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Negotiations To Begin On US-EU FTA

by Mike Godfrey,, Washington

15 February 2013

After both President Barack Obama, in his State of the Union Address, and the European Council, during its last meeting, had given positive signals, it was finally announced on February 13 that negotiations on a free trade agreement (FTA) between the United States and the European Union would begin in the near future.

Together, the EU and the US account for 47% of the world’s gross domestic product (GDP) and 30% of global trade flows. Together they would create the biggest free trade zone in the world, with around USD2.7bn of goods and services being traded daily. Aggregate investment between the two economies is in excess of USD3.7 trillion.

At their November 2011 Summit meeting, US and EU leaders had established a High Level Working Group on Jobs and Growth, with the aim of identifying ways to increase trade and investment between their economies. In June 2012, the Working Group issued an interim report and concluded that "a comprehensive transatlantic trade and investment agreement, if achievable, could generate substantial benefits for the US and EU economies."

At its meeting on February 8, the European Council confirmed that it looked forward to the final report of the Working Group and its recommendations, and reiterated its support for a comprehensive FTA which should pay particular attention to ways to achieve greater transatlantic regulatory convergence, while, during his Address on February 12, President Obama then disclosed that he would “launch talks on a comprehensive FTA with the EU with the goal of promoting free and fair trade across the Atlantic.”

On the following day, a positive final report was issued from the Working Group, which recommended that each side should “initiate as soon as possible the formal domestic procedures necessary to launch negotiations” on a Transatlantic Trade and Investment Partnership (TTIP), and the US and EU leaders then followed up by making a formal joint announcement to that effect.

“We are committed to making this relationship an even stronger driver of our prosperity,” they added. “In that regard, we welcome the High Level Working Group’s recommendations on how we can expand further our transatlantic trade and investment partnership, promoting greater growth and supporting more jobs.”

The declared goal of the agreement is to get as close as possible to the removal of all duties on transatlantic trade in industrial and agricultural products, with special treatment of the most sensitive products. In general, transatlantic tariff barriers are currently comparatively low, with an average of 5.2% for the EU and 3.5% for the US, but, given the magnitude of trade between the EU and the US, duties are said to still impose costs that are not negligible.

In addition, both sides want to open their services sectors at least as much as they have achieved in other trade agreements to date, also seeking to open their markets in new sectors, such as transport.

A further aim is also to achieve the highest levels of investment liberalization and protection negotiated to date in other trade deals, and to open up access to procurement markets at all levels of government without discrimination. It is pointed out that European companies whose business depends on public procurement represent 25% of GDP and 31m jobs.

However, it is intended that the TTIP will go beyond the removal of tariffs and opening markets on investment, services and public procurement. It will also focus on aligning rules and technical product standards – for example, different safety or environmental standards for cars - which currently form the most important barrier to transatlantic trade. Studies show that the additional cost burden due to such regulatory differences is equivalent to a tariff of more than 10%, and even 20% for some sectors.

Both sides intend to negotiate an ambitious agreement on sanitary and phyto-sanitary standards, as well as on other technical barriers to trade. They will work on regulatory compatibility in specific sectors, such as chemical, automotive, pharmaceutical and other health sectors, such as medical appliances.

Since not all regulatory divergences can be eliminated immediately, both sides envisage a "living agreement" that allows for progressively greater regulatory convergence over time against defined targets and deadlines, and the agreement will address other areas - such as intellectual property, competition and state-owned enterprises, small- and medium-sized enterprises and transparency - that go beyond bilateral trade.

Amongst all of the political praise concerning the proposed FTA, the only note of caution recently has come from a bipartisan letter written by the US Senate Finance Committee Chairman Max Baucus (D - Montana) and its Ranking Member Orrin Hatch (R - Utah) to the United States Trade Representative Ron Kirk.

While they agree in the letter that “a comprehensive US-EU FTA, negotiated and implemented with the highest standards, would have a multiplier effect and would be certain to generate much needed economic growth on both sides of the Atlantic,” they also wrote that “there is no doubt that (it) is an enticing opportunity, … there are remaining barriers to free and fair trade that are long-standing and difficult to overcome.”

The Senators identified several priorities and objectives, including access for US agricultural exports like beef and pork, strong intellectual property protection, access for US services exports, regulatory compliance and a mechanism for dispute settlement, which could all be very difficult to achieve across the whole of the EU.

TAGS: Finance | tax | European Commission | free trade agreement (FTA) | law | intellectual property | tariffs | trade treaty | food | agreements | United States | import duty | standards | trade | European Union (EU) | services | Europe

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