WASHINGTON – The United States and the European Union have officially started talks on what could be the world’s largest free-trade agreement, but opposition to the deal from both sides of the Atlantic promises that negotiations will not go smoothly.
The Transatlantic Trade and Investment Partnership (TTIP) seeks to remove trade barriers between the EU and the U.S., including investment rules, regulatory restrictions, and tariffs.
The two major trading partners already have very low tariffs, on average 4 percent, so what is left is more complex because it has to do with the reduction of non-tariff barriers (NTB).
While seemingly pedestrian, NTBs consist of customs procedures and behind the border regulatory restrictions, such as import quotas and government-procurement rules. NTBs will be at the center of negotiations because they can either increase the costs of doing business for firms, or they can restrict market access.
Under the current system, a product made in Spain goes through the various regulatory barriers to bring it to the marketplace. Then, it has to go through another set of hurdles to reach the U.S. market. Under the TTIP, both sides would agree to mutually recognize the other’s systems thereby eliminating the redundant hurdles.
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. By removing all tariffs on goods and harmonizing regulatory standards for production, the two regions will be able to create one large market for their goods and services; or, at least, that is the expectation from both sides.
Proponents of TTIP say the gains of broad regulatory harmonization could amount to an economic boost of more than $100 billion a year in the U.S., and the EU could benefit by $150 billion a year. The EU is the second most important destination for U.S. exports, representing 19 percent of total exports. It is also the second most important import partner, supplying 17 percent of total U.S. imports. The United States and Europe together generate some 40 percent of the world’s GDP.
Research from the European Commission shows the cost of dealing with bureaucracy can add the equivalent of tariffs of 10-20 percent to the price of goods. According to an independent study by the London-based Centre for Economic Policy Research (CEPR), 80 percent of the economic benefits of the TTIP would come from cutting costs imposed by bureaucracy and regulations, and liberalizing trade in services and government procurement.
Nevertheless, some are already questioning whether the TTIP’s economic benefits will be evenly shared.
A survey commissioned by Germany’s Bertelsmann Foundation expected U.S. incomes would rise 13.4 percent per person thanks to the TTIP, whereas those in Europe would only increase 5 percent. Even among EU member states the trickle-down effect is likely to be uneven with the United Kingdom’s economy likely to grow 9.7 percent while that of France would expand a mere 2.6 percent, the study found.
Many experts say the TTIP faces long odds because of a range of problems, including agricultural and financial rules. In addition, revelations that the U.S. bugged EU offices and monitored emails and calls of ordinary Europeans almost ended the talks before they had even begun.
Trade negotiations have been complicated by European outcry over domestic and foreign surveillance programs carried by the National Security Agency (NSA). French President Francois Hollande called for the suspension of transatlantic trade talks one week before the talks were scheduled to begin. Hollande said there would be no negotiations without guarantees that spying would stop “immediately.”
Brussels warned Washington recently in a letter that it might reconsider two important data-sharing deals – agreements to share airline passenger data and SWIFT banking details – unless they get a commitment from the U.S. of “full compliance with the law” in its surveillance programs. Nevertheless, the data issue will be off the table in the official trade talks.
Meanwhile, a U.S.-EU working group on data protection and privacy also started its work, according to remarks by EU President Jose Manuel Barroso.
Even before the NSA scandal, national concerns threatened to derail the negotiations.