U.S.-EU Free Trade Zone: It's Necessary to Compete in a Global Economy

After a year of pressure from the U.S. Chamber of Commerce, the president is taking the first steps towards a comprehensive free trade agreement between Europe and the United States, a project he first endorsed in his 2013 State of the Union address.  In a move to both boost the struggling U.S. and EU economies by opening up new markets and balance against the growing Chinese economy, the proposed Transatlantic Trade and Investment Partnership (TTIP) would create the world’s biggest free trade zone. American and European markets already make up 54% of world gross domestic product (GDP) in terms of value, and 40% of GDP in terms of purchasing power.

An eventual agreement would aim to provide "regulatory compatibility" and "updated and comprehensive" investment terms while eliminating the few remaining transatlantic tariffs. The U.S. Chamber of Commerce claims  that eliminating the remaining tariffs alone "would boost U.S.-EU trade by more than $120 billion within five years." "At a stroke," The Economist writes, "[TTIP would] liberalize a third of global trade [and] anchor a transatlantic economic model favoring openness, free markets, free peoples and the rule of law over the closed, managed vision of state capitalism."

A significant obstacle in the talks, which are expected to take several months to conclude, is the resistance from consumer advocacy groups, environmental organization, and public health experts, who fear that an agreement would sacrifice important regulatory standards and give multinational corporations political power similar to that of a sovereign nation if governments are no longer able to regulate within their own borders. IP groups have also chimed into the debate. The Public Citizen's Access to Medicines campaign presented the White House with a letter from 47 nonprofits group objecting to the intellectual property standards of the proposed agreement with Europe. 

In addition to interest groups, there is a legislative obstacle. Bloomberg.com calls this agreement a "remarkable opportunity" for economic and job growth, but warns that Congress's Constitutional power to ratify treaties and regulate trade with foreign nations means that significant improvement in dialogue between the legislative and executive branches will be required for the ratification of TTIP. Historically, Capitol Hill has been a source of opposition to free-trade agreements. As former U.S. trade representative Robert Zoellick explains, "trade agreements are more about politics than economics." Zoellick's observation is particularly relevant to the TTIP, given that one of the most contentious topics up for discussion is the regulation of agricultural products.

Chairman of the Senate Finance Committee Max Baucus recently expressed his frustration about Europe's "non science-based regulations." Baucus illustrates the philosophical divide between the EU and U.S. with regards to agricultural products. Europe's restrictions on genetically modified crops and hormones in meat are just a few examples of how European regulators apply the precautionary principle to regulation rather using a strict cost-benefit analysis as is often done in the U.S. The French trade minister, Ms. Bricq, has gone so far as urging her EU partners to slow down negotiations, citing the concerns of French farmers, who are concerned that American farmers will have an unfair advantage due to differences in sanitation, environmental, and animal welfare rules.

While industrial companies in the U.S. and EU are largely in favor of the harmonization of regulations and the elimination of tariffs, the philosophical divide on agricultural regulation between the two parties may be the largest stumbling block in negotiations.

With the failure of recent WTO attempts at multilateral free-trade agreements, bilateral agreements such as the Transatlantic Trade and Investment Partnership are necessary to allow for common trade rules, particularly in the face of a rising China. Finally, given the slow U.S. and economic recovery and continuing fiscal woes in the EU, governments on both sides of the Atlantic see TTIP as an opportunity to save their economies.