This article is part of our special report Free Trade for Growth.
SPECIAL REPORT / Companies on both sides of the Atlantic have urged EU and US policymakers to negotiate a ‘realistic’ trade and investment agreement that not only benefits their economies, but serves as a model for the rest of the world.
In their contribution to the European Commission’s consultation, corporate executives have called EU-US policy makers to start negotiations and deliver a deal “as swiftly as possible.” The consultation feeds on the work of the high-level working group on growth and jobs set up last November at the EU-US summit.
The negotiation of sensitive issues should not block the discussion on other chapters where an agreement can be achieved more easily, BusinessEurope said in its contribution.
For the EU employers’ organisation, an ambitious and comprehensive package to liberalise transatlantic trade and investment should be the first priority of the EU-US economic relationship and it should cover trade in goods and services, investment, procurement, protection of intellectual property right and regulatory issues.
“There are more reasons today for the US and the EU to conclude a comprehensive deal than before, if only because they are no longer together, as they were before, in a position that allowed them to set the agenda in the multilateral trade negotiations,” Hugo Paemen, co-chair of the European American Business Council (EABC) and former EU ambassador to the US, told EURACTIV.
Further liberalisation would require going beyond the issues that can be discussed and agreed with most other nations, added Paemen.
Well aware of what derailed the Doha trade talks, US and EU companies want a ‘realistic’ deal, said Christoph Luykx, Intel’s public policy manager.
The EU and the US share the world’s largest market for trade and investment and they enjoy the world’s highest GDPs per capita. Despite the blow of the euro crisis, the EU-US economy represents 50% of world GDP and roughly 41% of GDP in terms of purchasing power.
The transatlantic economy generates close to €3.8 trillion in commercial sales a year and employs up to 15 million workers in ‘onshored’ jobs on both sides of the Atlantic. US FDI to Europe in 2011 topped €152 billion for only the second time on record. By contrast, US firms invested $40 billion (€30.9 billion) in China between 2000 and 2011, putting China 14th as a destination of US FDI behind Belgium, France, Germany, Switzerland, Ireland, Britain and the Netherlands.
Tariffs and non-tariffs barriers
Bilateral trade policy cooperation has been less than optimal in the past years, analysts noted. Blockages in trade remain, primarily in the form of non-tariff barriers and disparities in how services are regulated. Tariffs are also a nuisance, even if they are low, standing at 5-7% on average.
According to a 2010 study, eliminating tariffs could boost GDP by 0.3% to 0.5% in the EU and 1% to 1.3% in the US, corresponding to gains of €44 billion to €66 billion in the EU and $59 billion to $82 billion (€45 billion to €63 billion) in the US.
“Tariffs reduce the competitiveness of companies which use imported goods for assembling and re-exporting final products,” researchers pointed out.
Full tariffs liberalisation will also give companies the resources to reinvest in manufacturing and R&D in the EU and US, said AmCham EU, echoing BusinessEurope.
What seems more difficult is to eliminate non-tariffs barriers. Business communities on both sides of the Atlantic, since the creation of the Transatlantic Business Dialogue (TABD) in 1995, have concentrated their work on regulatory cooperation, trying to have one set of rules “approved once, accepted everywhere.”
But no tangible results have been achieved in the last 17 years, notwithstanding the political declaration, said BusinessEurope.
“Both sides have lacked the political will to drive the process to a logical conclusion, thereby accepting some incursion on their right to regulate,” added the European business association.
General principles, detailed sector-approach
A sector-oriented approach seems the preferable and more realistically achievable way forward, rather than any general harmonisation of standards.
Companies like Intel suggested to have a flexible framework, allowing the negotiation of general principles that apply to all industries, and include specific chapters that apply to single sectors.
“In taking this approach, slow progress in removing barriers for one sector will not hamper progress in another,” added Luykx.
BusinessEurope has identified for each sector a list of priorities and so did Amcham. “We were asked to be very detailed. The devil is in the details,” said Michelle Gibbons, chair of the EU-US task force at Amcham.
Switzerland, which explored the feasibility of a free trade agreement with the United States, is well positioned to know that dealing with non-trade barriers is quite different when it comes to product regulations, whether it is pharmaceuticals, electric devices or chemicals.
Swiss Ambassador Christian Etter, who led the scoping exercise in 2006 with the United States, told EURACTIV that this will likely be the area where EU-US negotiations will struggle the most. “The US has its own philosophy on regulatory matters – they have quite independent regulatory authorities which could not be convinced to change their approach,” he said, noting that the EU will unlikely convince them. Switzerland does not have a free trade agreement with the US.
Corporate executives stress that any comprehensive transatlantic agreement should create a mechanism that allows counterpart regulatory and standards agencies to stress compatible and equivalent approaches to approving products and services on sale in their respective markets.
Speaking to EURACTIV, a Commission spokesperson stressed that the scoping exercise underway between the EU and the US is done thoroughly and “with a sense of urgency” to save time once and if negotiations are launched.
“They are cutting through the problems and trying to set themselves a roadmap so that obstacles can be swiftly removed down the route,” he added. “If you have the same objectives, you sort the nitty-gritty.”
Those who love us, follow us
If the EU and the US can agree on common future standards, this would create a major opportunity for a more international approach involving countries like Japan and South Korea as well as the BRICS and Asean countries, stressed BusinessEurope in its paper.
“If we want to have some influence on what the rules of the game will be in these areas in the future, we need to go for the best solutions together, and with those that want to work with us. That does not diminish the merits, nor the ultimate need for multilateral rules, but it is a different way to get there in some new areas,” said EABC’s Paemen.
Business executive are well aware that such trade deals could boost EU exports to the US by 7% to 18% just with tariff elimination and 200,000 to 520,000 jobs could be created in the EU and 190,000 to 400,000 in the US.