U.S. - EU Trade Working Group May Be Limited By Political Realities Of 2012

01/10/2012 GACC South News, Global AHK News, Global DEint News

A working group tasked by the leaders of the U.S. and European Union last November with exploring how to deepen the trans-Atlantic trade relationship by the end of 2012 faces strong challenges for logistical and political reasons.

Logistically, the two sides are still at the very early stages of determining the group's mandate and its members, because there was little consultation between governments and stakeholders in advance of the announcement at the Nov. 28 U.S.-EU summit that the two sides would explore how to deepen trans-Atlantic trade ties.

Politically, the election year in the United States and the euro-zone crisis in the EU make it hard to see whether leaders will push forward on a very ambitious agenda, according to analysts and business sources.

European leaders are scheduled to meet Jan. 30 in Brussels to discuss growth strategies, but observers did not expect that the working group would rise to the forefront of their deliberations amid the euro-zone pressure.

“Are we going to have the political energy to really give government backing to what the executives and experts [in the working group] are going to work out?” said Roland Freudenstein, a researcher at the Brussels-based Center for European Studies. “If this pressure [from the crisis] keeps up, then our leaders are just not going to have time for trade.”

Analysts, business representatives and government officials all seem to agree, however, that the dire economic straits faced by governments on both sides of the Atlantic make seeking growth through trade a viable political and policy option. But there are different views on what level of ambition the two sides should pursue.

Some observers note that even relatively small trade initiatives will have a big benefit given the enormity of the bilateral economic relationship.

In the EU, member state governments are just now starting the process of conducting outreach to their business groups regarding the working group, and these business groups are likewise just beginning to talk with their constituent members.

In advance of the Nov. 28 announcement, Italy indicated that it would like to pursue cooperation on intellectual property issues, while Finland expressed support for evaluating a EU-US free trade agreement, according to sources. France, meanwhile, supports a focus on non-tariff barriers.

BusinessEurope, which represents 41 industrial and employers’ federations from 35 countries, has not yet developed any specific recommendations for the working group, according to Adrian van den Hoven, BusinessEurope's director of international relations. In an interview, he said his group will meet with officials from the U.S. Chamber of Commerce in March to discuss the issue.

He noted that, in principle, the agenda of the working group should not be too far reaching, or seek to make inroads on perennially contentious U.S.-EU issues like genetically modified food or protection of geographical indications.

But van den Hoven also noted that reaching agreements on trade requires trade-offs, which are easier to do in a broader agreement. He also said that larger agreements across sectors are politically easier to move in a European context because they are more likely to draw support from varied constituencies.

Other EU sources said if businesses or member states push for a full-throttle FTA to be on the working group agenda, it could be too weighty for leaders to deal with.

“Everyone wants to see results, or at least a plan or agenda,” said Thomas Zielke, head of the Representative of German Industry and Trade (RGIT) in Washington. “But we would need realistic expectations.”

In an interview, Zielke stressed that the agenda of the working group should be as ambitious as possible, but without it becoming top-heavy. He also said that RGIT would be making the working group a priority, given the importance of the U.S. market to German exporters and investors, and that he planned to discuss the topic with members of Congress.

However, RGIT -- which represents the interests of the Federation of German Industries (BDI) and the Association of German Chambers of Industry and Commerce -- has not yet decided on a strategy, or which issues it will recommend be addressed, according to Zielke.

Some analysts noted that several of the problems that contributed to earlier efforts to create a U.S.-EU FTA appear to have diminished. “The stars are better aligned for this kind of initiative to materialize,” said Frederick Erixon, director of the European Center for International Political Economy (ECIPE), which supports a trans-Atlantic agreement to eliminate tariffs on goods.

The failure of the Doha round, for example, has led some member states like the United Kingdom to re-evaluate their singular focus on the multilateral trading system and opened them up to revisiting the idea of deepening bilateral trade ties with the United States, according to sources.

Erixon and others also said that increased commodity prices and changes in the structure of the European agriculture sector have dulled the sensitivity in this area somewhat. The globalization of France's film and television industry also means that audio-visual services -- another contentious issue in the past for cultural as well as business reasons -- may no longer present a problem for trade liberalization efforts.

In the United States, the U.S. Chamber of Commerce has been advocating its idea for deepening the trading relationship by eliminating all tariffs on goods. Other business representatives have sought to tack on to the Chamber idea by suggesting a services agreement and efforts on dealing with U.S.-EU regulations, but the Chamber has insisted that these should be dealt with as individual agreements.

The National Association of Manufacturers (NAM) is just launching an exploration of the feasibility of a free trade agreement between the EU and the North American Free Trade Agreement signatories -- the U.S., Canada and Mexico -- according to a NAM source. The group hopes to have completed its analysis by June, when the high-level working group is to issue a preliminary report on its status.

The high-level working group's final recommendations are due by the end of 2012.

Other business groups, such as the European-American Business Council, are just beginning to explore what their members would like to see out of the working group, according to sources.

The U.S. and EU have engaged on economic and trade issues since 2007 at the working level in the context of the Transatlantic Economic Council (TEC), under which the high-level working group was established. But while the TEC has made headway in terms agreeing on broad principles, it has done little to establish binding rules and its work to tackle regulatory barriers has been painstaking, according to observers.

The working group will be headed up on the U.S. side by Ambassador Ron Kirk, while Trade Commissioner Karel De Gucht will represent the European Union. It is unclear who will form the rest of their teams -- or what their leanings will be -- but one EU member state official said that European governments will be keen to have a say in this matter.

With the euro-zone crisis currently the main focus of leaders in the EU, the U.S. needs to provide the political leadership on the working group agenda, according to Edward Goldberg, a lecturer at Baruch College who studies international trade and European-American relations.

He noted that the U.S.-EU relationship has not gotten much political support from Congress or a U.S. administration, and other observers question how much energy U.S. leaders will expend on the issue in an election year.

Goldberg said any such leadership would require “finesse,” however, to make clear to the U.S. public that deepening the trading relationship with Europe will not leave the U.S. more exposed to its debt troubles.

In a 2009 study, the Rotterdam-based ECORYS research group found that, in an ambitious scenario where 50 percent of all non-tariff barriers are removed between the U.S and EU, the EU's gross domestic product (GDP) would be be 0.7 percent higher in 2018 compared to the baseline -- an annual potential gain of 122 billion euros, or $158 billion.

For the U.S., the same scenario would yield a 0.3 percent gain per year in 2018, which represents an annual potential gain of $53 billion, according to the study.

Meanwhile, ECIPE found in a separate 2010 study that removing all tariffs in transatlantic trade would also have a large economic impact. So-called dynamic gains -- accounting for improved productivity and reduced trade facilitation costs -- were estimated to be 0.32-0.47 percent of GDP for the EU, or $46 to $69 billion, and 0.99-1.33 percent for the US, or $135-$181 billion.

Source: World Trade Online