No related posts.
By: Nicholas Anderson
Nikita Khrushchev once observed, “Economics is a subject that does not greatly respect one’s wishes.” Indeed, in these strained economic times, it seems impossible to cure chronically high unemployment no matter how hard smart people work on the issue. The upcoming free trade talks between the United States and the European Union may aid in thawing the economic winter. Or at least start the melting.
It seems curious, given how closely the US and EU are associated with each other, that no free trade agreement stretches across the North Atlantic. After all, these countries have been at the forefront of world affairs for the past century and are close allies. Trade between them accounts for 50% of global trade and is worth $625 billion annually. Talks between the two delegations are scheduled to commence in July 2013. The negotiation poses the tantalizing promise of boosting Gross Domestic Product output in both locations by .5-1% a year, which is certainly not pittance in such economic times.
But there are significant stumbling blocks. The most significant barriers are not tariffs. They are already below 3% so eliminating them altogether would not be a terribly significant move. Subsidies that distort the value of products like produce and energy commodities are likely to be a major issue. Countries that depend on agriculture like France, Italy, Spain, and other southern European countries are likely to resist any attempt to remove their subsidy. The Common Agriculture Policy (CAP) in the European Union accounts for over 50% of its budget so any effect the free trade agreement will have on this sector will be significant.
Other sticking points include safety inspections of food, medication, cars, and machinery. The EU is stricter than the US on agriculture safety and does not allow the importation of Genetically Modified Organisms (GMOs) or chemically treated livestock. The recent horse meat scandal in the EU, however, does not raise confidence of the ability of European inspectors to catch wrongdoers. Car safety has long been a bone of contention between the US and the EU.
In order to harmonize all of these policies, a lengthy negotiation seems inevitable. The EU wants to complete talks by 2014 before a new European Commission—its executive branch of government—is sworn in. If other trade negotiations are any guide, 2014 is impossibly optimistic. The Doha round of free trade talks, initiated by the World Trade Organization in 2001, still has not been completed and it looks unlikely it ever will be.
Even if both delegations do work out all their differences, the toughest sell may be to their own people. Americans seem to have bought into the fear that they will hear, in Ross Perot’s words, the “sucking sound” as free trade pulls their jobs overseas. Europeans, on the other hand, seem suspicious of American imperial ambitions. Only Germany and Britain are gung-ho about the talks in general. How will these talks fare? Perhaps they will lead to a general decrease in tariffs, even an abolition of tariffs between the two markets, but on other issues Europe and the US will remain an ocean apart.
No related posts.