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2nd Jul 2022

EU-US free trade talks restart in Brussels

  • EU headquarters: common rules, not tariffs, are the main prize (Photo: ec.europa.eu)

For over a century in the developed world, the concept of free trade was based on the principle of no tariffs.

But in 2013 the economic map has changed. Although many countries still impose tariffs or duties on products entering their markets from foreign countries, it is "behind the border barriers" which are the real drag on trade flows.

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EU and US officials will hold the second round of talks on the so-called Transatlantic Trade and Investment Partnership (TTIP) - set to last all week - starting Monday (11 November).

Around 50 US officials are expected to be in Brussels from a range of economic sectors. The meetings are expected to cover services, investment, energy and raw materials, as well as regulatory issues.

The talks will, largely speaking, not be about tariffs. In fact, duty barriers between the EU and the US are already low - under 3 percent in most cases. The European Commission estimates that a small scale EU-US deal eliminating the remaining tariff barriers would limit the economic benefits to under €25 billion.

"Regulatory coherence" between the two blocs is seen as the real prize at the end of the TTIP talks.

The EU executive estimates that a comprehensive trade deal going beyond tariff barriers and harmonising standards across a variety of sectors could be worth €275 billion per year to the two sides, of which roundly €100 billion per year would be for the EU - equivalent to an additional 0.5 percent of EU GDP.

Officials also say that this would create up to 2 million new jobs.

But while the potential rewards would be large, the challenge of reaching agreement is much tougher and is likely to take far longer, potentially pushing the timetable for agreeing a deal into 2015.

"It's going to be difficult to get the US to engage in regulatory talks … but we are optimistic that we can at least get the US to agree on a few principles," says a commission official, who is hoping to put financial services on the negotiating table.

However, recent experiences in transatlantic financial regulation are not promising.

The EU and US could only reach agreement on how to regulate the multi-trillion dollar derivatives market at the 11th hour following a tense showdown between regulators.

The US Commodity Futures Trading Commission (CFTC) agreed to a joint approach with the EU in July, just hours before CFTC rules were due to come into force that would have forced US financial services to comply solely with US swaps rules.

The Americans are unwilling to put financial services on the table, fearing that any deal could undermine the so-called Dodd-Frank bill on financial regulation, adopted in 2010 in response to the 2008 financial crisis.

Kay Swinburne, a prominent Conservative MEP on the European Parliament's economic affairs committee, told a recent hearing: "We've been told to stop talking about it [financial regulation] because it's not going to happen".

In contrast, when it comes to regulation of the chemical industry, it is the EU that fears its own existing rules could be weakened.

The so-called Reach legislative package, which re-wrote the EU's rules on chemicals in 2007 and which requires companies to provide information on the contents of over 30,000 substances, was flatly opposed by the US, which prefers a lighter-touch approach.

The EU plans to use the Reach rules to reduce the number of potentially dangerous chemicals in circulation in household goods, while the US system in many cases would keep them on the market, so long as they are not used in ways that would harm people.

However, the recently-concluded trade talks between the EU and Canada, though not extending into financial services, did see agreement in areas such as public procurement contracts.

Under the final deal agreed in October, EU companies will be able to bid for contracts at all levels of the Canadian government.

The commission is approaching the TTIP talks with a sense of urgency, and trade commissioner Karel de Gucht is anxious to seal an agreement as soon as possible - preferably before the end of the current legislative term.

But if the deal is to go much beyond conventional tariffs, more time and patience will almost certainly be needed.

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