WASHINGTON – After flirting with the idea of a transatlantic free-trade agreement for several years, President Obama officially announced that the United States would begin formal trade talks with the European Union (EU), eliciting a favorable response from various U.S. groups.
“Tonight I am announcing that we will launch talks on a comprehensive Transatlantic Trade and Investment Partnership with the European Union because trade that is free and fair across the Atlantic supports millions of good-paying American jobs,” Obama said in his State of the Union address.
U.S. and EU leaders established the High Level Working Group on Jobs and Growth (HLWG) in 2011 to identify policies and measures to increase trade and investment ties. The HLWG released its final report on Feb. 11 outlining some of the group’s findings.
“The HLWG has reached the conclusion that a comprehensive agreement that addresses a broad range of bilateral trade and investment issues, including regulatory issues, and contributes to the development of global rules, would provide the most significant mutual benefit of the various options we have considered,” said the group in its final report.
According to a study by the U.S. Chamber of Commerce, removing tax and regulatory barriers to trade between the U.S. and the EU would lead in five years to an estimated $120 billion increase in annual trade among the 600 million people in these two economies. The U.S. Trade Representative’s Office estimates that the free-trade agreement would “add to the over 13 million American and European jobs already supported by transatlantic trade and investment.”
Sens. Rob Portman (R-Ohio) and Bill Nelson (D-FL) led a bipartisan group of lawmakers in sending a letter to Obama after his speech welcoming the announcement that the United States will pursue the transatlantic agreement with the EU.
“American-made goods and services can thrive in a global economy when competing on a level playing field, and negotiations with the European Union offer us a new opportunity to give a much needed boost to American exporters,” said Portman. “By reducing burdensome trade and regulatory barriers, I am hopeful that this new transatlantic agreement will enable American companies to reach more markets, create jobs, and enhance innovation.”
Business leaders quickly threw their support behind the trade talks.
“This bold, new trade pact holds great promise for both the United States and Europe,” said U.S. Chamber of Commerce President Thomas J. Donohue. “The U.S. business community looks forward to working with the administration and Congress to ensure this agreement delivers growth and jobs for the benefit of all Americans.”
Despite the eurozone crisis and sluggish U.S. growth, the U.S. and the EU still account for half of the world’s gross domestic product and enjoy more than $3 trillion in cross-foreign direct investment. Trade in goods and services between the two accounted for 30 percent of the world total in 2011.
Europe has been pushing the idea in the hope of stimulating its slow rate of economic growth. But the EU’s complex politics could also make for protracted and, perhaps, fruitless negotiations. Of the 27 EU nations, some advocate free trade while others veer towards protectionist industrial policies, making it more difficult to reach a consensus among European nations.
According to the Brookings Institution, world trade is expected to have stalled at a meager 2.5 percent growth in 2012. At a time when protectionism is on the rise around the world, a trade agreement between the U.S. and the EU would reaffirm their stance towards free trade and ensure that western countries set the global trade rules of the future.
Tariffs between the two sides of the Atlantic are already low, averaging two to three percent, though higher on agricultural products. Even if most of these tariffs were eliminated, considerable obstacles to free transatlantic trade would remain since most of what is left is more complex and has to do with reduction of regulatory red tape.
Talks would be aimed primarily at reducing barriers to transatlantic trade in goods, services, investment, and public procurement. EU officials have spoken of creating “something approaching a transatlantic single market in goods.”
One of the major goals for the EU is to open up America’s public procurement market, which is more protected than Europe’s, partly because the federal government cannot force states to open tenders to foreign bidders. The U.S. allowed foreign bidders to access only one-third of the public procurement market in 2007; by contrast, over two-thirds of the EU procurement market is open to international competition.
The most ambitious aim of the transatlantic deal includes moving both sides towards greater regulatory convergence: harmonized regulations in the pharmaceutical sector, and common norms and standards in the service sector. Currently, foreigners cannot own more than 25 percent of a U.S. airline and foreign airlines cannot carry passengers between U.S. cities.
Top Senate trade officials warned that they would hold any free-trade agreement between the U.S. and the EU to rigorous demands that American companies see clear benefits.
Senate Finance Committee Chairman Max Baucus (D-Mont.) and ranking member Orrin Hatch (R-Utah) sent a letter to the U.S. Trade Representative Ron Kirk saying that some issues would have to be resolved before the talks move forward.
“There is no doubt that a U.S.-EU FTA is an enticing opportunity. While there is much promise in the U.S.-European Union relationship, there are remaining barriers to free and fair trade that are long-standing and difficult to overcome,” wrote the senators.
To meet some of the priorities outlined by the two senators, Europe would have to back off some of its agricultural restrictions. In particular, the senators urged trade officials to look at the EU’s policies on geographical indications – which grant certain products a protected designation of origin, such as champagne or Roquefort cheese – because they impede the ability of U.S. producers to compete.
“Broad bipartisan Congressional support for expanding trade with the EU depends, in large part, on lowering trade barriers for American agricultural products,” the two senators said.
Meeting their demands on agricultural regulations would certainly face oppositions from some European nations. For instance, the EU requires that all genetically modified foods be labeled, whereas the U.S. has no such restriction. The EU has also banned the use of hormones in cattle and the cultivation of genetically modified plants.
Generally, unions have opposed most trade agreements pursued by Democrats and Republicans alike on grounds of poor labor standards in U.S. trading partners. However, unions have joined other groups in support of the trade talks in hopes of using the deal as leverage to win stronger labor laws.
“We would hope that the U.S.-EU trade discussions would make improvements to how corporations treat their workers here,” George Kohl, a senior director at the Communications Workers of America (CWA), told The Hill.
Many European nations have stronger labor laws than does the U.S. France, for example, has notoriously rigid labor laws that make it harder for businesses with more than 50 employees to fire underperforming workers.
Despite widespread support, the free-trade pact may face a tough procedural path since Congress could amend any trade agreement now that the presidential fast-track authority has expired. Under the fast-track authority, the president has the power to negotiate trade agreements that Congress can review under limited debate, but cannot amend or filibuster. Congress must vote yes or no on the trade deal.
Republicans and business groups have led the charge to renew the fast-track authority since its expiration in 2007. Sens. Hatch and Baucus wrote in their letter that they would ramp up their efforts to renew the presidential authority, saying it will enable a successful completion of the free-trade agreement.