US, EU Explore Trans-Atlantic Ties That Bind

rotterdam cargo ship

Facing sluggish growth and little prospect of a global free-trade pact, the U.S. and European Union could be close to putting the world on notice that they are moving forward with their own deal.


Business supporters predict the U.S. and EU — a year into talks on how to bring down the remaining barriers impeding the world’s largest economic relationship — are likely to announce plans soon to launch negotiations toward a comprehensive agreement to eliminate tariffs, spur investment and harmonize regulations.


While official signals out of Washington and Brussels have been positive, the high-level trans-Atlantic working group tasked with exploring the opportunities and challenges posed by a trade pact has delayed a final report to leaders that was due in December.


EU trade spokesman John Clancy told The Financialist that the two sides are working toward finishing the report in the next few weeks. A U.S. official said it was important “to take the time to get the substance right so that any agreement we might pursue would maximize job-supporting economic opportunities.”


Major business groups in the U.S. and Europe that have long pushed for a deal remain optimistic that an announcement is forthcoming, but caution that the Obama administration would have to consult Congress and the EU would need to get member states to sign off on a plan before formal negotiations could begin.


“I believe it will be launched,” said Peter Chase, the senior European representative at the U.S. Chamber of Commerce.


The report is due for release by early February, Chase said, adding “there’s a sense it will recommend positively that the U.S. and EU launch negotiations toward a comprehensive trade and investment agreement.”


Adrian van den Hoven, deputy director general of the Brussels-based BusinessEurope umbrella group of 41 industrial and labor federations, is hopeful the report will recommend a wide-ranging deal “covering standard issues like tariffs, but also a forward-looking regulatory cooperation section.”


With no additional monetary or fiscal stimulus likely on tap for the struggling U.S. and European economies, the low-hanging fruit of a zero-tariff trade zone presents a juicy opportunity. Though trans-Atlantic tariffs are low by global standards—averaging a little more than 5 percent —eliminating them could boost the combined economic output by $180 billion in five years, according to the Chamber.


But the most far-reaching possibilities are on the regulatory front, through moving toward mutual recognition of product safety standards and other regulations. A 2009 study by Dutch research firm Ecorys estimated that eliminating even half the obstacles created by regulatory divergence could deliver $150 billion in economic gains, or half a percent of trans-Atlantic gross domestic product.


Beyond the direct economic impact, establishing a more cohesive regulatory environment would better position the U.S. and EU to counter the rapid rise of China and other so-called BRIC countries. Nearly 40 percent of trans-Atlantic trade is within firms, demonstrating the potential for easing those flows through regulatory compatibility.


“We’re really excited this could go forward, creating direct savings for big chunks of industry where there is huge cross-border trade and investment,” said van den Hoven. “The U.S. and EU companies would gain a competitiveness edge vis-a-vis the rest of the world.”


The Ecorys study found that about half of the benefits from regulation convergence could come from two areas — auto standards and regulations governing chemicals, cosmetics, and pharmaceuticals.


Auto-standard alignment is already underway, with a focus on new regulatory concerns such as establishing interoperable networks for charging electric vehicles.


The American Automotive Policy Council, the Washington lobby for the Big 3 automakers — Chrysler Group LLC, Ford Motor Co., and General Motors Co. — went on the record last year about the proposed regulatory effort, saying cooperation on emerging areas could go a long way toward its goal of “tested once and accepted everywhere.”


Differences in existing automotive safety and emissions regulations, certification procedures and reporting are a major hindrance to trans-Atlantic trade, the association said.


“If they could do this on forward-looking issues, future technological development in the industry, they would like to see if they could also start working backwards,” said van den Hoven.


Similarly, the U.S. and EU are leaders in the chemicals and pharmaceuticals business, with significant two-way trade. If regulatory authorities can agree to similar testing requirements, and a means to protect the confidentiality of data, that could clear the way for products to be registered in both the U.S. and EU, he said.


The launch of such an ambitious negotiation could cause other ripple effects by creating added incentive for China and other developing economies to return to the negotiating table over the failed Doha round of global trade talks, the business representatives said.


“I think if the U.S. and EU succeed, a lot of countries would run back to the World Trade Organization and say, ‘We need a trade agreement now,’” van den Hoven said.