With trade already flowing, U.S. and European Union aim for something deeper

February 13, 2013

An estimated $2.7 billion in goods and services move between Europe and the United States each day, and entrepreneurs from the two sides trust each other’s legal and economic systems enough to have made some $3.7 trillion in transatlantic investments.

Is there much room for improvement?

In announcing new U.S.-European trade talks, Obama administration and European officials say they think they can deepen, in perhaps a profound way, economic ties among the world’s core industrial economies.

The agreement, if it is successfully negotiated, probably won’t prove as disruptive to existing trade and investment patterns as earlier pacts such as the North American Free Trade Agreement or China’s entrance to the World Trade Organization. Wages, levels of development and other economic fundamentals are comparable between the United States and the 27-nation European Union, and their markets already are largely open to each other.

But, advocates say, it could stoke investment, innovation and commerce by merging the world’s two largest trading areas into what would amount to a single market — with investment flowing unimpeded, regulators cooperating on common standards and accepting each other’s product testing, and tariffs all but eliminated. As companies lower costs, become more competitive and adapt to the new rules, it could add a full percentage point to U.S. economic output, boost trade on both sides and perhaps influence how other countries behave, according to studies of a possible agreement done by the European Center for International Political Economy.

“This is potentially a very big deal,” Mike Froman, President Obama’s adviser on international economic issues, said Wednesday after Obama announced in his State of the Union address Tuesday that he would pursue a “comprehensive Transatlantic Trade and Investment Partnership.”

With negotiations well advanced on an agreement among Asian and Pacific rim nations, the president has committed to an ambitious discussion with the country’s original and mostly deeply integrated trading partners — nations such as the United Kingdom and Germany that share strong cultural and political ties with the United States.

The talks come at a time of economic unease in the developed world. Europe is stuck in recession, and despite modest growth in the United States unemployment remains high and export growth has slowed. Europe and the United States have frequently debated ways to streamline commerce between the two sides. That has sometimes produced breakthroughs over such issues as jointly accepted certification of civilian aircraft but has more often stalled in parochial bickering or more earnest philosophic divisions.

A U.S.-European working group spelled out the ambitions in a document released this week. It called for standard trade-boosting measures like a virtual elimination of tariffs — already low, at an average 4 to 7 percent for goods traded between the United States and the European Union — and efforts to open areas that remain heavily regulated to outside investment, be it such services as power generation or agriculture markets in which both sides shelter local favorites.

But the core of the negotiations will revolve around efforts to ensure that the vast regulatory bureaucracies in Europe and the United States — the agencies that oversee everything from the effectiveness of pharmaceuticals to the safety of baby toys — are as closely aligned as possible in how they evaluate products and are willing to accept each other’s results. That applies to such existing goods as automobiles, and to emerging areas like regulations governing the cross-border data flows important to businesses providing services on shared “cloud” networks.

Business officials point to the earlier aircraft agreement as a model: A plane certified for service by the Federal Aviation Administration is accepted for the same by European officials and vice versa.

But there are areas of deep existing and potential conflict — contradictory rules on food additives for example, or data privacy laws in Europe that clash with U.S. provisions requiring companies to turn over information requested by law enforcement. Businesses often complain that, even where regulatory standards are nearly identical, analysis of a product performed on one side of the Atlantic isn’t accepted on the other.

The upcoming negotiations — even if they produce an agreement that can clear Congress and Europe’s complex political hierarchy — may only start the process. The working group said the agreement “should be designed to evolve over time” by “establishing mechanisms” that would allow officials from the two sides to resolve regulatory disputes bit by bit.

“We don’t expect a transatlantic regulatory body. Regulators are regulators. They are answerable to their domestic political bodies,” said Peter Chase, the U.S. Chamber of Commerce’s vice president for Europe. “The question is: How do you make them more efficient?”

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