By Peter Skinner - 12th April 2013
[With the EU and US] each other’s biggest trading partners and investors, any and all barriers whether tariff or non-tariff, raise costs and inhibit growth
Removing barriers through an EU-US trade agreement could be the answer to the two trading blocs' economic woes, writes Peter Skinner.
The state of the union address by US president Barack Obama held most people’s attention for the domestic issues troubling America, but not for the one issue which might most change the country’s economic fortunes. Obama’s announcement of the launch of talks on “a comprehensive transatlantic trade and investment partnership” with the EU is the culmination of a tremendous effort on both sides, and his assertion that “trade that is free and fair across the Atlantic supports millions of good-paying American jobs” is as true for the EU economy as it is the US.
Reducing barriers and costs will lead to potential growth, but this is sometimes a hard thing to achieve. As each other’s biggest trading partners and investors, any and all barriers whether tariff or non-tariff, raise costs and inhibit growth. Indeed, an OECD report in 2006 predicted a potential EU-US arrangement could lift each economy by between 3.5-6 per cent annually. Given that trade and investment is recorded in the trillions this is a substantial growth element that cannot be ignored.
The real game changer for this deal, however, has always been the so-called non-tariff barriers. These are the behind-the-scenes barriers, often regulatory, that are erected through law and practice, leading to differing situations across the Atlantic, such as the treatment of agricultural goods before their sale to the public. A fight broke out just two years ago over US chicken carcasses which were washed in chlorine before being shipped to the EU. This practice had been banned in Europe a decade earlier due to alleged health concerns, with the EU poultry industry frustrated over the higher cost of alternative treatments compared to US practices. The value of this potential trade was some €15m, while the figure for general growth in trade is stated to be around €344bn. At the time this led to a frustrated chair of a well-known international corporation suggesting that if this disagreement was holding back transatlantic trade, he would like to buy all the “damn chickens and burn them” just so negotiations could move ahead. These issues are often tricky and sometimes near impossible to solve, but the consequences of rejecting this approach are unjustifiably high in the current economic climate.
So, what does ‘comprehensive’ mean? Comprehensive means all areas are up for negotiation, from agriculture, with all its hidden traps and support mechanisms, to insurance, with its regulatory standards competing on both sides of the Atlantic for dominance. It’s about resolving the so-called “precautionary principle” and the issue of “equivalence”, or, put another way, accepting that US standards may be just as good as the EU’s. On the US side it will be about allowing EU airlines to do what only US airlines can currently do and fly across the US, it will be about EU reinsurers not being forced to pay over-the-odds collateral just because they are not American.
There is a lot to do and so much added value for the two trading blocs working together on this project. All this is being considered, it is even stranger to see the UK pivoting towards an exit of the EU. What then would be so “special” about the UK’s special relationship with the US outside of a deal which would be worth billions and on which 13 million jobs and more depend? President Obama knows the key to his legacy is growth and jobs and Europe is desperate to find solutions to its economic sclerosis.
Peter Skinner is a member of parliament's economic and monetary affairs committee