Renewed talks on free trade bloc deal
THE United States and Europe have flirted for years with the idea of taking the world’s largest trade relationship to the next level. With growth lagging on both sides of the Atlantic, the concept is getting a fresh look.
In coming weeks, a joint White House-European Union committee is due to report on whether it is politically realistic to try to create a massive U.S.-E.U. free-trade bloc — pulling half the world’s economic output into a zone of lowered tariffs and coordinated regulation.
By lowering costs for business, reducing import duties and further opening markets on both sides of the Atlantic, supporters say the benefits could be substantial — adding close to a full percentage point to the 27-nation European Union’s gross domestic product, or about $150 billion. A study by Sweden’s National Board of Trade said trade between the two sides could jump 20 per cent — upward of $200 billion annually — if an aggressive agreement were enacted, and perhaps far more than that.
The allure for both sides is clear. Unemployment remains high — historically so in Europe — and both the European Union and the United States are trying to boost exports as a way to improve their economies. The US exports are up just 4.5 per cent this year compared with last — a poor showing for an Obama administration that promised to double US sales abroad
The push for broad trade talks has come mostly from the European side as the continent struggles to renew economic growth, the smaller euro-zone region of 17 nations battles a financial crisis and close US trade partners such as the United Kingdom fight off recession. Officials there also have been concerned that the Obama administration’s ‘pivot’ toward Asia — and its related push for the Trans-Pacific Partnership free-trade agreement — could leave Europe as an also-ran in the emerging global system, seen more as a source of risk because of its problems than as a region of opportunity.
But the effort was given a perceived boost late last month when Secretary of State Hillary Rodham Clinton highlighted the idea in a major speech on US-European relations.
“If we work at it and if we get this right, an agreement that opens markets and liberalises trade, would shore up our global competitiveness for the next century, creating jobs and generating hundreds of billions of dollars for our economies,” Clinton said.
Many of the concepts are of long standing: President George W. Bush and European leaders established the Transatlantic Economic Council in 2007 to work on some of the same issues. And they have proved politically difficult to implement.
Unlike free-trade agreements with less developed nations, a pact with Europe is not expected to cause major changes in existing investment, trade and manufacturing patterns — unlike the realignment of the auto industry, for example, that took place after the North American Free Trade Agreement gave US companies access to less-expensive Mexican labour.
That may make it more palatable to some of the traditional free-trade skeptics in the labour and environmental movements.
However, it will involve an intense clash of values between officials and bureaucrats on two sides of the developed world with traditions of holding to their own way of doing things. Some European nations, for example, put strict limits on genetically modified food and are unlikely to agree to increased market access for major US food processors or agribusinesses.
Automobile tariffs, at about eight per cent, are higher in Europe than in the United States, but American officials have long held to a 25 per cent fee on imported trucks that, ironically, dates to a 1960s-era trade fight with Germany.
The ideal proposed by some business groups is of a region where the results of government drug testing, auto standards or other sensitive regulatory matters on each side of the Atlantic are accepted by the other. The politics of trusting another country’s science or regulatory bureaucracy is another matter — even if it could save billions of dollars in duplicative testing, or lower prices for consumers.
“This is not a new idea,” said Jeffrey Schott, a trade policy analyst at the Peterson Institute for International Economics. “Both sides say, ‘This is very simple. We can get huge gains from coordinating. You should do what we do.’ And the other says, ‘No, it is better if you follow our model.’ And you end up with nothing.”
A preliminary report last summer by the US-EU committee acknowledged the limits, saying that a comprehensive agreement between the two sides would provide substantial benefits ‘if achievable.’
“We’re looking closely and taking our time to see if we can resolve key issues,” a White House official said.
In recent briefings with business leaders and analysts, Obama administration officials made clear they “don’t want to get involved in something they know is going to bog down,” said a local analyst who attended one of the briefing sessions.—Washington Post/Bloomberg