By Karel De Gucht - 12th April 2013
Liberalising trade between the EU and US would have a positive impact on worldwide trade and incomes, increasing global revenue by almost €100bn
Karel De Gucht
An ambitious EU-US free trade agreement could draw even more value from the already substantial transatlantic trade relationship, argues Karel De Gucht.
The goods and services that cross the Atlantic between the EU and the US every day are valued at €2bn. The value of the investment stocks that European and American firms hold in each other’s jurisdictions is slightly less than €2 trillion. The transatlantic relationship is the biggest commercial relationship in the world. But if trade already flows so abundantly, why negotiate a new EU-US trade agreement?
First, despite the success of our relationship there is still a great deal of untapped potential. Though the tariffs we impose on imports are low – around four per cent on average – the volume of our trade is enormous. As a result every tariff we remove – even the lowest ones – will result in millions of euros of savings to companies; savings which can be reinvested for growth. For example, car parts sometimes cross the Atlantic more than once – as components on their first journey and then going back in the finished product – meaning they currently may pay tariffs twice. But tariffs will only be a small piece of the deal. We are aiming for an even bigger package, which will include the opening of markets for services and – very importantly – in public procurement. The most effort, however, will go into addressing those barriers that lie behind the customs border – such as differences in technical regulations, standards and certification requirements. These technical barriers to trade are estimated to have the same effect as if we had extra tariffs of between 10 and 20 per cent per product.
Let me give you an example: rules in the US and the EU on car safety are similarly strict – as public safety is always our top priority. But even if they have the same objective – to make cars safe for the road – the technical rules to achieve that objective differ. A car producer who wants to sell his car both in Europe and in the United States has to get it safety checked twice. This costs time and money. If we aligned our standards, or accepted the principle that a car which is found to be safe on one side of the Atlantic, is also safe enough on the other, we could make real savings, both for the producers, the regulators and, ultimately, for the consumers. If we do this well, we would be able to maintain the same levels of health and safety, but boost growth and create jobs with less red tape.
Second, because we are the biggest trade relationship in the world, transatlantic standards could be embryos of future world standards. This would mean that our businesses would not have the extra cost producing for a plethora of different standards around the world. And, because the same would apply to companies in other parts of the world, an ambitious transatlantic agreement would be in effect a global public good.
So, I believe that it’s certainly not exaggerated to say that such a ‘transatlantic economic alliance’ will be groundbreaking. In short: it moves beyond anything we have done before. It could boost our economies by between 0.5 per cent and one per cent of GDP, or €119bn annually once implemented, and offer real returns to everybody – expected at €545 per average household in Europe – for next to no investment. Truly, this is the cheapest stimulus package you can imagine. Given that both Europe and America are recovering from the biggest economic crisis in living memory, we cannot afford to ignore these gains now. And all EU member states stand to gain.
Most importantly, the benefits for the EU and US will not be at the expense of the rest of the world. To the contrary, liberalising trade between the EU and US would have a positive impact on worldwide trade and incomes, increasing global revenue by almost €100bn. How is that possible? Well, to the extent that the EU and the US can work together towards better trade rules and less regulatory divergence, the economic importance of the EU-US trade relationship will mean that our partners will also have an incentive to move towards the new transatlantic standards, which has the potential to spread gains across the global economy.
Can we achieve it? Reaching an ambitious deal will not be easy. The more we seek to achieve, the more protected vested interests will seek to oppose us. And finally, we want to do this as quickly as we can – in two years, if possible – though speed will not trump quality. I am ready to go the extra mile to achieve it, and I am looking forward to a close exchange with the European parliament throughout the whole process.
Karel De Gucht is European trade commissioner