Framework for a Transatlantic Free Trade Agreement
The following are adapted remarks from Ambassador Dr. Beate Maeder-Metcalf who leads EWI's Regional Security program. She spoke at Fidelity Investments in Boston on March 14. It was also published in Internationale Politik Journal by the German Council on Foregin Relations.
Thank you for this opportunity to address a Fidelity audience here at headquarters in Boston. With the freedom to choose the subject of this talk, I opted for the new strategic project on the transatlantic agenda – the decision of the U.S. administration and of the EU in February to negotiate a comprehensive trade and investment agreement. The President and the EU jointly announced this breakthrough on 13 February. Negotiations are to begin mid 2013 and should – to quote Joseph Biden – not take longer than “one tank of gas."
The idea of such an agreement is not entirely new. The transatlantic economic relationship is already the world’s largest and, with only just over 10% of the world population accounting for half of global economic output and 30% of the world trade, it also supports millions of jobs on both sides of the Atlantic. More than mere trade relations, mutual investment is the real backbone of the transatlantic economy. The U.S. and Europe are each other’s primary source and destination for foreign direct investment. And to compare dimensions: the total U.S. investment in BRIC countries since 2000 accounts for just 7.2 % of total U.S. investment in the EU and is altogether less than U.S. investment in Ireland.
So Europe and America already do a lot of business, and the idea of a comprehensive trade and investment agreement was one of those ideas “that’s always at the wedding party but never catches the bouquet” as the Wall Street Journal wrote on December 4th, 2012.
Why now? What’s changed?
The consequences of the financial and economic crises since 2008 changed the game in 2011/2012.
Governments as well as corporate business on both sides of the Atlantic face similar problems since 2008: weakened economies, unemployment, risk of recession or very slow growth, but high levels of public debt. Stakeholders had to recognize the co - dependence that comes along with the already closely linked economies. And they re-evaluated the potential of even closer integration through a comprehensive trade and investment agreement.
Economic growth and jobs are expected to be the short-term benefits of reducing tariffs and other barriers to trade in goods, services and investment, and of enhancing compatibility of regulations and standards. A trade and investment agreement would be expected to provide pain - free stimulus on both sides of the Atlantic to spur growth without spending taxpayers’ money.
From a global perspective, the global financial and economic crises have demonstrated the strength of new global players, emerging countries with high growth rates who impact economic and political governance. The U.S. and the EU will need to act together to defend their economic interests and to set standards for the rest of the world (e.g. intellectual property, labor and environment standards), as long as they can still do it.
And, as multilateral free trade negotiations – the Doha round – have effectively failed to achieve agreement on global trade issues, bilateral negotiations are seeing their comeback now (U.S. with Transpacific Free Trade Agreement, EU with South Korea and with Canada). This is also a chance for the U.S. and the EU to agree on cooperation to establish new trade rules that are globally relevant.
So, a comprehensive agreement would trigger growth and jobs on both sides of the Atlantic, it would help the world’s largest economic relationship to face new competitors and it would help set standards and rules for global trade that others cannot ignore.
What would the agreement be about?
While there is no official name for the project yet, it is suggested that the agreement should be comprehensive and aim high, especially in the field of harmonizing industrial standards and regulations. Some scenarios foresee additional annual growth by 2027 of 0.5 % in the EU and of 0.4 % in the U.S. (source: German Foreign Ministry)
The agreement would include:
Reduction of tariffs and tariff-rate quotas and of other, non – tariff barriers: tariffs are already fairly low (5-7% on average), some gains.
0% Tariffs would increase U.S.-EU trade by more than $ 120 billion within 5 years and generate combined GDP gains of about $180 billion (U.S. Chamber of Commerce).
Enhancing compatibility of regulations and standards, by harmonizing or at least recognizing each other’s standards would be the big challenge and lead to major gains! Key industries are car manufacturing, chemistry, pharmaceuticals. Progress in this area would be key for establishing a more integrated transatlantic market place.
Restrictions on the basis of health standards, national- security concerns or consumer protection: eliminating half of these non-tariff barriers would increase GDP by 0.7 % in the EU and by 0.3 % in the U.S. (Bloomberg)
Where are the traps?
In February, the announcement of the decision to engage in negotiations was good news that was generally welcomed, without triggering either excitement or criticism. It is the end of a long process, and the beginning of a series of ambitious negotiations which will keep politicial leaders busy for some time.
To name a few key areas of conflict: negotiations are expected to be difficult on agriculture with two highly protected markets on each side of the Atlantic and high sensitivities of consumers. Exports of U.S. chlorinated chicken, hormone- treated beef and genetically modified food (potatoes) are a perennial source of controversy with EU and European consumer associations.
Another minefield: different approaches to data protection, privacy rules and freedom of the internet. While the U.S. seems to be more tolerant about implicit data collection by Google, Facebook and other social networks, EU wants to see this limited in order to protect personal data of internet users.
On the other hand, in 2012, internet activists all over Europe helped stop the Anti- Counterfeiting Trade Agreement “Acta”, meant to protect intellectual property from free downloads. This was perceived to be an attack on “freedom of internet”, the European Parliament disapproved of the bill.
In the services sector, EU competitors face restrictions in the U.S. European airlines cannot offer flights within the U.S. They have few chances to win contracts in public procurement – local “buy American” standards prevent this. Investment does not seem to be a battlefield in these negotiations.
Some of these examples show that these negotiations will not be only conducted in the closed political circles. As they touch the everyday life of people, these may be mobilized easily and voiced in the internet, in traditional media and eventually by parliaments.
Overall strategic gains of this new phase of transatlantic economic relationship The decision to negotiate an ambitious agreement demonstrates the ability on both sides to explore the potential of a strong relationship, to overcome the tendency, in times of economic weakness, to look inward and to go for short term protectionism. Instead, the U.S. and EU have demonstrated their will to focus on growth and on win-win solutions for both economies.
A comprehensive transatlantic agreement will be a model for other players. Together, the U.S. and EU still dominate the world economy. As long as this is the case, they can drive globalisation, they can set standards which will then be adopted by the rest of the world, especially by those emerging markets (e.g. charging stations for electric cars, limits of radiation for smart phones, the admission of new pharmaceuticals, and as some point out: even perhaps the metric system).
A comprehensive agreement will strengthen the position of the transatlantic market place in the world, and help to counter-balance challenges from new players. It is considered to be the most important project on the transatlantic agenda which will impact the standing of “the West”. Many European analysts see the negotiations as a historic chance for the West. In a similar way, though less philosophical, David Ignatius referred to this agreement as the foundation of an “Economic NATO” in December 2012.
The negotiations will start later in 2013, the ambitions are high as to substance and to the timetable. EU Commissioner Gucht would like to conclude the talks even by end of 2014.
There will be many challenges, particularly in a number of sensitive areas which are close to key business interests as well as touching the public at large (consumers, internet users). The public can be easily mobilized, and mass concerns can be voiced directly and through parliaments.
The European Parliament and Congress will sooner or later play critical roles in this. They need to be kept in the loop before the process of final approval and ratification. Beyond compromises by governments and support from corporate business, it will be necessary to engage the civil societies in America and in Europe to form a broad alliance in support of an even more interdependent economy.
The negotiations will be complex and complicated, and they will need to keep focused on strategic gains over particular, if not parochial interest here and there. To be successful, leadership and political will – as Joseph Biden put it – are required. In the end, the prize will be well worth the effort – with a transatlantic economy spanning two continents, from the U.S. Pacific coast to the Eastern borders of the European Union.
Based in the Brussels center, Ambassador Dr. Beate Maeder-Metcalf leads EWI's Regional Security program.