Friday, November 28, 2014

Transatlantic Free Trade?

MADRID – This month, the United States National Intelligence Council released a sobering report entitled Global Trends 2030: Alternative Worlds. Most important, according to the authors, if current trends continue, Asia could soon surpass North America and Europe in global power. It will have a higher GDP, larger population, higher military spending, and more technological investment. In this geopolitical context, Europe and the US need each other more than ever, making greater transatlantic cooperation crucial.

This seems to be the approach that inspired outgoing US Secretary of State Hillary Clinton’s recent speech at the Brookings Institution on US-European relations. Given the shift in global power and the prospect of US energy self-sufficiency as domestic hydrocarbon output booms, America is trying to adapt its foreign policy to the new multi-polar international order. And, although Asia is now America’s strategic priority, Europe is still the partner with which Americans have the most in common. “I want to be clear,” Clinton noted. “Our reorientation toward Asia is not a withdrawal from Europe.”

The US, according to Clinton, hopes that Europe will follow suit, so that Asia is seen not only as a market, but also as a focus of common strategic action. But, beyond that, as the US and Europe seek to ensure their global roles, cooperation between them is more important than ever. So now is the time for a bold initiative: the launch of a US-European Union free-trade agreement.

Clinton has already hinted at America’s readiness for this, mentioning the possibility of negotiating a complete agreement that would increase trade and stimulate growth on both sides of the Atlantic. The journalist David Ignatius even dared to give it a name in a recent article in The Washington Post: TAFTA (Transatlantic Free-Trade Agreement). Edward Luce, writing in the Financial Times, preferred “Transatlantic Partnership.”

The US and the EU (taken as a whole) are not only the world’s two largest economies and typically the largest commercial partners for other major economies; they also maintain the world’s largest bilateral trade relationship. American investment in Europe is three times higher than it is in Asia. European investment in the US is eight times larger than its investments in China and India combined. So transatlantic trade is crucial for both economies, particularly for job creation. Indeed, it is estimated that one-third of all bilateral US-EU trade consists of internal transfers by companies that operate in both markets.

Although US and EU tariffs on each other’s marketed manufactured goods are already low (below 3%, on average), a free-trade agreement would be enormously beneficial in promoting further investment, thereby boosting economic growth and creating more jobs. Such an agreement could include trade in goods, services, financial instruments, and agriculture, and would necessitate greater compatibility of European and American regulations and legal norms, implying substantial savings.

Moreover, the effects of such an agreement would be felt far beyond the US and Europe. For example, both have already signed free-trade treaties with various Latin American countries, implying the creation of a geographically enormous free-trade area, which should boost economic resilience in the face of global crisis.

Indeed, regional free-trade agreements are gaining momentum worldwide. The Trans-Pacific Partnership, a free-trade agreement spearheaded by the US, is set to be a game-changer in the Asia-Pacific region, with decisive advances this year putting it on course to be concluded in 2015. Potential signatories include the US, Australia, Malaysia, Vietnam, Singapore, New Zealand, Chile, Peru, Brunei, Canada, Mexico, and perhaps Japan and South Korea. The result will be trade liberalization in an area that produces 40% of global GDP.

Isn’t it time to consider something similar for Europe and the US? The EU, now confronting a wave of populism and Euro-skepticism, could revive its sense of purpose by committing itself to closer transatlantic cooperation and coordination on trade, to be carried out by the European Commission. Such a project has worked before in bringing Europe together; it can do so again. The most precious asset today is confidence, and the mere fact of launching negotiations would generate it in abundance.

Protectionism is no solution to the crisis, whereas a transatlantic free-trade agreement would favor multilateralism and openness. In this sense, it is important to stress the work of the World Trade Organization, the best multilateral forum that the world has for resolving trade disputes. Signing a transatlantic trade treaty would be irrefutable proof that the political case for open trade can be made – and won.

The only way to achieve this is through the clear commitment of political leaders on both sides of the Atlantic, together with private-sector involvement, which is fundamental to sustaining urgently needed economic growth. But let’s not wait: faced with predictions of the West’s relative decline, the US and the EU must commit themselves to more union, more cooperation, and more prosperity. Today, that means a transatlantic free-trade agreement.

Read more from our "New Kids on the Bloc" Focal Point.

  • Contact us to secure rights


  • Hide Comments Hide Comments Read Comments (4)

    Please login or register to post a comment

    1. CommentedOle C G Olesen

      Mr Solana : The question for EUROPE is :


      Over a huge Ocean in a country which follows the Doctrine of Brezhinsky ? And which Nation has embezzled TRILLIONS from EUROPE ...over time ? A Nation currently despised by huge world populations for its brutal Imperialistic Adventures across the Globe ?

      Or in Nations with whom we share LANDMASS and CULTURE and who are the fastest growing regions of the World .. who have NOT stolen our CAPITALS ? And who population wise and resource wise have far more to offer ?

      One should not decline TRUE OFFERS of Cooperation based on respect and reciprocity .... but in the current situation it remains to be demonstrated in the PRACTICAL REAL WORLD that such are the Intentions ... and not a REPEAT of the Delusions in place since the End of the Second World War .

      For example :

      let us wittness the immidiate repatriation of German Gold Holdings from the USA to Safe depots in Germany !

      let us wittness an end to the Obstruction of peacefull European Exploration of Space

      let us wittness that the USA shares its dominance over the Internet with other nations

      let us wittness the end to Bullying behaviour against European Airspace Industries

      let us wittness an end to totalitarian attempts of control of populations and violation of human rights embedded in a variety of trade and other agreements

      let us wittness an end to the secretive undermining of the EURO and and end to the Destabilisastion efforts of individual European Nations

      Let us see all THAT ..and much more ... BEFORE EUROPE commits to anything !

      I doubt it will be forthcoming !

    2. CommentedCristina Martello

      On a concrete level, when could this insightful and justified proposition could be implemented? I live in Italy and if one more Italian firm were to (predictably) close, and this time due to the proposed agreement rather than the crisis, the uproar would be politically unsustainable, the opposition fierce, and the anti-European sentiments reinforced. Once again an important long term solutions would be impossible to achieve and would be opposed by local interests, lobbies and short term myopia.

    3. CommentedCristina Martello

      Looking at just the shorter term static effects of such regional agreement, would the positive trade-creation effect offset the negative trade diversion effect? Europe and the US are not exactly the lowest cost producing countries which can imply a bigger loss of overall welfare caused by such an agreement. Yet, Europe and the US are, as the article details, the world largest economies and each other largest trading partners and that should imply larger overall welfare gains.

    4. CommentedAndré Rebentisch

      The recent views of Mme Clinton still have to rectify the new situation. Of course the European Union aims to get the United States in compliance with their joint rules and standards while transatlantic trade talks usually are still driven by old appeasement policy paradigms of the European Commission, eager to be recognised as a player by the US counterparts. What would Europeans gain from it and how to revive the Atlantic community? Her Brooking speech sent quite a different message to me,
      and the designation of John Kerry indicates a strategic reorientation.