EU's Holy Grail of Trade Talks

European lawmakers, regulators and diplomats are anxiously waiting to see whether they will figure in President Obama’s State of the Union address.

Hopes are rising in Brussels that the U.S. administration, re-energized by its temporary “fiscal cliff“ deal, will give the go-ahead in late January for substantive negotiations toward a landmark free trade agreement with the European Union.

Time is running short for the free trade pact to make it into the president’s speech after European and American officials failed to meet a year-end deadline to outline how the agreement might look, the economic payoff and the obstacles standing in its way. Their report is expected to be published in the coming weeks.

The EU is desperate to begin negotiations with its leading trading partner because it has run out of all other options to boost economic growth at a time when many of its member states are pursuing austerity programs to reduce bloated sovereign debts and the eurozone crisis is far from being resolved.

Europe’s urgency reflects its fear of being sidelined at a critical moment as the Obama administration pursues an ambitious Trans-Pacific Partnership to stimulate the U.S. economy and boost its foreign trade. Hilary Clinton’s assertion that “America is not pivoting from Europe to Asia; we are pivoting with Europe to Asia,” was viewed as a throwaway sound bite. Europe’s fear of being left behind is also being fuelled by forecasts that the eurozone economy likely will stagnate in 2013 while the U.S. might grow by around 2 percent.

The EU has been pursuing bilateral free trade deals with prominent trading partners including Japan, Singapore and several Latin America nations following the collapse of the Doha world trade talks.

But these initiatives pale in comparison with a deal to further liberalize the Brussels-Washington  trading relationship, still the world’s largest, despite the explosive growth of Chinese business with both the US and the EU.

The sheer size of EU-U.S. trade and investment relationship means that even modest reforms can have a disproportionate payoff. It’s also a pretty harmonious affair, only occasionally punctuated by a flare-up in long running rows over Europe’s aversion to the U.S.’s genetically modified crops and Airbus and Boeing subsidies.

With tariffs on most products down to an average 5 to 7 percent, negotiations would focus on dismantling non-tariff barriers, removing or more closely aligning product regulations and standards for autos, electronics, chemicals and drugs that prevent U.S. and European firms from selling in each other’s markets.

Economists are divided over the how big an impact a free trade deal would have on economic growth, jobs and exports on both sides of the Atlantic, but most agree it is worth pursuing for lack of any other clear-cut strategies.  

Selling a free trade pact won’t be easy as record high unemployment across Europe — hitting 50 percent for those under the age of 24 in Spain — stirs protectionist sentiment both on the street and among lawmakers, particularly in the Mediterranean. The EU recently got a mandate to start negotiations for a free trade agreement with Tokyo only after Paris secured safeguards to defend its carmakers against potentially strengthened competition from Japan.

The EU must take a stand against vested interests and isolate the protectionist camp in the 27-nation bloc, to ensure its hands aren’t tied if it gets a mandate for negotiations with the U.S. 

And it has to act rapidly and decisively to agree on what is attainable and then go all out for a deal in time to get approval from its member states and the European Parliament as well as ratification by both houses of Congress.

European Trade Commissioner Karel De Gucht reckons a pact needs to be signed 18 months after official talks begin.

The countdown has begun.

Contact Bruce Barnard at brucebarnard47@hotmail.com.

 

 

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