The EU-U.S. Free Trade Deal, in Plain English


Last week I wrote about the upcoming talks about a United States/European Union Free Trade Agreement, called the Transatlantic Trade and Investment Partnership (TTIP). I want to talk about this a bit more, and this time I want to discuss it a bit more plainly and with some consideration for possible implications.

First, the talks are set to begin on Monday in Washington, D.C. This is a huge agreement, so it'll take a significant amount of time to iron out with a target completion date of late 2014. The contingent representing the European Union represents all 28 EU member states.

What could come from these discussions and a possible agreement? For one, the Centre for Economic Policy Research in London estimates that a strong and wide-reaching agreement could generate gains for the EU on the order of $123 billion, and nearly $154 billion for the United States. This money would be spread around all sectors of the economy for the United States and the EU based on demand and investment. It is also estimated that the GDP of the rest of the world could increase by $129 billion thanks to increased investment potential and greater uniformity in international trade rules and regulations. According to that same report, increased demand could lead to increases in total EU exports by 6%, and 8% in total U.S. exports. The net effect is that demand for exported goods would be increased, meaning more work needs to be performed by workers in the U.S. and the EU.

How is this accomplished? The simple and general answer is through breaking down existing tariffs and barriers to trade and investment. These include not only taxes, but also preferential treatment for certain industries and certain safety and industry standards that exist between the countries.

If this is so great, why is this just now happening? Here's where things get tricky. The theoretical idea of eliminating all trade barriers to free up trade opportunities sounds great and seems like a no-brainer. The problem is that the goal of this agreement is actual free trade, meaning a total lack of domestic protections. France has already made the EU contingent promise not to discuss opening up the heavily protected French film and audio industry. At the same time, the EU is a bit anxious about possible U.S. insistence on freeing up the injection of genetically engineered crops from the U.S. agricultural sector, which is something that European consumers have been less than excited about. At the same time, the U.S. federal government and state and local governments would not be able to give preferential treatment to local or domestic contractors under Buy U.S. laws. Not only that, but there's a question from the labor sectors about whether opening up trade so freely could lead to decreases in wages and conditions for workers due to the cutthroat bidding wars that would likely take place.

Will it happen? Quite frankly, I have no idea. Just over a week ago it looked more likely than it does now. Why you ask? The NSA. Snowden and company managed to take France to the brink of requesting talks be delayed for two weeks to instead focus on discussions about NSA spying on EU members and leadership. Granted, France was talked off the ledge, but this isn't exactly a great start to talks that are sure to be difficult and dysfunctional at various times. To meet in the middle, talks will be taking place about both the NSA situation as well as TTIP at the same time. It's quite possible that these parallel talks could prove counterproductive, with the NSA taking precedence over trade.

Add onto that the questions about sacred cows that both sides would prefer to keep protected. To be forthright, I don't expect a jubilant announcement sometime in Q4 2014 about the TTIP. I would not be surprised if talks are continued on into the future, or if there is an agreement put into place that protects some of those national interests that those countries and their labor sectors would much prefer to see in place. Then again, there's always the option that absolutely nothing comes from these talks other than plenty of excitement from economists and reporters, only to find that the gaps are just too large to bridge.

Regardless of the outcome, the process that goes into the Transatlantic Trade and Investment Partnership warrants close observation by people in all walks of life.