Thursday, August 21, 2014
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Winning the Transatlantic Trade Challenge

MADRID – US President Barack Obama’s announcement that negotiations will begin on a comprehensive “Transatlantic Trade and Investment Partnership” has generated excitement on both sides of the Atlantic. After a restless month in which it appeared that momentum for talks had dissipated, the announcement has renewed hope that a transformative agreement between the United States and the European Union can be reached.

Though commentators and policymakers have noted the numerous challenges inherent in such a pact, the general mood is one of optimism, reflected in US Secretary of State John Kerry’s comments in Berlin during his first overseas trip since taking office. But, in order to prevent negotiations from stalling over sensitive topics, such as subsidies and food safety, key political actors should first convene to resolve core differences. If combined with continued senior-level engagement, such an approach could make or break the deal.

The economic benefits of a trade agreement between economies that, together, account for more than 50% of global output and maintain nearly $4 trillion in cross-border investment are evident. Such an agreement could also transform transatlantic ties more broadly.

An ambitious transatlantic trade pact that is fully compatible with World Trade Organization standards and accepting of third parties should aspire to more than laying the groundwork for an “economic NATO.” Indeed, it should seek to create the foundation for a free-trade area of the entire Atlantic basin, with membership extending to Africa and Latin America.

The completion of a US-EU trade agreement would reenergize a transatlantic relationship that has been weighed down by the eurozone crisis and is at risk of becoming strategically irrelevant. Yet, sadly, we have been down this road before, only to run out of pavement.

In the mid-1990’s, as policymakers sought to reframe post-Cold War US-European relations, there was movement toward the establishment of a transatlantic free-trade area (TAFTA). But US fatigue following the conclusion of the North American Free Trade Agreement (NAFTA) with Canada and Mexico, together with rising domestic protectionism, helped to keep TAFTA on the ground. The most recent push, in 2007, was derailed by policy disagreements, particularly over health and safety standards.

The current environment appears to be more favorable. The economic boost provided from such a partnership is badly needed on both sides of the Atlantic. In the US, free trade provides Obama with a potential major policy victory on an issue that should garner bipartisan support. Meanwhile, negotiations offer Europe the opportunity to shift its narrative from the monotonous drone of crisis management to a genuine recipe for growth.

And, of course, there is now the impetus posed by the world’s rising economic powers, which are challenging the ability of the US and Europe to dictate the standards of international trade.

It has been suggested that a good way to start the talks would be to consider the free-trade and free-trade-related agreements that the US and EU already have in place. But the success of the upcoming talks will need more than positive atmospherics and a starting line for technical negotiations. Achieving an agreement also requires political will at the highest levels.

In the US, the president and Congress must both be engaged to ensure that entrenched domestic interests, such as agriculture and civil aviation, do not impede a potential agreement. The truly contentious issues – genetically modified (GM) food, subsidies, and intellectual-property rights – should be raised with the key political actors now, not later. And, including US congressional leaders – particularly House and Senate Republicans who support such a deal – in the talks from the beginning would increase the chances of success, because an agreement would not be seen solely as a victory for the Obama administration.

Moreover, a bipartisan approach might ease authorization for so-called Trade Promotion Authority, allowing the president to present an agreement for an up-or-down vote without possibility of amendment – which will be essential for the completion of negotiations. We have already seen qualified US congressional support from Senate Finance Committee Chairman Max Baucus and ranking Republican Orrin Hatch who, while calling the potential agreement “an enticing opportunity,” specifically noted the need to address “unwarranted agricultural barriers” in the EU, including policies on GM organisms and hormones.

The EU, for its part, must go beyond the European Commission and directly involve the European Council and heads of member states. Though negotiation of an agreement is within the Commission’s competence, movement on the key issues requires the clear support of member states. Compromise on agricultural issues or geographical indications, for example, will not occur without French and Italian support. Indeed, there have already been grumblings from France about agricultural reform and cultural subsidies.

The final report of the High Level Working Group on Jobs and Growth, released ahead of Obama’s announcement, recommended that the “EU and the United States meet periodically at senior levels after negotiations have started” to review the progress of the talks. This is an excellent suggestion, but such senior-level engagement should also occur at the outset, before the start of formal trade negotiations, which are expected to begin this summer.

What is needed is a focused high-level meeting that brings together a small number of essential political leaders. Besides the obvious negotiators – EU trade commissioner Karel de Gucht, Commission President José Manuel Barroso, and the new US Trade Representative – this group should include European Council President Herman Van Rompuy, key European heads of state, and senior Obama administration officials. Key US congressional leaders should also be involved.

A working summit would demonstrate a willingness at the highest echelons to resolve in principle the major obstacles standing in the way of an agreement. If successful, such a meeting would lay a foundation of genuine political support for efficient and effective technical negotiations. An agreement that rejuvenates the transatlantic relationship will require nothing less.

Read more from the "What Now for Global Trade?" Focal Point

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  1. CommentedProcyon Mukherjee

    Trade rather than austerity is a great intellectual diversion in the current times, but where lies the comparative advantage is the question. Obama mentioned in his speech Caterpillar is bringing back jobs from Japan, Ford is doing the same from Mexico and Apple is slated to start producing Iphones from U.S. This is a notable change but as laws of sound business principles would suggest, no one is expected to produce these products in U.S. for selling in Europe, Ford would rather sell Fords manufactured in Europe to the Europeans, the subsidies and trade discounts have hardly worked.
    The pointer is perhaps to the low wage rate of U.S., but the biggest joker in the pack is the exchange rate, which is never in control of the makers of policy; one can hope that it does not play a truant, while the bond vigilante would keep watching the proceedings.

    Incentives for trade, cannot be de-linked from the drive orchestrated by financialization and there are more unknowns to clearly say whether trade would happen or not.

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