Transatlantic Trade Talks Provide Promise and Challenges

March 4, 2013

President Obama recently announced that the United States will launch talks on a comprehensive Transatlantic Trade and Investment Partnership with the European Union to address various forms of protectionism, together with the protection of foreign investments and domestic regulatory issues. Reducing restrictions on free trade might be beneficial for the economies of both trade partners, but there is a limit to how much trade agreements can accomplish, says Simon Lester, a trade policy analyst at the Cato Institute.

In setting out a framework for the talks, the report blurs together some very different issues, and in doing so makes the scope and coverage of the negotiations a bit unclear. The report describes three categories of issues the negotiators will address:

  • Market access issues, such as tariffs, barriers to services trade and discriminatory government procurement.
  • Regulatory issues, divergence and harmonization across trade borders.
  • Rules that challenge global trade, such as intellectual property, labor and environment issues.

The categories identified by the High-Level Working Group are difficult to understand because there are examples of protectionism, foreign investment and regulatory issues in each, obscuring important distinctions between the different policies pursued.

  • To reduce protectionism, the Group established the goal of eliminating all duties on bilateral trade and substantially reducing and eventually phasing out most tariffs.
  • To encourage foreign investment, the Group wants to lower barriers to foreign investment and grant foreign investors more legal rights when a host government's actions are discriminatory.
  • To address the concerns about domestic regulation, the Working Group suggests establishing mechanisms to protect human, animal or plant life and health and aligning regulations for goods and services to reduce the costs of regulatory divergence across counties.

The High-Level Working Group fails to address agriculture subsidies and avoids addressing sustainable development, environment and labor issues because the United States and European Union differ on these issues. If either party was forced into adopting the other's views on these issues, domestic constituencies may worry about an expansion beyond the three existing categories.

Reducing long-standing protectionism would certainly benefit the economies of the United States and Europe. However, the proposed U.S.-EU talks seek to push the boundaries on what free trade agreements can govern. By pressuring domestic policies to align with international free trade rules, the new talks might expand the potential for great economic benefits if they can maintain political support.

Source: Simon Lester, "The Challenges of Negotiating a Transatlantic Trade and Investment Partnership," Cato Institute, February 26, 2013.

 

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