Europe Free Trade Proposal
“Transatlantic free trade” is back on the agenda.
The EU recently sent out feelers about being ready to open up serious negotiations on a free trade agreement with the United States. Previous attempts in 1995 and then in 2007 fizzled out early. So why is the EU putting a failed idea back on the table?
There are some plausible explanations. For one, many in Europe worry about the U.S. “pivoting” across the Pacific and away from the Atlantic when it comes to security, investments, and geopolitical alliances. Closer to home, the Europeans fret openly about their declining capacity to prevent incomes from stagnating. External demand – that is, Europe’s exports – is seen as a stimulus to economic growth. Finally, conventional wisdom whispers into Europeans’ ears the mantra that second-term U.S. presidents warm up to bold ideas better than first-term presidents. Searching for a legacy to leave apparently concentrates minds.
So, what’s wrong with the current trade arrangements? Not much, except perhaps for non-tariff barriers and impediments to trade in services. Average current levies oscillate around 3-5 percent of value. Scaling them back by 70 percent would yield annual gains in trade on the order of $10 billion in each direction. Greater benefits stem from the ridding of non-tariff barriers, such as divergent regulations on privacy, bans on produce containing genetically modified organisms, and the lack of agreement on how to protect intellectual property. And these are really difficult nuts to crack.
In the end, losers and winners from free trade are bound to emerge. U.S. service providers should rejoice as Americans are competitive in transportation, finance, and retail. But steel and dairy producers might be less keen. Overall, however, America’s business is in favor. Most medium- and large-sized companies are eager to sell abroad; many already have operations overseas, and generally welcome fewer restrictions at the border. Even U.S. labor unions might go along, judging that Europe’s labor standards and wage levels pose little direct threat to job dislocation.
The main hurdles could lie on the European side. The more economic performance varies across the continent, the more the national governments are bound to differ on intra-EU policies. Clearly, those already competitive across borders will support fewer strings attached to unencumbered trade. And then some nations will balk. Take France and agriculture – removing subsidies, tariffs, quotas, and local regulations on produce will not sit well in Paris.
On the other hand, U.S. attitudes to trade have cooled of late. Surveys show that a minority of Americans support free trade and majorities fear net losses of jobs when borders are open to commerce. Yet Europe presents a special case. Labor unions might not oppose a deal that binds two developed economies. Big business is in favor and European companies operating on this side of the Atlantic boast of offering millions of jobs to Americans.
In the end, let’s not get too carried away. If the U.S.-Canada free trade deal of 1989 is any indication, the Transatlantic Free Trade Agreement – TAFTA – is years away. Many things could go wrong. Continuing malaise around the financial crisis in Europe is one imponderable. And Congress might find itself too busy frying a bigger fish, such as reforming the fiscal mess. TAFTA appears to be back on the front burner but it’s not certain to make it to the table to be signed into law soon.