The possibility of a Brussels-Washington trade and investment pact received new momentum last week, following the release of an EU-US report which found that a broad, comprehensive bilateral deal was the option with “greatest potential” for supporting jobs and spurring economic growth on both sides of the Atlantic.
The report was prepared by the EU-US High Level Working Group on Jobs and Growth, which was tasked by Washington and Brussels last November to explore trade and investment expansion within the world’s largest trading partnership as both sides seek to remedy their ailing economies. (See Bridges Weekly, 30 November 2011) This interim report is a precursor to a final recommendation that will be forwarded to US and EU leaders later this year.
The report outlined a series of areas where Washington and Brussels could likely find convergence; however, it noted that other subjects would require additional substantive work before the working group could make a more definitive recommendation regarding whether the two sides should ultimately pursue a bilateral deal.
The report was welcomed by US and EU leaders, who acknowledged that such an initiative could be key to strengthening growth and creating jobs. “A strong outcome can enhance not only transatlantic economic ties, but also address shared market access challenges in third countries and encourage a forward-looking multilateral trade liberalisation agenda,” US President Barack Obama, European Commission President José Manuel Barroso, and European Council President Herman Van Rompuy said in a joint statement.
“We are now entering the last leg of mapping out how we should tackle any eventual negotiation to boost growth and jobs through our trade partnership,” EU Trade Commissioner Karel De Gucht said last week.
Though the US-EU trade partnership already exceeds US$500 billion annually, the US Chamber of Commerce estimates that reducing trans-Atlantic trade barriers could increase annual trade volume by up to US$120 billion.
Tariffs, IPRs, regulatory issues
Provided that both sides do decide to pursue a bilateral deal, the report suggested that negotiators aim to eliminate all duties on bilateral trade, starting with a large elimination of tariffs on some tariff lines upon the pact’s entry into force, and phasing out all but the “most sensitive” tariffs within a short time frame.
Negotiators should also work to develop a set of “21st century rules” focusing on areas such as trade facilitation and customs; trade-related aspects of competition and state-owned enterprises; trade-related aspects of labour and environment; small- and medium-sized enterprises; supply chains; and access to raw materials and energy, the report said.
In the area of services, both sides would aim to “bind the existing autonomous level of liberalisation of both parties at the highest level of liberalisation captured in existing FTAs,” while at the same time working to address remaining market access barriers and taking into account the sensitive nature of some sectors.
With regards to intellectual property rights (IPRs), both sides “agree
“Before the launch of any negotiations, both sides would further consult on possible approaches to deal with IPR matters in a mutually satisfactory manner,” the report said.
Washington and Brussels have examined options for lowering trade barriers between them in the past, only to find difficulty in achieving consensus in areas such as regulatory standards and health protections. These issues were also addressed in the report, which noted that a potential deal could include ambitious chapters that would be “SPS-plus” – SPS referring to sanitary and phytosanitary standards, or food safety and animal and plant health – and “TBT-plus,” with TBT referring to technical barriers to trade.
In both areas, the two sides could establish bilateral forums for greater dialogue and co-operation on these subjects, along with taking other measures to ensure regulatory compatibility, coherence, and transparency, the report suggested.
Increased political momentum, amid differences in rhetoric
The possibility of a US-EU free trade deal has received public backing from European national leaders in recent months. Speaking in Davos, Switzerland, earlier this year, UK Prime Minister David Cameron expressed support for bilateral negotiations, a stance that he repeated during last week’s G-20 Leaders’ Summit, while German Chancellor Angela Merkel has said the US and EU “have a lot of possibility to achieve a free trade zone.”
Obama has also indicated Washington’s interest in potentially pursuing such a deal. “Even as we build this new framework for trade in the Asia Pacific [with the Trans-Pacific Partnership talks], we’re also working to expand our trade with Europe,” Obama said at last week’s G-20 summit. The US President noted that the interim report is the “next step” in Washington’s and Brussels’ work “towards the possible launching of negotiations on an agreement to strengthen our already very deep trade and investment relationship.”
Recently, however, top US and EU trade officials have offered differing views on what improved trade ties could mean. Last month, EU Trade Commissioner Karel De Gucht stressed that any US-EU trade agreement must be “both ambitious and realistic,” addressing a comprehensive array of trade and investment. (See Bridges Weekly, 16 May 2012) Negotiations for such an agreement should begin early next year, De Gucht said, and be completed by mid-2014.
Meanwhile, De Gucht’s counterpart, US Trade Representative Ron Kirk, has suggested a more “pragmatic” focus. While noting the potential opportunities that could spring from clinching a comprehensive trade agreement, Kirk cautioned against an all-or-nothing approach to the talks, noting that smaller deals could indeed be an option should an overarching deal appear out of reach.
“We are hopeful this could be a unique opportunity to address some of these historic issues that in the past have seemed to stand in the way … (but) if we can’t do that, then we think it’s imperative that we take a pragmatic approach to seeing what we can accomplish,” Kirk told reporters in London on 22 May. (See Bridges Weekly, 23 May 2012)