The biggie has finally arrived: the EU and the USA announced last week that they will launch negotiations for a free trade agreement. The potential benefits appear huge with the two giants representing 47% of global GDP, each day trading goods and services of almost €2 billion and with estimates that an agreement could bring an extra 0.5% growth to the EU economy, representing an extra €86 billion. What’s more, it doesn’t cost anything. It’s a stimulus which doesn’t need tax rises or extra borrowing. In a cash starved, austerity ridden Europe, it sounds like the silver bullet we’ve all been waiting for.
But is it? Here’s five points to keep your feet on the ground:
It may never happen
Starting trade negotiations is much easier than finishing them. Never has this been truer than in the case of the Doha negotiations which, despite hollow utterances to the contrary, are dead and buried. And it isn’t only multilateral agreements that have suffered this fate. The EU began talks with the Gulf countries 21 years ago and with MERCOSUR countries 14 years ago with neither looking likely to be concluded any time soon. The EU-US negotiations will not necessarily share the same fate but they will be lengthy and tough with no guarantee of a final result. In the event that they are successful, optimistically we will only see the first benefits in 7-10 years time. A short term stimulus it ain’t.
It will be very controversial
The fear of failure is further solidified by the transatlantic tendency to fight trade wars such as the ongoing Boeing/Airbus dispute or the infamous banana wars. The recent spat over the emissions trading scheme for airlines, where Congress passed legislation compelling US airlines not to comply with EU legislation, shows that conflict is never far away. The likely source for controversy in these negotiations is so-called ‘SPS’ measures. De-jargonised, this means health, veterinary and hygiene measures for agricultural products. The two sides have very different cultures in this sphere with the Americans pioneering genetically modified organisms and the use of artificial ‘hormones’ in meat products, and the Europeans responding to consumer fright of ‘Frankenstein foods’ by banning or limiting such techniques. This has led to a de facto import ban of many US agricultural products and it is not easy to see, in view of the powerful American agricultural lobby, how a solution can be found in this crucial area.
The US may already have the upper hand
In the build-up to last week’s announcement, a number of trade spats were quietly resolved to the benefit of the Americans. First came the reduction of EU tariffs for Latin American bananas (produced mostly by US-owned companies) which was followed by additional duty-free quotas for American beef as compensation for the EU’s beef hormones ban. Finally, the EU lifted its ban on the use of lactic acid as a hygienic treatment to prepare animal carcasses for human consumption, a technique used by US beef farmers. These were all key American demands and negotiations haven’t even begun yet. In return, what did the EU get? Well, nothing so far. 3-0 to the USA.
A free trade agreement is not a single market
Douglas Carswell and other eurosceptics have been making the rather back to front argument that ‘if the US can get a deal with the EU, this shows the UK can get one’. There are two major flaws in this argument. Firstly, as mentioned earlier, there is no guarantee that the US will actually finalise a deal with the EU nor is there any guarantee that the UK would finalise a free trade deal on acceptable terms with the EU if it leaves.
Secondly, a free trade agreement (FTA) is not the same as a single market. FTAs involve eliminations in tariff duties, greater access for service industries and a degree of regulatory harmonisation and mutual recognition of standards. However, this is not the same as a single market. A single market requires the same rules, regulations, administration (i.e. the Commission) and legal systems which, in turn, guarantee unrestricted commerce. An FTA clearly does not guarantee this access since significant tariffs, exemptions, restrictions and outright market exclusions remain. Switzerland is a case in point. It has a free trade arrangement with the EU but does not have guaranteed access to the EU’s energy markets nor most services, including financial services.
It is already a huge part of the British in/out debate
The EU-US deal is already a central to the British in/out and, for now, the europhiles are having the better of it. Not only has Obama told the UK to stay in the EU but his administration is now negotiating a trade deal with the EU, further strengthening the case for the UK to stay in the EU. This has utterly bewildered eurosceptics who dream of an anglosphere trading block divorced from the shackles of the EU, only to discover that our greatest ally isn’t interested in their overtures. However, all is not lost for them. Wait for the first sign of difficulties, particularly on agricultural issues, and they will be out in force blaming the CAP, the French and EU bureaucracy. Even better for them, if the negotiations collapse, sceptics will have their killer argument to leave – the EU couldn’t negotiate with the US, now it’s Britain’s turn. Alone.