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U.S.-EU Free Trade Agreement: Global Game-Changer?

Obama raised the possibility during his State of the Union. He's right, it's a great idea.

Daniel S. Hamilton and Joseph P. Quinlan


February 23, 2013 - 12:00 am
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Momentum is building for a new and comprehensive free-trade and investment agreement between the United States and the European Union, with President Obama pledging his support for the plan in his State of the Union address. Such a deal would not only boost growth on both sides of the Atlantic, it would also strengthen the U.S.-EU economic axis relative to developing nations and key emerging powers like China.

While a high degree of market integration already exists between the U.S. and Europe thanks to existing agreements, much more can be done to fuse the world’s two largest economies together. A transatlantic trade and investment pact would not only be about reducing tariffs, it would also be about reducing non-tariff barriers and harmonizing the web of regulatory standards that inhibit transatlantic trade and investment flows, and which add to the cost of doing business on both sides of the ocean.

The issues are more micro than macro.

An ambitious agreement would include the harmonization of food safety standards, e-commerce protocols, and data privacy issues. It would also encompass the standardization of a myriad of service-related activities in such sectors as aviation, retail trade, architecture, engineering, finance, maritime, procurement rules and regulations, and telecommunications.

The move towards a more barrier-free transatlantic market would also include product standardization: for example, a car tested for safety in Bonn would be sellable in the U.S. without further tests in Boston. Or a drug approved by the Federal Drug Administration would be deemed safe and market-ready in Brussels. Labeling and packaging requirements on both sides of the pond would be standardized, saving companies millions of dollars over the long run.

Technical regulations and safety standards are hardly headline-grabbing topics, but when these hurdles to doing business are stripped away, the end results are lower costs for companies, reduced prices for consumers, and more aggregate demand of goods and services. That in turn spells more transatlantic trade and investment, with total trade between the U.S. and EU amounting to over $500 billion last year. Cross-border foreign direct investment (FDI) between the two parties topped $300 billion last year, making U.S.-EU investment ties among the largest and thickest in the world.

As for tariffs, average transatlantic tariffs are relatively low — in the 5-7% range — although tariffs remain quite high in such categories as agriculture, textiles and apparel, and footwear, so there is room for barriers to fall in a number of industries. More importantly, in that a large percentage of transatlantic trade is intra-firm, or trade in parts and components within the firm, even a small decline in tariffs — which are in effect a tax on production — can lower the cost of producing goods and result in lower prices for consumers on both sides of the pond. The more intense the intra-industry trade component of trade between two parties, like the one that characterizes U.S.-EU trade, the greater the effects and benefits of lower tariffs.

In addition to trade in goods, there are services: the transatlantic service economy is the sleeping giant of the partnership. Unleashing service activities requires that existing regulatory rules and regulations be eliminated or reduced, which means doing away with “behind-the-border” barriers that include complex domestic regulations, cumbersome licensing and qualification requirements, and duplication of professional credentials, to name just a few barriers.

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All Comments   (5)
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Liberty involves not just political freedom but also ecoomic freedom.

While bureaucrats find central control intoxicating, I prefer ordered liberty.
2 years ago
2 years ago Link To Comment
The authors did not notice, one presumes, that the European Union set up a single market some few decades ago, that was supposed to bring about all of the wonderful effects the authors predict would come out of Barack Obama' implementation.

What this would do is not free commerce but chain it to a centralized hyper-regulatory hydra, benefiting government. We don't need more steps in the direction of an Orwellian end state, a human face stomped on by a boot, forever.

Here is a counterproposal for our ingenious authors. Let's try having free trade, economic freedom that is to say, the corrolory of freedom writ large, AT HOME in the USA. You know, let me buy an insurance product of my choice out of those that insurance companies coast to coast would like to offer me, free of government mandates and intrusions. Let me buy a pistol in another state than my home state. Basics.
2 years ago
2 years ago Link To Comment
I'm no economist and I didn't even read the entire article but, I see a one world economy as a very bad idea for reasons that everyone should plainly see. OOur forefathers came to the New World to get out of europe. We have different cultures, different standards of living, and different costs of living. Besides with just one economy that economy lives and dies. Keep the economies separate and modular. Use tarrifs so that countries with poor standards of living and wages don't take advantage of those with higher standards. We can't finance everyones economy. With modular economies when one goes down it won't pull the others down with it. The ones that don't get pulled down can help the the others back up. But really, one world economy? what's next a one world government? Besides if obama likes it the quicker we shitcan this idea the better!
2 years ago
2 years ago Link To Comment
Another bunch of experts who are either mendacious or ignorant.
It must be recalled that the establishment stuffed shirts (experts) are the people who helped our society get into the sad state it is in today!If we were to to put a name on all of this we could call it the "Krugman effect".
These guys nibble around the edge of a huge economic crisis that is coming down on the world at this very minute.They speak of bandaids for a global economy which is suffering from fatal hemorrhaging.We are in a series of financial traps with no visible way out & these guys are offering nickel & dime cures which will do very little for our problems!
2 years ago
2 years ago Link To Comment
I'm no economist, but know for a fact that the only things we'll export to Europe are food and raw materials. . . increasing the domestic cost of both.

The only thing that will happen by "harmonizing" obscure, bureaucratic rules is that the more bureaucratic option will always, always, dominate.

I know that this will cost the US money, lots of money, the author sites the "post war" economic order, but then there is the pesky memory called the Marshal plan. If you tie two balloons together they will become the same size as the gas equilibrates.

This is another step toward becoming Europe, a step backwards and a huge mistake on every level. In my simple, non-economist, realist opinion.
2 years ago
2 years ago Link To Comment
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