For U.S.-E.U. deal, Europe will have its own negotiating to do

LARRY DOWNING/REUTERS - U.S. President Barack Obama and French President Francois Hollande. The U.S. and Europe are engaged in historic talks about a sweeping trade pact. But the real challenge may be getting the member nations of the European Union to line up with each other, since all have vastly different needs from global trade.

U.S. trade talks with Europe seem, on the surface, like a slam-dunk. The world’s richest nations will sit across a bargaining table stacked with potential compromises on regulatory and other issues that may represent tens of billions of dollars in extra sales and jobs.

But there’s a big potential hitch: The European Union is far from a unified negotiator, and the competing economic and political interests of its 27 member nations may outweigh the difficulties of reaching a deal with the United States.

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As the United States and European Union begin to negotiate a landmark free trade agreement, some critics worry that the new deal could undermine the current global trade system embodied in the WTO. (Bloomberg)

As the United States and European Union begin to negotiate a landmark free trade agreement, some critics worry that the new deal could undermine the current global trade system embodied in the WTO. (Bloomberg)

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Europe’s struggle in recent years to contain a financial and sovereign debt crisis laid bare the region’s unfinished debate about local power vs. central authority. The issue has enraged Greeks who feel beset by German-enforced austerity and led the United Kingdom to threaten to leave the union altogether.

Now those same countries will be asked to compromise on sensitive trade and regulatory matters in a way that may be good for the region as a whole, and good for the transatlantic economy, but politically tough at a local level. With Irish Prime Minister Enda Kenny, who holds the E.U.'s rotating presidency, due in Washington on Tuesday for meetings with President Obama, the prospect of a major trade deal poses tough questions.

Aligning drug, food, or auto safety laws with the United States may be great for German industrial giants, or the multinationals that are driving Ireland’s economic recovery. But will French farmers agree to give up their market protections so BMW can ship cars more easily? Will national governments drop their local procurement rules? Will the region’s more isolated countries hold the process hostage — as Finland did on another issue at the peak of Europe’s financial troubles?

“We will have differences of opinion and there are political difficulties” that the European countries will have to navigate among themselves even as they try to present a single face to the United States, Kenny said in an interview from Dublin last week. In contrast to some E.U. nations, Ireland has “a disproportionate connection worldwide.”

“As an island nation and a trading nation we have to make these connections. This [agreement] is full of potential,” he said.

Kenny visits Washington this week to press the case for an agreement that has generated a rare positive energy in a region that is slumping economically. His own country is recovering from a crisis that left it under an international bailout program. In that context, Obama’s announcement of the European negotiations in his State of the Union address was a political victory in itself for business groups and officials who had been trying to convince the United States that a broad deal was within reach.

Preliminary talks over the past year and a half were handled through the centralized European Commission under trade minister Karel De Gucht. He is expected to receive a formal negotiating mandate from the 27 E.U. member states, and will barter on behalf of all of them in hopes of finishing negotiations in two years.

Final agreement, however, will hinge on the member nations finding an often elusive common ground. The United States and Europe have tried in the past to create a more “harmonized” economy in which goods that are approved for sale on one side of the Atlantic don’t have to be retooled or specially engineered for the other. The full potential, analysts say, has never been realized.

“The level of will in Brussels is strong” to get a deal this time, said Myron Brilliant, a U.S. Chamber of Commerce executive who recently returned from meetings in key European capitals. “But if they don’t want to make changes and work with the U.S. and make tough decisions . . . these negotiations are not going to go very far.”

A recent International Monetary Fund study of European economic patterns demonstrated the wide differences among E.U. members when it comes to trade — with Ireland by far the most export-dependent. According to the fund’s study, Irish companies and workers add the equivalent of half the country’s annual economic output to goods and services that are exported. The figure for Greece is about 10 percent.

The International Monetary Fund said that, to the extent a country is already wired into the global trading system, it benefits more from any overall jump in trade.

A European Commission study estimated the potential benefit of a U.S. agreement in the hundreds of billions of dollars, mostly in cost and efficiency savings in chemical, auto and other manufacturing industries where formal tariffs are dwarfed in importance by the expense of dealing with conflicting regulatory systems.

Trade officials point to the auto industry as a particularly big potential winner, noting the example of a BMW plant in South Carolina that has to put one type of bumper on cars for the U.S. market and a different one for models it ships back to Europe. While the cars produced on each side of the Atlantic are considered comparable in safety, the safety testing methods and regulations are different, forcing manufacturers to adapt.

Other areas of negotiation could be more sensitive.

Ireland, with its close cultural ties and large expatriate population in the United States, has a particular interest in more liberal U.S. immigration law. Others in Europe have suggested allowing broader recognition between the United States and Europe of professional licensing rules, and more liberal visa regulations for skilled workers.

That may play well in the United Kingdom, where large financial companies would benefit from easier immigration in their hunt for talent.

Will the rest of Europe agree if it means U.S. engineers or accountants more easily setting up shop at a time of high regional unemployment?

European trade officials argue that despite the sometimes divergent interests among E.U. members, compromise can be found. Some rules that restricted U.S. food sales have already been relaxed as a confidence-building measure ahead of the talks.

Despite likely differences in national priorities, European officials say any agreement will balance benefits well enough to win full E.U. support.

“It is not something where Europe is going to have to change its legislation and the U.S. is not going to have to do anything. It is two heavyweights. We are in the same boxing category,” a European trade official said.

Kenny’s agenda in the United States demonstrates how any agreement might be seen differently across Europe’s different national economies. It included St. Patrick’s Day in New York — a powerful symbol of how a small nation can tap into the culture of the world’s financial center — before his meetings with Obama in Washington. Then he is off to Seattle and Silicon Valley to visit tech companies, entertainment giants and others, many of which have already set up shop in Ireland and could be courted to expand.

The trade issues now on the table “could have been addressed many years ago. Now we have an opportunity to drive it on behalf of the two greatest trading blocks in the world,” Kenny said. And if the flow of investment and jobs across the Atlantic begins to grow, “we can demonstrate that we are a bridge.”

 
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