Transatlantic trading

Why America and Europe need a free-trade

deal—and why they might fail to get one

Feb 2nd 2013 |From the print edition

THE guns of the long transatlantic beef war are silenced. Last year the European Union more than

doubled its quota of American beef imports (so long as it is not treated with hormones) and America

removed punitive duties on imports of Roquefort cheese. The Americans should soon ease a ban on beef

imports imposed in 1997 to prevent the spread of mad cow disease. In November the EU accepted the

American practice of decontaminating meat with lactic acid. A final skirmish, over American beef fat,

could soon be settled through plans to allow imports of tallow for biodiesel (but not for cosmetics).

After decades of trade rows and lawsuits, the truce is meant to clear the air for an ambitious transatlantic

free-trade deal. EU officials speak of creating “something approaching a transatlantic single market in

goods”. Even a less grand pact could help to re-energise struggling economies on both sides of the

Atlantic. It could also help America and Europe to set international trade rules in the face of a fast-rising

China.

Big business wants a deal. Trade unions and greens are no longer so worried about a race to the bottom.

The ever-protectionist French and Italians are on board. And yet there is genuine wariness, particularly

on the American side. The report of a high-level group that is expected to recommend the start of talks

has been delayed. Perhaps, think some, President Barack Obama is trying to squeeze concessions out of

the Europeans; or, Europeans worry, he cares more about a transpacific deal; or he is busy setting up his

second-term administration; or is he waiting for the right moment for an announcement, for instance in

his state-of-the-union message on February 12th?

American officials say they want to ensure that any negotiation is both unusually ambitious and

unusually fast. The deal, they say, has to be done “on one tank of gas”, by which they mean in the next

two years. Neither side wants a repeat of the moribund Doha round, now in its 12th year.

America and the EU make up the world’s biggest and richest trading partnership, accounting for about

half of global GDP and one-third of trade. They are the biggest investors in each others’ economies. But

this very closeness makes progress harder. Easy deals have mostly been done; what is left is

complicated. Tariffs are low (below 3% on average, though higher on farm products) but non-tariff

barriers abound. Many have to do with consumers, public health, the environment or national security.

Governments are not usually elected to compromise on such matters.

One European aim is to open up America’s public-procurement market, which is more protected than

Europe’s; one reason is that the federal government cannot force states to open tenders to foreign

bidders. Another is to dismantle restrictions on services, which represent the lion’s share of output but a

relatively small part of exports. European airlines cannot take over American carriers or carry

passengers between American cities. Similar restrictions apply to coastal shipping under the 1920 Jones

Act. Yet the EU market in services also remains fragmented. A transatlantic deal could spur further

integration. Other difficulties include France’s insistence on the “cultural exception” to protect French-

language audio-visual products, and the EU’s wish for America to respect hundreds of “geographical

indications” on everything from Parmesan cheese to French wines.

For some officials, the biggest prize and the hardest brainteaser will be greater “regulatory

convergence”, ie, to get both sides to move towards common rules, or at least regulations that are close

enough that each can accept the other’s. There could be big savings if, say, pharmaceutical firms did not

have to submit new drugs to two sets of safety tests. The EU has tried to pursue global standards for

decades, often acrimoniously, by relying on supranational bodies. Yet across the Atlantic, successive

dialogues between regulators have yielded little. The Transatlantic Economic Council was created in

2007 to increase political pressure. Rather than trying to redesign past rules, attention has shifted to new

technologies such as electric cars and nanotechnology. Even so, after a year of negotiation on electric

cars, one forlorn American official moans that “we have a common standard on the plug.”

Any trade deal will have to be broad to maximise the possible trade-offs. And it will, inevitably, have to

address the minor but contentious subject of agriculture. Congressional leaders in America will not

support a deal that excludes farming, to which European officials retort that the best way to kill one

would be for America to ignore consumers’ fears of “Frankenfoods”, such as hormone-treated beef and

genetically modified crops. Part of the answer is to have clear labelling and let consumers choose what

they want to buy.

Failure is an option

In short, leaders may say they want a trade deal, but still be unable to reach it. That would be a huge

missed opportunity for both sides. The Europeans are the keener, but they have the weaker hand. Their

economy is in worse shape, not least because of the euro crisis. In geopolitical terms, the EU hopes that

a big trade accord will give Mr Obama, even as he pivots to Asia, good reason to keep up the old

Western partnership.

There is also a new, unspoken objective: to cement the EU itself. Now that Britain is talking of holding

a referendum on its membership by 2017, a successful agreement with America could demonstrate that

the British do better bargaining collectively through the EU than alone. Mr Obama may not realise it,

but many European hopes are now riding on his state-of-the-union message: the shared prosperity of the

West, the fate of liberal trade rules, the health of the transatlantic alliance—and even the relevance of

the EU to some of its own members.