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Explainer: What’s At Stake In U.S.-EU Talks On A Trans-Atlantic Trade Deal?

  • Ron Synovitz

In the coming months, U.S. President Barack Obama (second left) is expected to try and thrash out a new EU-U.S. free-trade agreement with European leaders such as European Council President Herman Van Rompuy (far left), European Commission President Jose Manuel Barroso (second right), and U.K. Prime Minister David Cameron (far right)

In the coming months, U.S. President Barack Obama (second left) is expected to try and thrash out a new EU-U.S. free-trade agreement with European leaders such as European Council President Herman Van Rompuy (far left), European Commission President Jose Manuel Barroso (second right), and U.K. Prime Minister David Cameron (far right)

Washington and Brussels are starting talks on a new trade and investment pact on July 8 aimed at boosting economic growth. RFE/RL takes a closer look at the importance of the proposed accord.

What exactly is the proposed Transatlantic Trade and Investment Partnership pact?

It’s an effort by Washington and Brussels to move beyond previous free-trade agreements that are focused on tariffs by adapting the trading system to modern production issues. With most trans-Atlantic tariffs low under previous accords, negotiations are expected to focus more on trade barriers created by different rules and regulations within the United States and the European Union.

"The basic rules of the trading system -- the World Trade Organization and how those are ensconced in Geneva -- those rules evolved out of the goods and manufacturing based economy immediately after the Second World War," says Joseph Francois, a professor of economics at Austria’s Johannes Kepler University. "They are focused largely on tariffs and ensuring market access, and transparency and nondiscrimination – primarily, again, about tariffs. The world economy has changed tremendously since then. Services are more important. How firms operate across borders is more important. And so [negotiations] of this type are efforts, in a sense, to test and find ways to modernize the trading system."

What benefits would the proposed pact bring to the United States and EU countries?

Potential economic benefits from reducing regulatory barriers and costs between the United States and the EU are very high since they account for a large share of global trade and economic output.

The proposed pact would be the world's largest free-trade deal. It would cover about 50 percent of global economic output, 30 percent of global trade, and 20 percent of the world’s foreign direct investment. In 2012, two-way trade between the United States and the EU totaled more than $646 billion.

A study by the London-based Centre for Economic Policy Research, commissioned by Brussels and directed by Francois, estimates the accord could boost annual U.S. and EU economic output by more than $100 billion. That would likely reduce unemployment in both the United States and the EU because investment would be higher and there would be a higher demand for labor.

What impact would the pact have on third countries like Russia and China, or the EU’s other neighbors to the east?

The impact on third countries will remain unclear until details of the accord are resolved.

According to Francois, if Washington and the EU recognize each other’s regulations or create common sets of standards that third countries also can follow, it may actually reduce regulatory barriers between the United States, the EU, and other countries.

“It really hinges on how they approach regulatory differences and whether or not there is scope for other countries to then take advantage of the hard work in sorting out what cross recognition would be or what mutual standards might be," he says. "So if those things get streamlined there is actually potential for that to benefit third countries as well."

What are some of the major obstacles the negotiators will face?

Negotiators will split into 15 different groups that deal with issues like agricultural market access, e-commerce, investment, and competition policy.

U.S. firms such as Google and Facebook want Brussels to reduce its rules on privacy and data protection, which put them at a disadvantage in the EU market for Internet services. But that goal has been complicated by revelations that the U.S. National Security Agency uses customer data from many Internet companies to identify potential terrorist threats to the United States.

Washington also wants the EU to ease its regulations on genetically modified crops. But that could be politically unpopular with European voters.

Brussels wants Washington to offer exemptions from “Buy American” requirements on U.S. public-works projects -- such as highways and airport facilities. But that position is opposed by powerful U.S. lobbyists from the steel industry and other manufacturers.

Meanwhile, a trade dispute between U.S. aircraft manufacturer Boeing and its EU rival, Airbus, is now going through the World Trade Organization. That issue also has the potential to set back negotiations.

How long are the negotiations expected to last?

U.S. and European negotiators have said they would like to reach agreement before the current European Commission finishes its term at the end of 2014.

But many economists and other observers say the issues are complicated and could be difficult to resolve before 2015. That raises the possibility that any progress in talks over the next 18 months could be set back with new European negotiators at the helm. That could delay an agreement further.
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