Three long-awaited free trade agreements passed Congress last year, and the U.S. is negotiating the Trans-Pacific Partnership. What next? Several business groups believe the time is right for a free trade agreement with the European Union.
“I’ve seen more interest now in the possibility of an FTA with the EU than I have in many years,” said Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers. Interest in an agreement tends to grow and diminish over time, “but we’re at a high water mark right now. We’ve got more people on both sides of the Atlantic talking about it than ever before.”
Just how comprehensive an agreement should be is the subject of discussion. The U.S. Trade Representative’s Office is listening, Vargo said. In November, just weeks after Congress approved FTAs with South Korea, Colombia and Panama, President Obama and EU leaders established a high-level working group for jobs and growth. Although a strong signal of the administration’s interest, it may be a year before the White House formalizes a set of negotiating positions.
Several trans-Atlantic business groups have stated their positions. The Business Roundtable and the TransAtlantic Business Dialogue jointly developed a plan to forge what they call for a “partnership” for the 21st century. The plan’s goal’s are to renew the trans-Atlantic market, make it more competitive with the rest of the world, and strengthen the World Trade Organization.
“But in today’s global economy, we cannot afford to limit our ambition to a standard bilateral free trade agreement,” the groups said. “Such an exercise is insufficient to meet the broader economic challenges we face.”
“It’s something we’re promoting,” said Michael C. Maibach, president of the European-American Business Council. “Our approach is for two or three projects on separate tracks, so if a zero-tariff agreement was going forward but a services agreement bogged down, we could continue with zeroing-out the tariffs.”
Vargo agreed that eliminating tariff barriers would be a good place to start. International agreements on tariffs on certain commodities mean some 70 percent of exported U.S. manufactured products don’t face duties abroad. Advanced developing nations such as China, India and Brazil collect duties on about 20 percent of the goods. About 10 percent of goods face tariffs in the EU.
“The EU tariffs are pretty low, they average 3 percent, but there’s such a huge volume of trade, we end up paying one-third of our duties on our exports to the EU,” Vargo said. Total trade in goods with the EU was more than $635 billion in 2011, according to the Census Bureau. Exports, which accounted for nearly $270 billion, have grown 45 percent since 2005, good news for the Obama administration’s efforts to double overall U.S. exports by 2015 under the National Export Initiative.
“You can expand the Pacific market and not neglect the biggest investment relationship in the world,” Maibach said. “The U.S. and Europe together are half the world’s GDP and 11 percent of its people. For the past several hundred years, it’s been the heart of the global economy. It’s a huge relationship. We forget it because it’s so taken for granted, but it’s still the world’s hub of economic activity.”
Between 40 and 50 percent of trans-Atlantic trade comes from intra-company transfers of goods among divisions of international giants such as Siemens and General Electric. “It’s a tax on doing business across the Atlantic, which hurts our competitiveness,” Vargo said.
The prospects for a trans-Atlantic agreement are brightening while the World Trade Organization’s Doha Development Round dims, he said. Achieving a Doha agreement depended, among other things, on reaching accord among all parties on trade in manufactured and agricultural commodities.
According to rules set down in the General Agreement on Tariffs and Trade and adopted by the WTO, free trade agreements must cover substantially all trade among partners, Vargo said. In other words, nations can’t make FTAs on the basis of a few selected commodities. That means a U.S.-EU free trade agreement would have to consider agricultural products, but they comprise a relatively small amount of trans-Atlantic trade.
“We’ve run the numbers, and agricultural trade across the Atlantic is a little less than 4 percent,” Vargo said. “So if 96 percent isn’t substantially all trade, what is? Plus that, I don’t think all agricultural trade would object to being in an FTA.”
The U.S. and EU would likely begin bilateral negotiations, but Vargo said the goal is a broader agreement. Mexico has had its own FTA with Europe for several years, and Canada is negotiating its own. But he believes the North American Free Trade Agreement partners eventually will come together with the EU.
“We want another NAFTA. We want a trans-Atlantic partnership,” Vargo said. “That would make more sense than three individual FTAs across the Atlantic. It’s almost certainly a two-step process. As I’ve talked to European, and Canadian and Mexican industry, there’s general acknowledgement that it would make a lot of sense.”