TAFTA: A Tran-Atlantic Free Trade Agreement
TAFTA: A Tran-Atlantic Free Trade Agreement

The blogosphere sprang into action after President Obama announced in the State of the Union plans to pursue a free trade agreement with Europe. While negotiations between Europe and the United States took place multiple times over the last two decades, most analysts think this time negotiations could lead to an agreement. In a show of good will before the State of the Union, Europe removed import restrictions on pigs and beef treated with lactic acid (Knigge, 2013).

Both Republicans and Democrats expressed excitement about the prospects of a trade agreement with Europe, while leaders across the Atlantic conveyed similar sentiments. Despite the goodwill, there are many challenges that lay ahead as both sides address tough issues that prevented this agreement from succeeding in previous attempts. The stakes are high. Without any new budgetary allocations, this agreement could stimulate global growth by 1.5 – 2 percent and help both sides grow their economies after years of slow growth (Pond, 2013).

Both sides want a comprehensive agreement that eliminates all duties on bilateral trade, harmonizes future regulations, liberalizes the service sector, and recognizes mutual technical standards. Addressing intellectual property rights and environmental and employment protection standards are agreement priorities as well (2015 target date for EU-US trade deal). Most agree that customs barriers are not insurmountable, but that the harmonization of regulatory standards will be quite difficult (Knigge, 2013).

This news analysis examines the potential impact of TAFTA, the main challenges ahead, and what this agreement might mean to the future of the WTO.

TAFTA’s Impact

The world’s largest bilateral economic partnership is between the United States and Europe. The EU and the U.S. economies combined account for more than 47 percent of the world GDP and one-third of global trade flows (2015 target date for EU-US trade deal). More than $2.4 million of goods and services are traded daily between the two. A comprehensive deal with raise Europe’s GDP by .7 percentage points, while raising the U.S. GDP by .3 percentage points (Suominen, 2013).

Beyond raising GDP, TAFTA would bring more jobs to both sides and would increase foreign investment as well. American companies employ more Europeans than any other foreign nationality and are the largest source of on-shored jobs in Europe (New Direction, 2012). Standards harmonization would strengthen corporations on both sides of the Atlantic. Redefinition of industrial standards and norms would be particularly helpful for pharmaceutical, electric car and cloud computing companies. Firms would no longer have to make different versions of the product for the European and American markets (Brookings, 2013). This could save quite a bit of money for corporations.

Furthermore, a bilateral trade agreement allows Europe and the U.S. to address together the rise of China. Given China’s strong position in the world trading arena, some fear that that Chinese will dictate standards and neither Europe nor the U.S. wants this situation to come to fruition. China is the EU’s second largest trading partner behind the U.S. and the EU is China’s biggest trading partner (European Commission). Both the U.S. and Europe face increasing trade deficits with China and TAFTA may provide much needed balance as Europe and the U.S. increase exports and imports among each other.

Challenges Ahead

European Parliament

TAFTA faces political, economic, and cultural battles before it will be passed. Both sides will need approval of domestic legislatures. The EU will need the backing of all 27 national assemblies to pass TAFTA. The agreement will need to be ratified by EU member states as well as by the European Parliament (2015 target date for EU-US trade deal).  In the United States, analysts recommend that the president pursues trade promotion authority (TPA), which will allow an “up or down” vote by Congress with no amendments or filibuster. TPA was granted to the President continuously from 1975 and 1994 and from 2002-2007 (Brookings, 2013). TPA would help speed up the Congressional approval of TAFTA and provide political cover to those who need it.

A Financial Times blog (Bintliff, 2013) outlined the major sticking points for both sides. Many of these points relate to restrictions on phytosanitary rules. Europe requires labeling of genetically modified crops, the U.S. does not. Europe bans hormone-treated beef, the U.S. does not. Europe requires poultry to be washed in potable water, while the U.S. only requires chlorine. The EU complains that the U.S. unjustly restricts the  imports of animals and animal products, citing Bovine Spongiform Encephalopathy (BSE). The U.S. determines the safety of oysters by testing the water in which they are reared for coliforms, while Europe tests the oyster flesh for e-Coli. Finally, Europe complains that the U.S. requires foreign exporters of “Grade A milk products” to do one of the following: sign a contract with a U.S. state, adopt and apply U.S. rules, or the rules must be recognized as equivalent to the U.S. All of these phytosanitary restrictions are considered non-customs trade barriers, resulting in decreased trade across the Atlantic.

Phytosanitary issues are not the only sticking points. Through the Common Agricultural Policy, European farmers receive large subsidies. Trade in farm products only accounts for five percent of EU-US trade, but is an important sector for the U.S., which is one of the largest agricultural producers and exporters worldwide. Only a small share of U.S. agricultural exports go to Europe due to the high tariffs and the U.S.farm lobby wants this dynamic to change (Mildner and Schmucker, 2013). Both European and American farm lobbies want increase access, but fear the loss of government subsidies and the implosion of local agriculture in response to cheap agricultural imports.

Europeans want changes to the Buy America campaign that only allows U.S. producers (or producers from countries with a ‘reciprocal government procurement agreement’) to receive stimulus funding for bids on iron and steel contracts (Bintliff, 2013). The Buy-American campaigns are often carried out at the behest of state legislatures, which makes finding a solution even more challenging (Brookings, 2013). Other market access issues include tariffs, services, investment and government procurement. While the remaining tariffs are quite low on both sides and are mainly for transport equipment and chemicals, if removed, the gains would be significant (Mildner and Schmucker, 2013).

Recipients of the government largesse on both sides of the Atlantic have strong lobbies that may try to derail the process if funding is at risk. While these entrenched interests will be problematic, the trade agreement may find atypical supporters in Congress. Traditional leftist skeptics of trade agreements in the U.S. will most likely not oppose TAFTA since Europe has strong labor, environment, health and safety regulations, thus the agreement will not be viewed as a race to the bottom (Prestowitz, 2013).

Future of the WTO

Nearly all consider the Doha Round to be dead. The multilateral trading system has been at an impasse as member countries pursue free trade agreements with individual countries and with regions. More than 200 bilateral free trade agreements were signed since 2001 (the start of the Doha Round), resulting in more liberalization, but an extremely complicated amalgamation of rules and regulations across the globe, making it hard for companies of all sizes to export (Suominen, 2013).

Some feel that TAFTA negotiations might encourage the BRICS (Brazil, Russia, India, China, and South Africa) to return to Doha or at the very least re-create a global trade agreement from the bottom up (Suominen, 2013). The U.S. has 20 bilateral free trade agreements (FTAs), NAFTA, and is currently pursuing a Trans-Pacific Partnership (TPP) agreement with 15 Asian countries. While EU has twenty-eight bilateral FTAs, one FTA pending, five economic partnership agreements, and is negotiating seven agreements, including one with ASEAN. Agreements with bilateral trading partners may be impacted by TAFTA. Thus, the sheer potential number of countries involved might encourage BRICs to get on board (Suominen, 2013).

Conclusion

Negotiators face a short time frame to pass TAFTA. The United States wants a deal before the 2014 mid-term elections. While not impossible, negotiators have a lot of ground to cover to achieve a comprehensive agreement. The Doha Round and past TAFTA negotiations failed in part due to the agricultural subsidies. It is unclear whether this constituency is willing to budge this time. Education campaigns alongside the negotiations will be needed to convince both publics of the necessity of this agreement or else it will end in failure.

Works Cited

2015 target date for EU-US trade deal (2013, February 14). EU Observer. Retrieved from: http://euobserver.com/economic/119066

Bintliff, E. (2013, February 14). An EU-US trade deal: some of the stickiest potential sticking points. Financial Times. Retrieved from: http://blogs.ft.com/the-world/2013/02/an-eu-us-trade-deal-some-of-the-stickiest-potential-sticking-points/

Brookings Institute (2013, January 17). Free Trade Game Changer. Solís, M. and Vaïsse, J. Retrieved from: http://www.brookings.edu/research/papers/2013/01/free-trade-game-changer

European Commission (n.d.). China. Retrieved from: http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/china/

Knigge, M. (2013, February 14). EU-US trade deal takes on shape. Deutsche Welle. Retrieved from: http://www.dw.de/eu-us-trade-deal-takes-on-shape/a-16584523

Mildner, S. and Schmucker, C. (2014, February 13). A trade deal worth making. Wall Street Journal. Retrieved from: http://online.wsj.com/article/SB10001424127887324162304578301913107784742.html?mod=googlenews_wsj

New Direction. (2012). A Transatlantic Free Trade Area – A Boost to Economic Growth? Hamilton, D. and Schwartz, P. Retrieved from: http://transatlantic.sais-jhu.edu/publications/articles/TAP_op_ed_Jan_2012_final.pdf

Pond, E. (2013, February 8). What free trade means for transatlanticism. Retrieved from: http://www.worldpolicy.org/blog/2013/02/08/what-free-trade-means-transatlanticism

Prestowitz, C. (2013, February 13). Obama administration at odds with itself on trade policy. Foreign Policy. Retrieved from: http://prestowitz.foreignpolicy.com/posts/2013/02/13/obama_administration_at_odds_with_itself_on_trade_policy

Suominen, K. (2013, February 13). The case for TAFTA. Foreign Policy. Retrieved from: http://www.foreignpolicy.com/articles/2013/02/13/the_case_for_tafta_us_europe_free_trade?wpisrc=obnetwork

* Picture http://www.flickr.com/photos/downingstreet/3406087735/sizes/z/in/photostream/

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