On February 13, 2013, the White House announced that the United States and the European Union would begin negotiations on a free trade agreement (FTA) with the hope of reaching a deal by late 2014. The declared goal is to achieve duty-free trade on industrial and agricultural products, with certain exceptions.

The negotiations will be wide in scope. Thus, the agreement is anticipated to cover trade in services, investor protection, government procurement (the procurement of goods or services on behalf of a government body or agency), technical product standards such as environmental rules for vehicles, and a mechanism for settling disputes between the parties.

The announcement immediately elicited strong reactions, with some industry groups cheering the development while others were vigorously opposed. In March 2013, the Administration notified Congress of its intent to enter into these negotiations, to be called the Transatlantic Trade and Investment Partnership (TTIP).

A U.S.-EU FTA would become the world’s largest free trade zone, with $2.7 billion in goods and services being traded daily.

If created, a U.S.-EU FTA would become the world’s largest free trade zone, with $2.7 billion in goods and services being traded daily. Even though tariffs between the U.S. and the EU already are relatively low, such an FTA would have a tremendous impact simply because the volume of trade is huge, in the range of 30 percent of global trade flows. Politicians supporting the idea have emphasized its potential as a creator of millions of jobs.

However, realistically, the obstacles faced by the negotiations are quite enormous. For one thing, successfully negotiating on the issues the U.S. sees as key — agricultural export issues, intellectual property protection, access for U.S. services, and regulatory compliance — would be difficult to achieve across the whole of the EU. As demonstrated in recent months, there are strongly diverging views among the various EU members on what constitutes healthy economic policy.

Furthermore, historically the FTAs that the EU has signed have excluded agricultural goods and have not dealt with regulatory harmonization. In addition, about 25 percent of EU GDP comes from European companies whose business depends on government procurement, and who are likely to strenuously object to any changes in that area. Because both the U.S. and the EU are powerful economic players, neither side would likely be able to dictate terms as has sometimes been the case when they have negotiated with smaller economies eager for U.S. or EU trade and investment.

As seen with the U.S.-Korea FTA, there are likely to be delays to deal with special interests. The U.S.-Korea FTA was signed in 2007, but not approved by Congress until 2011.

After the FTA was signed, both the U.S. Congress and the Koreans expressed major doubts about the FTA becoming a reality. The U.S. big concern was the auto industry and auto labor unions, while Korean politicians stated that before the FTA could be passed, it was necessary to establish a plan for farmers and fishermen negatively affected by it. The Koreans also wanted products made by South Korean companies in the Kaesong Industrial Region in North Korea included in the deal, while the U.S. did not.

Finally, in December 2010, both sides came to a compromise deal with significant concessions granted to the U.S. on trade in automobiles. Tariff reductions for Korean automobiles were delayed for five years, and U.S. autos were granted broader access to the Korean market.

At the same time, the negotiators agreed to set aside disagreements over U.S. beef exports. The new deal was supported by Ford Motor Company, as well as the United Auto Workers, both of which had previously opposed the Korea FTA, and gained bipartisan support. In Korea, the opposition party backed off its vow to renegotiate key provisions in its favor. Thus, process, the obstacles to negotiating a major bilateral FTA were major and the process lengthy, but these problems were not insurmountable.

Contrastingly, the United States’ most recent attempt at a plurilateral FTA, the Free Trade Agreement of the Americas (FTAA), flopped in 2005. Its goal was to create a free trade zone between North, South and Central America. This failure had several causes, firstly involving political differences between the very different negotiating countries.

However, even more crucially, negotiations failed because the U.S., Canada, Mexico and the Central American countries wanted a comprehensive agreement, while the South America countries wanted government procurement, trade in services and intellectual property rights off the negotiating table. Critics in Latin America felt that if intellectual property were addressed, scientific research in Latin America would be destroyed. Brazil and Argentina emphasized the elimination of U.S. agriculture subsidies, another highly sensitive issue for the U.S. When the negotiations stalled in 2005, some of the participating countries decided to concentrate on more manageable, smaller bilateral trade deals.

A U.S.-EU FTA would face similar obstacles, especially since members of the EU already are experiencing considerable friction.

A U.S.-EU FTA would face similar obstacles, especially since members of the EU already are experiencing considerable friction due to the eurozone crisis and related economic policies. Agriculture and intellectual property would be as contentious as they were for the FTAA talks. Additionally, many in the EU see regulatory issues on environment and genetic modification of food as sacred to European values.

Labor rights, traditionally included in recent FTAs the U.S. has negotiated with countries with much smaller and less developed countries, would be much more contentious with the EU, which has very different views on labor. Overcoming such difficulties on such complex issues would be a major undertaking even if the U.S. concentrated its time and attention on an FTA with the EU.

However, there are other equally ambitious trade deals in the works.

The U.S. is currently in the midst of an equally difficult and complex negotiations on the Trans-Pacific Partnership (TPP), a proposed free trade agreement between Australia, Brunei, Chile, Canada, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. Japan, which asked to join TPP negotiations in March 2013, was recently approved and is waiting out a 90-day window before it can participate as the 12th member. Consequently, Japan was not able to participate in the most recent negotiating session in Lima, Peru in May 2013 and its entry may slow negotiations somewhat as adjustments will have to be made.

With Japan’s entry, TTP countries will constitute nearly 40 percent of global GDP and a third of global trade. With the next set of negotiations set for July 2013 and the United States’ expressed hope to ‘pivot to Asia,’ an EU deal may not be the priority in the near future.

Additionally, the jobs that are envisioned to result from a U.S.-EU FTA, perhaps 0.5 to 1 percent additional growth, would come over a very long time horizon. And this is much harder to sell politically.

British Prime Minister Cameron and German Chancellor Merkel have been vocal supporters of such an agreement, while other countries, such as France, are less enthusiastic. With U.S. growth still slow, an agreement would likely become a political hot potato in the U.S. as well. Others who are actually in favor of free trade also object on the basis that the multiplicity of bilateral and plurilateral trade deals creates confusion and distracts from a grand goal of truly global trade liberalization and harmonization, via a new agreement in the World Trade Organization.

Most recently, France has demanded an exclusion for the European film, radio and TV industries in the TTIP and threatened to block the vote for the European Commission negotiating mandate, with the U.S. responding that everything should be on the table at the start of negotiations. In addition, with the United States’ Prism data-surveillance program having come to light, the EU is demanding that data protection be paramount in the trade talks. The 90 day period for Congress to give input on the negotiating objectives expires in mid-June 2013. The expectation had been that talks would begin in July 2013, but that no longer seems certain.

None of this means that a U.S.-EU FTA can never be successfully negotiated. Rather, it is likely that the time horizon will be much longer than a couple of years. It is also possible that the scope of the FTA could be greatly reduced so that major sticking points are not part of the deal. Whether anything will come of these negotiations may depend not only on politics, but on whether negotiators and politicians on both sides favor the achievable over the possible.

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Helena Sullivan
About The Author Helena Sullivan
Helena D. Sullivan, an attorney with Barnes, Richardson & Colburn, LLP., concentrates on the representation of importers who have issues of compliance with U.S. Customs law, exporters who have issues relating to U.S. export control laws, and other international regulatory issues relating to trade. A former Law Clerk to Judge Thomas Aquilino at the U.S. Court of International Trade, she is admitted to practice law both in the State of New York and in the province of Alberta, Canada.




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