Friday

20th Jan 2017

Analysis

What chance an EU-US trade deal?

  • Karel De Gucht is leading talks on an EU-US trade deal (Photo: wikipedia)

The relationship between the US and Europe has historically been about diplomacy. But in these economically-straitened times, the focus on foreign policy has shifted. Indeed, negotiations on a bilateral trade accord are set to be at the heart of the relationship between the US and the EU in the second term of US President Barack Obama's administration.

To be honest, it is surprising that the US is one of only a handful of World Trade Organisation (WTO) members not to have a free trade deal with the EU.

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Last month the likes of Peru and Colombia became the latest countries to sign an agreement. Nearly €2 billion of goods and services are traded between the EU and the US every day, a far higher level than either side trades with China or, indeed, any other country.

Yet it seems as though economic and diplomatic relations were so benign that political leaders on either side of the Atlantic did not see enough value in expending political capital trying to make them better.

Talks between diplomats on a bilateral trade deal began in November 2011 but are still at an early stage, with a working group of EU and US negotiators likely to publish their first report in early 2013.

But the stakes are high. With the Doha Round of trade talks at the World Trade Organisation (WTO) dead in the water, an EU-US trade deal would rival the North American Free Trade Agreement (Nafta) as the biggest single trade pact.

At the end of November, outgoing secretary of state, Hillary Clinton, put down a marker that talks are getting serious.

During a speech at the Brookings institute, a Washington-based liberal think-tank, Clinton said that "if we work at it and if we get this right" the two sides could negotiate an agreement "that opens markets and liberalises trade would shore up our global competitiveness for the next century, creating jobs and generating hundreds of billions of dollars for the economies."

There is no doubt that at a time when the EU is in a double-dip recession and the US is suffering from anaemic growth, both sides could use an economic injection. The Commission estimates that removing trade barriers would increase EU GDP by 0.5 percent, roughly equivalent to around €50 billion per year.

Last month, EU trade commissioner Karel De Gucht, who is also in the final stages of negotiating a trade deal with Canada, told a congress of the pan-European Liberal group that there was "for the first time in years, a serious drive towards an EU-US free trade agreement."

That said, it will not be as simple as axing tariffs.

Even though tariffs between the two sides are already low at around 3 percent, both sides share a fondness for subsidising their farmers, with the US also subsidising large swathes of its manufacturing sector, and there is little chance of either side giving any ground on this.

Instead, it would be more like the EU single market, with harmonisation of regulatory standards for products and services rather than an end to duties.

The collapse of the anti-counterfeit treaty Acta, after the European Parliament vetoed a deal negotiated by the European Commission, certainly weakened the faith of US officials in their Brussels counterparts.

After several years of negotiations from Guadalajara to Seoul and Paris, MEPs sank the treaty, in large part in protest that commissioner De Gucht had kept them in the dark about the talks.

But despite the commission's embarrassment over the collapse of Acta, EU officials have been working for years to beef up diplomatic relations with the US.

Since the introduction of the Lisbon treaty, which formally established an EU ambassador to Washington, the EU's love-bombing of the US has intensified. Meanwhile, the European Parliament now has its own direct presence on Capitol Hill at the US Congress.

Speaking with this website, a senior diplomatic source insisted that the EU wanted a relationship of equals, commenting that "we don't want to be like teenagers in a love affair where if one doesn't call for three days it turns into a crisis."

But it is difficult to argue that Europe's love for the US is fully reciprocal.

In fact, in November, at the last meeting of the EU parliament's US delegation with William Kennard, the US ambassador, Kennard found himself having to fend off criticism from MEPs that the Obama administration is notreally interested in Europe.

MEPs from across the party spectrum complained that the EU had barely been mentioned during the Presidential election campaign.

Kennard, who himself will also step aside shortly to resume a lucrative business career, retorted that "the US isn't talked about in your elections so I don't know why you'd expect us to be talking about you in our elections."

In truth, chiding Obama and Romney for not debating the EU is a hard sell.

It is difficult to remember the last time that the US took centre stage in an election in Europe. The last President to address MEPs was Ronald Reagan back in 1985.

There is certainly an appetite for an EU-US free trade deal among European leaders anxious to exploit any prospect of economic growth, as well as the diplomatic glory of securing an economic pact with the world's leading superpower.

For the moment, there are clear signs that the Obama administration is ready to come to the table and talk. Obama, who already enjoys a 70 percent approval rating among Europeans, might yet get more popular still.

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