The United States and the European Union, stung by past failures to liberalize trade, are struggling over how to tackle regulatory barriers in areas ranging from financial services to chemicals that pose the biggest obstacle to a transatlantic free trade pact.
A joint U.S.-EU working group is due to deliver interim recommendations this month on how to leverage one of the world’s largest trade relationships to create more jobs on both sides of the Atlantic and bolster economic growth.
Businesses both in the United States and Europe want Washington and Brussels to strike a deal that removes trade hurdles by requiring both to accept each other’s consumer- and environmental-protection standards.
They envision an agreement in which a car tested for safety in the United States would not have to be tested again in Europe, or a drug deemed safe by Brussels would not have to be approved by U.S. government experts.
There’s a good chance the upcoming report from the team led by U.S. Trade Representative Ron Kirk and European Union Trade Commissioner Karel De Gucht will be no more than a “stock-taking” of the talks so far, with the real meat of the recommendations in a final report near the end of the year.
Peter Rashish, vice president for Europe and Eurasia at the U.S. Chamber of Commerce, said he hopes for a forward-leaning document that sets the stage for ambitious talks that would begin when the final report is put out.
“We need a strong statement that a U.S-EU trade deal would be a big boost to jobs and growth, given the challenges both the U.S. and the EU economy face right now,” Rashish said.
The United States and the EU have proven records of sealing bilateral free trade agreements, including deals each has struck with South Korea that some have suggested be used a template for a transatlantic pact.
Also, tariffs on manufactured goods traded between the two economic blocs are generally low, and there are few sectors where dismantling the remaining tariffs would create political opposition to a pact. That has raised hopes a deal to eliminate the remaining duties could be struck quickly once talks begin.
DRAG ON FOR YEARS
Even so, U.S. and EU officials worry about launching negotiations that could drag on for years without success, such as the Doha round of world trade talks, which started in 2001 and never reached an agreement.
A joint effort late in the administration of former President George W. Bush to eliminate European barriers to U.S. poultry exports flopped so badly that the United States in frustration filed a case against the EU at the World Trade Organization.
“What you’ve got is a deep-seated suspicion on each side that the other side can’t deliver,” said Bill Reinsch, president of the National Foreign Trade Council, which represents major U.S. exporters like Boeing, Caterpillar and Microsoft.
Reinsch noted that the United States has disappointed the EU in recent talks on allowing foreign firms to bid on more U.S. state and local government contracts.
“So there’s this extensive poking around to figure what can be delivered,” Reinsch said.
Recent consultations have driven home how difficult it could be to address regulatory differences that impede trade in areas from food to chemicals to financial services, although both sides see a potentially big payoff from achieving that.
“What is really bothering companies on both sides of the Atlantic right now is not so much tariffs, but the duplication of regulatory requirements,” a European official said.
Those are harder to tackle because they involve regulators such as the U.S. Food and Drug Administration, the European Medicines Agency and the European Food Safety Authority that are outside the purview of typical trade agreements.
“I think the regulatory piece is certainly the most challenging and I think we have to agree on what success would look like on regulatory matters” within the 18 to 24 months both sides hope it will take to reach a deal, Rashish said.
That would probably require a recognition that some issues will still need further work after an initial free trade agreement is signed, he said.
The U.S. Chamber of Commerce has proposed starting with areas, such as autos, chemicals and pharmaceuticals, where the two sides have comparable, high-level standards to protect consumers and the environment but different specific requirements for meeting them.
The idea would be that after determining that U.S. and EU regulatory regimes produce similar levels of protection, agreements would be reached to recognize each other’s requirements in those areas as essentially equivalent, thereby removing them as barriers to trade, and setting a foundation for moving into additional areas, Rashish said.