Could a free trade agreement between the U.S. and EU be in the cards? With Obama’s reelection and economies on both sides of the Atlantic still in the doldrums, we’re seeing an increasing willingness on both sides to undertake bold steps to stimulate growth. The Washington Post has more:
Obama is considering making a trans-Atlantic trade initiative an important part of his second-term agenda. Combined with the North American Free Trade Agreement in Latin America and the Trans-Pacific Partnership in Asia, this could create a global trading system that might be an enduring part of Obama’s legacy. . .
The benefits that might flow from a trans-Atlantic agreement are suggested in a February GMF report. It noted that a 50 percent reduction in non-tariff barriers (such as unnecessary or duplicative standards) could boost GDP by roughly $160 billion in Europe and $53 billion in the United States. Abolishing all tariffs could produce gains of up to $86 billion for Europe and $82 billion for the United States. European and American farmers will resist common agricultural standards, but an October GMF study notes there could be benefits for both.
This “economic NATO” already exists in some respects: average tariffs on goods traded between the U.S. and the EU are less than 3 percent, and transatlantic trade and investment is already massive. But because of these high trade volumes, a three-percent drop in tariffs would lead to major savings. More importantly, a Trans-Atlantic Free Trade Area would require both parties to coordinate (and hopefully reduce) regulations inhibiting innovation and trade in, for example, the medical field and car manufacturing.
But it’s precisely in the regulatory field where an agreement will be hard to reach. Both sides are used to getting their way, and deeply attached to their regulatory regimes. If you think the FDA is imperious, wait until you see Brussels’ regulators at work. Europeans are notoriously eager to protect food “brand names” like Parmesan, Cheddar and Feta from similar products not manufactured in those actual regions, a practice which may not fly on this side of the Atlantic. And farmers in France are just as attached to their subsidies as in Iowa.
Despite these difficulties, a U.S.-EU free trade agreement is one of the best things out there on the horizon for both the European and the U.S. economies. And because Europe’s labor and environmental standards are so high, American unions and greens won’t fight it as bitterly. The devil is in the details, but pushing for this could help the economy and spur growth while reassuring Europeans that the U.S. still cares.