Feb. 11 (Bloomberg) -- European Union leaders announced last week their intent to pursue negotiations with the U.S. over a free-trade agreement. President Barack Obama should reciprocate.
Over the past year, the idea of a Trans-Atlantic Free Trade Agreement has taken on mythical attributes: It’s an enticement for the U.K. to remain in the EU, a prod to resume dormant global trade talks and a counterweight to a rising China.
It would be nice if TAFTA led to all that. For now, though, it should be motivation enough that an expansion of trade between the U.S. and the 27 countries of the EU would be a cost-free stimulus to create jobs and increase growth on both sides.
Such an agreement has powerful supporters, including German Chancellor Angela Merkel and U.K. Prime Minister David Cameron, along with business groups and labor leaders. Vice President Joe Biden lauded it when he swept through Europe this month.
At $5 trillion annually, the U.S. and Europe already have the biggest trading relationship in the world, accounting for almost one-third of all commerce and more than half of global gross domestic product. Even so, there is ample room for this trade to grow. Zeroing out the remaining tariffs on both sides would increase trade by more than $120 billion within five years and generate combined GDP gains of about $180 billion, according to a study by the U.S. Chamber of Commerce.
There is even more to be gained by smoothing out regulatory differences that restrict trade under the guise of consumer-protection, environmental or health concerns. A study ordered by the European Commission showed that eliminating half of these so-called nontariff barriers would increase GDP by 0.7 percent in the EU and 0.3 percent in the U.S.
Yet for all the obvious benefits, the U.S. so far hasn’t promised to come to the table. The fear is that lengthy negotiations will collapse over the same handful of stubborn issues that have scuttled similar attempts over the past 20 years.
The U.S. shouldn’t be so cagey. For one thing, its trade officials have spent the last year in quiet talks to ensure that previously fatal disputes -- the EU’s near-ban on genetically modified foods, say, or the U.S.’s limits on foreign ownership of airlines -- could be overcome this time around. Some confidence-building measures have already been announced. The EU said recently that it would lift a ban on some sanitary treatments for beef; the U.S. moved to end some import restrictions on avocados and apricots from Spain.
Another reason for optimism is the decision to structure the talks in a more effective way: Instead of a sector-by-sector approach, the two sides are striving for a comprehensive deal in which a concession by the EU on agriculture could be matched by a U.S. concession on government contracts.
For both sides, the negotiations will come down to a handful of demands. Among the U.S. must-haves: better access to the EU for agricultural products and more harmonization of regulations and standards. One reasonable solution would be to agree to disagree: Each side could accept the other’s sanitary and health requirements for agricultural products, for example, even when they are different. This would apply the principle of mutual recognition, which was pivotal in building the EU itself. The Europeans could also help by allowing U.S. companies more input on EU market regulations.
The EU’s wish list includes greater ability to sell goods and services to U.S. governments, especially at the state level. Much of the groundwork has been laid: The federal government has already obtained commitments from 37 states to open their procurement markets, with the promise that a comprehensive trade deal would give local industries and products greater access to EU markets. It should be possible to rope in the 13 holdout states.
Another longstanding EU demand is the easing of restrictions on foreign ownership of U.S. airlines and management of airport operations, along with the easing or repeal of the Jones Act, a post-World War I law that bars foreign ships from carrying freight between U.S. ports. These are reasonable demands.
The EU also wants better protection under U.S. law for so-called geographic indicators, the trademarked designation of products such as Serrano ham or Gouda cheese. A solution would be to require U.S. producers of grated Parmesan, for example, to clearly label their products as distinct from cheese that is made in Parma, Italy.
Yes, we understand the U.S. desire to avoid protracted negotiations that collapse over mold on Roquefort cheese or the use of Ractopamine, a drug treatment, by U.S. meat producers.
Still, as Biden said Feb. 2 at a conference in Munich: “This is within our reach.” For a trans-Atlantic trade pact, it should come as a relief that the parties concerned are no longer oceans apart.
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