Is a Free Trade Agreement Between the US and EU Brewing?
By Jack Ewing
A free-trade agreement between the United States and Europe, elusive for more than a decade but with a potentially huge economic effect, is gaining momentum and may finally be attainable, business and political leaders say.
Arduous negotiations still lie ahead, but if technical hurdles can be overcome, supporters of a pact argue, it could rival the North American Free Trade Agreement in scale and be a cheap way to encourage growth between the European Union and the United States, which are already each other’s biggest overseas trading partners.
“There is now, for the first time in years, a serious drive towards an E.U.-U.S. free-trade agreement,” Karel De Gucht, the European trade commissioner, said in Dublin earlier this month.
Within days, if not hours, of President Barack Obama’s re-election, numerous European leaders, including Angela Merkel, the German chancellor, and David Cameron, the British prime minister, were urging Mr. Obama to push for a free-trade agreement. The Europeans hope that eliminating frictions in U.S.-E.U. trade would provide some badly needed economic growth.
Corporations and business groups on both sides of the Atlantic are also pushing hard for a pact. Tariffs on goods traded between the United States and the European Union are already low, averaging less than 3 percent. But companies that do substantial amounts of trans-Atlantic business say that even a relatively small increase in the volume of trade could deliver major economic benefits.
“The reason we care about this is because these base line numbers are so huge,” said Karan Bhatia, a former deputy U.S. trade representative who is now vice president for global government affairs at General Electric in Washington. “This could be the biggest, most valuable free-trade agreement by far, even if it produces only a marginal increase in trade.”
Noting that a free-trade agreement would not cost taxpayers any money, Mr. Bhatia said, “This is the great, untapped stimulus.”
While China has dominated the political debate in the United States, U.S. trade with Europe is much larger, totaling $485 billion in goods in the first nine months of this year, compared with $390 billion in trade with China.
Perhaps more important for U.S. companies, Europe buys much more from the United States than China does. U.S. exports of goods to Europe through September totaled $200 billion, according to U.S. government data , while China imported $79 billion worth of U.S. goods.
“The economic music is between America and Europe,” said Fred Irwin, president of the American Chamber of Commerce in Germany. The organization has been among groups lobbying energetically for a comprehensive agreement to replace the potpourri of existing tariffs and regulations and also to roll back national rules in Europe that may impede trade.
The chamber estimates that an agreement that eliminated tariffs and other barriers between the United States and Europe could add 1.5 percentage points to growth on both sides of the Atlantic. While that may be optimistic, economists agree that trade increases when barriers fall.
Supporters of an agreement hope that Mr. Obama will visit Europe early in 2013 and that he agree while there on a framework for negotiations that could lead to a detailed agreement within several years. They argue that a pact would offer Mr. Obama an opportunity to improve his relations with the business community while reaching out to European political leaders who feel he has taken them for granted.
“The Europeans believe that Obama does not care about Europe,” said Mr. Irwin, who has met with E.U. government leaders on the trade issue.
Asked about the U.S. position, Andrea Mead, a spokeswoman for Ron Kirk, the U.S. trade representative, said in an e-mail that the working group “continues to work to assess how best to increase U.S.-E.U. trade and investment to produce additional economic growth and jobs, and improve our international competitiveness.”
There does not seem to be any broad-based political opposition to an E.U.-U.S. trade agreement, as there was to Nafta. But some industry groups have expressed concern about how a free-trade accord would affect them.
Last week, a coalition of food and agricultural groups led by the National Pork Producers Council in the United States wrote to Mr. Kirk, expressing concern that a free-trade agreement might leave them out.
The council complained that in the past, Europe had blocked imports of genetically modified corn and soy products and objected to American companies’ use of product descriptions like “Parmesan” cheese. In Europe, that label is reserved for cheese that comes from the Parmigiano-Reggiano region of Italy.
At least since the 1990s, there have been informal talks about an agreement that would reduce or eliminate already low tariffs and — more crucially for many businesses — harmonize regulations governing industries like pharmaceuticals and auto parts. While those talks wore on, political leaders on both continents focused on treaties with faster-growing countries like South Korea. Trade between the Europe and the United States already was believed to work pretty well, so there was little urgency to make it better.
“I haven’t heard anyone say it doesn’t make sense,” said Peter Beyer, a member of the German Parliament from Ms. Merkel’s party, the Christian Democrats, and a major advocate of an agreement. “It just hasn’t been at the top of the agenda.”
Efforts to improve the U.S.-E.U. trade relationship gained momentum after the failure of the so-called Doha Round of global trade talks. In addition, Canada and the European Union are close to a free-trade agreement, which puts pressure on the United States to follow suit. Mr. De Gucht, the E.U. trade commissioner, met Thursday with Edward D. Fast, the Canadian trade minister, and said in a statement afterward that negotiations were in the “home straight,” or final stages.
So far the Obama administration has been fairly quiet about a European trade agreement, perhaps wary of raising expectations. A so-called High-Level Working Group, which includes E.U. and U.S. representatives, is expected to make recommendations by the end of the year or by early 2013.
Even though the United States and Europe have a long history of trade and friendly relations, any agreement will be complicated because of the number of countries involved. The European Union has 27 members. Unlike Nafta, which eventually eliminated duties on goods sold between Mexico, the United States and Canada, a European free-trade agreement would focus more on harmonizing regulatory standards between the United States and Europe.
For example, Daimler, the German maker of cars and trucks, would like to see a trade agreement that freed it from having to obtain multiple certifications every time it puts a new variety of Mercedes engine on the market. The pharmaceutical industry is also particularly eager to avoid having to test new treatments on both continents.
“The current regulatory complexity slows down the approval of innovative drugs and cheaper generics in both regions,” Ulf M. Schneider, president of Fresenius, a German health care company, said in an e-mail. Fresenius, based in Bad Homburg, near Frankfurt, is best known as the world’s largest provider of dialysis services, but it also has a biotechnology unit that is developing cancer treatments.
But the complexity of regulatory issues also makes agreement more difficult, which is another reason why it has taken so long to reach one. “History shows that removing nontariff barriers is much harder than removing tariff barriers,” Mr. Schneider said.