. Foreign trade increases their purchasing power in Poland by as much as 61%, while of those highest paid (by only 23% (Fajgelbaum and Khandelwal, 2016). For Poland costs associated with the relocation of jobs to other countries are practically nonexistent - costs that would hit less educated workers - because such jobs are transferred to, rather than from, Poland.
• Foreign trade increases the productivity of the participating economies. In 2000-2007, just the competition from China raised the technological level of businesses in Western Europe by 14% as measured by TFP productivity, IT equipment per employee and number of patents per employee. In the case of TFP and equipment per employee, offshoring to China increased it by the same factor (Bloom et al., 2016).
• CETA and TTIP Opponents argue that free trade will lower food prices to a level at which Polish agriculture will lose competitiveness. In other words, opponents of CETA and TTIP want to deprive Polish consumers of choice, so that they have to buy expensive Polish food rather cheaper, from Canada or the US. This stance is particularly questionable in the case of the poorest, who spend on food a relatively large proportion of their incomes and will benefit the most from lower prices of food. Besides, protection against competition would not solve the structural problems of agriculture. The contribution of agriculture to GDP growth in the last 15 years averaged 0.06%, and subsidies from taxpayers reach approx. 40 billion zł each year, which almost equals the entire added value of this sector. The solution is the consolidation of farms, which is now inhibited by freezing of trade in agricultural land, tax preferences for small farms and the use of EU subsidies as a welfare program. In Poland, 11.5% of the employed work in agriculture, compared to only 1.5% in Germany so that consolidation would involve an outflow of workers from agriculture to other sectors. Industry and services are five times more productive and could easily absorb additional workers if they do not have to subsidize agriculture.
Full communication by FOR (in Polish) available to download here.
You are welcome to contact our expert:
Rafał Trzeciakowski, Economist at FOR
rafal.trzeciakowski@for.org.pl
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