Transatlantic trading

Why America and Europe need a free-trade

dealand why they might fail to get one
Feb 2nd 2013 |From the print edition

THE guns of the long transatlantic beef war are silenced. Last year the European Union more than
doubled its quota of American beef imports (so long as it is not treated with hormones) and America
removed punitive duties on imports of Roquefort cheese. The Americans should soon ease a ban on beef
imports imposed in 1997 to prevent the spread of mad cow disease. In November the EU accepted the
American practice of decontaminating meat with lactic acid. A final skirmish, over American beef fat,
could soon be settled through plans to allow imports of tallow for biodiesel (but not for cosmetics).
After decades of trade rows and lawsuits, the truce is meant to clear the air for an ambitious transatlantic
free-trade deal. EU officials speak of creating something approaching a transatlantic single market in
goods. Even a less grand pact could help to re-energise struggling economies on both sides of the
Atlantic. It could also help America and Europe to set international trade rules in the face of a fast-rising
China.
Big business wants a deal. Trade unions and greens are no longer so worried about a race to the bottom.
The ever-protectionist French and Italians are on board. And yet there is genuine wariness, particularly
on the American side. The report of a high-level group that is expected to recommend the start of talks
has been delayed. Perhaps, think some, President Barack Obama is trying to squeeze concessions out of
the Europeans; or, Europeans worry, he cares more about a transpacific deal; or he is busy setting up his
second-term administration; or is he waiting for the right moment for an announcement, for instance in
his state-of-the-union message on February 12th?
American officials say they want to ensure that any negotiation is both unusually ambitious and
unusually fast. The deal, they say, has to be done on one tank of gas, by which they mean in the next
two years. Neither side wants a repeat of the moribund Doha round, now in its 12th year.
America and the EU make up the worlds biggest and richest trading partnership, accounting for about
half of global GDP and one-third of trade. They are the biggest investors in each others economies. But
this very closeness makes progress harder. Easy deals have mostly been done; what is left is
complicated. Tariffs are low (below 3% on average, though higher on farm products) but non-tariff
barriers abound. Many have to do with consumers, public health, the environment or national security.
Governments are not usually elected to compromise on such matters.
One European aim is to open up Americas public-procurement market, which is more protected than
Europes; one reason is that the federal government cannot force states to open tenders to foreign
bidders. Another is to dismantle restrictions on services, which represent the lions share of output but a
relatively small part of exports. European airlines cannot take over American carriers or carry
passengers between American cities. Similar restrictions apply to coastal shipping under the 1920 Jones
Act. Yet the EU market in services also remains fragmented. A transatlantic deal could spur further
integration. Other difficulties include Frances insistence on the cultural exception to protect French-
language audio-visual products, and the EUs wish for America to respect hundreds of geographical
indications on everything from Parmesan cheese to French wines.
For some officials, the biggest prize and the hardest brainteaser will be greater regulatory
convergence, ie, to get both sides to move towards common rules, or at least regulations that are close
enough that each can accept the others. There could be big savings if, say, pharmaceutical firms did not
have to submit new drugs to two sets of safety tests. The EU has tried to pursue global standards for
decades, often acrimoniously, by relying on supranational bodies. Yet across the Atlantic, successive
dialogues between regulators have yielded little. The Transatlantic Economic Council was created in
2007 to increase political pressure. Rather than trying to redesign past rules, attention has shifted to new
technologies such as electric cars and nanotechnology. Even so, after a year of negotiation on electric
cars, one forlorn American official moans that we have a common standard on the plug.
Any trade deal will have to be broad to maximise the possible trade-offs. And it will, inevitably, have to
address the minor but contentious subject of agriculture. Congressional leaders in America will not
support a deal that excludes farming, to which European officials retort that the best way to kill one
would be for America to ignore consumers fears of Frankenfoods, such as hormone-treated beef and
genetically modified crops. Part of the answer is to have clear labelling and let consumers choose what
they want to buy.
Failure is an option
In short, leaders may say they want a trade deal, but still be unable to reach it. That would be a huge
missed opportunity for both sides. The Europeans are the keener, but they have the weaker hand. Their
economy is in worse shape, not least because of the euro crisis. In geopolitical terms, the EU hopes that
a big trade accord will give Mr Obama, even as he pivots to Asia, good reason to keep up the old
Western partnership.
There is also a new, unspoken objective: to cement the EU itself. Now that Britain is talking of holding
a referendum on its membership by 2017, a successful agreement with America could demonstrate that
the British do better bargaining collectively through the EU than alone. Mr Obama may not realise it,
but many European hopes are now riding on his state-of-the-union message: the shared prosperity of the
West, the fate of liberal trade rules, the health of the transatlantic allianceand even the relevance of
the EU to some of its own members.