EU-US Free Trade Deal

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EU-US Free Trade Deal

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feb. 15, 2013, 10:15pm

One of the things that Pres. Obama mentioned in his State of the Union address on Tuesday was that representatives of the US and EU were going to be meeting soon to try to hash out a free trade agreement. I've seen estimates that a free trade agreement between the US and EU could, if it includes a number of wishlist items, mean an extra 1-2 percentage points to the combined US-EU economies each year, which, over time, could mean quite a higher standard of living for both peoples than would otherwise be the case.

Despite the benefits that both sides would derive from a good deal, it's unlikely that anything will come of this except recriminations on both sides. Why? Because pretty much all of the low-hanging fruit in US-EU trade relations has already been picked. What's left to work on are the things that had been put aside in previous negotiations because they were too difficult to get an agreement on, and if anything, they've gotten more difficult over the years.

Each side has something that it wants the other to relent on that is likely not going to happen. For the US the issue is agriculture. Europe has a very protected market when it comes to agricultural products. Even leaving aside the issue of GMOs and hormone-treated meat, if the EU were to open the gates to US agricultural products, there would be a very fast and disorderly reduction in the number of European farms and a consequent rise in average farm size to something close to American proportions. This is something that the Europeans, or, to be more specific, the French, Poles, and Italians simply will not permit. The European romance of the small farmer is too strong to let go of and those farmers, despite their small size, have a lot of political clout in the EU. But the US simply won't agree to a deal without Europe agreeing to open up to US agricultural produce by a much wider margin than it currently does, including the importation of GMO crops and hormone-treated meats.

For the EU the issue is regulation and services. US consumer protection standards are quite a bit lower and less thoroughly enforced than they are in the EU. This gives US producers an advantage in terms of production costs. The EU is insisting that the two sides come to an agreement on some way to harmonize their regulatory frameworks--i.e., that the US apply much more stringent regulations to their producers. But that isn't going to happen either. It might be unfair to pin the services issue on the Europeans as the US has plenty of hang-ups in that area too, but the majority of the issues with a services agreement are on the EU side. The US would probably be willing to relent on its services issues, however, if it could get the EU to agree to a comprehensive deal in that arena.

There are other areas where an EU-US trade agreement is likely to stumble, but these are probably the most difficult ones to overcome, and, barring some kind of miracle, they likely will prevent a good deal from being worked out, to the detriment of both Americans and Europeans.