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Trans-Atlantic Free Trade:

An Opportunity for Economic Growth and Cooperation

he United States and European Union will soon begin formal talks on a free trade agreement (FTA), paving the way for potentially the biggest trade deal in history. Trade between the United States and European Union is currently worth around $613 billion annually, and some estimates suggest an FTA could boost annual economic growth up to 1% on both sides of the Atlantic. The prognosis of a U.S.-EU FTA was the subject of APCOs International Advisory Council and Global Political Strategies monthly meeting on February 21, 2013.

Ludolf von Wartenberg, former director general of the presidential board of the Federation of German Industries and former German undersecretary of state for economics, opened the discussion by welcoming the start of negotiations for a trans-Atlantic trade and investment partnership. In particular, it is encouraging that the goal is an ambitious and comprehensive agreement, which signals that negotiations will include tethers and regulatory cooperation. Due to the significant volume of trans-Atlantic trade, there is a huge potential for eliminating tariffs and improving market access, including public procurement. However, the more important and more difficult part will be how to cooperate on regulatory issues such as standards and licenses. The harmonization or mutual recognition in this area would make trans-Atlantic business much easier. As to the question of why now, first, there has been no progress in moderated trade negotiations, so in order to eliminate trade barriers, regional or bilateral agreements are more realistic. They are the next best option, but at this moment they are the best way to move forward. Second, an agreement not only will have an economic impact, it is also a central political, trans-Atlantic project that has a strategic window of opportunity for the United States to show global leadership and make pragmatic suggestions for rules for the global economy. That is why it is important that it is an inclusive agreement with rules and protocols that other countries can accept. And, third, key actors support this project, including President Barack Obama and German Chancellor Angela Merkel. The American and the European industries are on board, and there are encouraging signs from the U.S. Congress. So, the political stars seem aligned for this project right now. This is not to say that it will be easy. There are a lot of potential roadblocks, including agriculture and issues of consumer protection and food safety. It remains to be seen what can be solved within an agreement and how long it will take, but the costs of failure are now very high. Business can make a meaningful contribution to the negotiations by making very specific suggestions for the industries, outlining what their demands are and what kind of regulatory organization they would suggest.
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Dr. von Wartenberg concluded by noting that, This project is not only about trade. President Obama referred to it in his recent State of the Union address as a partnership. Expectations are that it not only will facilitate trade and investment, but also provide leadership. Former U.S. congressman and chairman of the House Subcommittee on Trade Don Bonker remarked that FTAs often are launched in the spirit of lofty goals and a lot of enthusiasm, but grounded in the reality that they are more about politics than economics. Former U.S. trade representative Bob Zoellick presided over five FTAs in the Bush administration with South Korea, Columbia and other smaller countries, and each of those five trade agreements were dead-on-arrival on Capitol Hill as long as the Democrats were in control. So nothing happened and it was embarrassing, both to the administration and to the countries involved. Only when the Republicans took charge was there a cooperative effort with the Obama Administration a rare moment and the FTAs were actually passed. But, the fact remains that unions are adamantly opposed to bilateral trade agreements, and they put a lot of pressure on the Democrats. The second point when it comes to free trade is that all countries are viewed as sinners, and in the case of agriculture, the EU and United States are among the biggest sinners. Even as this announcement was made, Senator Max Baucus and Senator Charles Grassley, chairman and ranking member of the Senate Finance Committee, warned that any deal must open Europe to American farm products. They have tremendous power, and a key reason that the Doha Round melted down was because the EU and United States could not get together on agriculture protection, both in terms of exports and imports. The mere announcement is a positive sign at a time when both Europe and the United States need a boost in their respective economies. So, we can go forward with some optimism, but we have to deal with the reality, and the reality lies with the Parliament in Brussels and the U.S. Congress. Georges Ugeux, former president of the European Investment Fund, said this trade deal is probably the major initiative that has been the most ignored in the last 10 years. In comparison to the United States where President Obama has been able to generate some public support, there is absolutely no public opinion about this in Europe. From the beginning President Franois Hollande and Chancellor Merkel agreed to disagree on the scope; indeed, Germany wants a comprehensive agreement and President Hollande has already said that there are some things he doesnt want to discuss (like agriculture). It is amazing to see how limited an impact this has on public opinion, so when we have difficulties in the negotiation, which we inevitably will have, European public opinion will not be of great support. Former U.S. congressman Tim Roemer noted that in terms of global strategy, this talk about a new European-U.S. trade agreement really has the potential in the next several months to shift the dialogue back to the importance of the U.S.-European leadership community and the history of this

very critically-important security and economic relationship. The GDP between the two areas, the United States and the European community, is almost 50% of the GDP in the world. That is a great narrative given the state of the importance of jobs and employment in the political systems, and a compelling story right now for economic growth for both the United States and the European communities. Congressman Roemer reiterated the important role of politics driving whether or not these trade agreements ever come to fruition. There are three difficult problems that usually emerge in Congress, both from Republicans and Democrats. One is job dislocation as a result of trade agreements; the second is environmental standards; and the third is labor standards. All three of these areas, with respect to the European community, are greatly mitigated, though not entirely, because wages are high in Europe. There is not a lot of competition between the United States and Europe in terms of wage growth, so there might not be the same job dislocation as there would be between the United States and a third world or developing country. The labor and environmental standards in Europe are actually very good and pretty high, sometimes higher than those in the United States. There are other challenges, but these might not rise to the same level as previous trade agreements. The key question is what the narrative will be for this trade deal on our security and economic relationship, and how this drives economic growth for both communities in the future. Three main takeaways from this discussion include: 1. This deal is welcomed by the business community in both Europe and the United States, but tough negotiations remain on the horizon, particularly in the agriculture sector, with regard to tariffs and harmonizing products. 2. The U.S. Congress will be the determining factor in whether a deal ultimately gets done. Politics play a critically vital role on whether FTAs are consummated, as do the views of the voters. 3. Citizens of both the United States and Europe need to be better informed and educated about the details of a mutually beneficial trade agreement. This will not be easy, but there is momentum building on both sides. Some of the traditional hurdles are not as high. Trade agreements are volatile and difficult, but there is great potential to get this accomplished.

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