The U.S. and Europe: Time to Spur Growth Through Trade
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An important but little-noticed event took place at the June 18-19 G-20 Summit – President Obama and his European Union counterparts signaled the U.S. and EU may negotiate a comprehensive agreement to liberalize transatlantic trade and investment.
This is a remarkable, and welcome, sign of confidence in the future of the $5 trillion transatlantic relationship. The sooner this initiative gets off the ground, the better.
For too long, a trade agreement between America and Europe seemed unthinkable. As the world’s largest economies, and the guardians of the international rules-based system, Europe and the United States each believed their focus should be instead on the WTO and bilateral agreements with countries far less open. But with our economies in a tail-spin, and the WTO Doha negotiations stalled, government officials are finally heeding the voice of business and changing their tune. In Brussels, London, Paris and Warsaw last month, I found that government officials were not only receptive to the idea of a trade agreement but eager to determine a road ahead for launching such negotiations.
What’s at stake? In October 2010, a study by the European Centre for International Political Economy demonstrated that simply eliminating tariffs between the United States and European Union would add $180 billion to our economies over five years. This is just the tip of the iceberg. If the United States and European Union can liberalize services even further, enhance investment and address regulatory differences between us, an even greater impact will be felt on both sides of the Atlantic.
When President Obama, European Commission President Barroso and European Council President Van Rompuy established a High Level Working Group last November under U.S. Trade Representative Kirk and EU Trade Commissioner De Gucht, no one knew for sure what it would lead to. With the Interim Report of this Group released last week, both sides are getting serious. In Los Cabos, President Obama stated the U.S. and EU have “agreed to take the next step in our work towards the possible launching of negotiations on an agreement to strengthen our already very deep trade and investment partnership.”
This makes sense. Let’s be clear on where we can make improvements in our economic relationship but let’s not delay action over political considerations here or in Europe. Neither the U.S. nor the EU will emerge from the financial crisis through austerity alone; recovery requires growth. As French officials told me, when government can’t help, and structural reforms take time to deliver, external demand – trade – must be a key driver in any growth strategy. We already have a strong transatlantic trade relationship yet it can be made even more robust.
By rapidly eliminating tariffs between us, U.S. and European companies would become more competitive in the global economy, since their operations on both sides of the Atlantic are so deeply integrated by the nearly $2 trillion they have each invested across the Atlantic. Think General Electric, that quintessential American brand, which has over 90,000 employees working in Europe. Or the German chemical giant BASF, with over 15,000 employees in the U.S. Or, as I learned on my trip to Warsaw, think Poland, the second largest producer of Sikorsky’s Black Hawk helicopter. This is one reason over a third of U.S.-EU trade is within our companies. Removing barriers to trade between them makes enormous sense. And we should go even further – a transatlantic digital market, for instance, would help small businesses expand their European customer base. Similarly, improved access to government procurement would mean both new opportunities and better values for hard-pressed taxpayers.
Differences in our approaches to regulation are widely seen as a major impediment to transatlantic trade. These differences are often unnecessary. The U.S. and EU are both democratic high-income societies, and our citizens demand very similar levels of protection for consumer safety, health, the environment and investors. Our regulators take different approaches, but go for similar results. One approach to bridge these differences would be to provide regulators, working with legislators, the authority to recognize this “functional equivalence,” so goods and services approved for sale in one market could be purchased in the other. We have done this in such areas as aircraft, organic foods and supply chain security; we can do so as well for foods, autos, chemicals, pharmaceuticals and even services, such as the financial industry. The Interim Report recognizes this will take time, as regulators build the necessary trust and confidence in one another.
While each element would have a positive impact in its own right, progress on this agenda would also put emerging markets on notice that the United States and European Union are serious about market liberalization. And seriousness about strengthening our broader alliance will serve us well in larger international economic fora like the G-20.
European leaders have already said they are ready for an ambitious transatlantic agreement. The administration should commit now to launching negotiations. We need growth, not more studies. We cannot let election cycles stand in the way. World markets are waiting for policy-makers to act, and an announcement that U.S. and European leaders are determined to integrate our economies more closely would immediately improve on markets and business confidence. It’s time to put the U.S. and Europe on a growth track.
This was originally published in The Hill.