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12/15/12

EU-USA - We are the champions - High Risk - High Reward - Will Obama Seek a Free-Trade Pact With Europe? - by Ben W. Heineman Jr.

WE ARE THE CHAMPIONS
Just after the New Year, President Obama will have to decide whether to take a dramatic, high-stakes gamble on a very unsexy topic: a U.S.-EU free trade agreement. It will be one of the key high-risk, high-reward choices of his second term.

By removing all barriers on goods and by facilitating fairer and more transparent competition in services, investment, and public procurement, such an agreement could stimulate growth and increase jobs in the world's two largest economies, which together comprise more than 50 percent of the world's GDP.

Such economic benefits could occur without any additional government expenditure. An agreement could provide a needed, long-lasting jolt to the ailing economies on both sides of the Atlantic. It could avoid the dilemmas posed by the current policy choice between austerity at a time of anemic growth and stimulus at a time of fiscal disarray.

A high-level working group formed a year ago and made up of U.S. and EU officials is likely to recommend later this month that formal free-trade talks begin immediately. Already, European officials like British Prime Minister David Cameron, German Chancellor Angela Merkel, and various worthies at the European Commission have called upon President Obama to approve formal U.S.-EU trade negotiations.

But the risks for Obama are significant. Ideas to reduce barriers to U.S.-EU trade have bounced back and forth across the Atlantic for decades, with few results. Topics like harmonizing health, safety, and other regulations and reducing other national or regional preferences for trade in goods, services, investment, and procurement are still contentious. Such a free-trade agreement must be a key administration foreign policy priority if it is to succeed (as NAFTA was), at a time when other parts of the globe and other global issues are clamoring for attention. And even if they have priority status, formal talks hardly are guaranteed success (as shown in the stalled Doha Round of world trade negotiations).

The case for such talks begins with the potent existing relationship between the U.S. and EU economies -- a fact sometimes forgotten when all eyes are on China rising.

The flow of goods, services, and investment back and forth across the Atlantic accounts for one-third of global trade ($2 billion a day). In 2011, the U.S. sold three times more goods to the EU ($286 billion) than to China, and the EU sold two times more goods to the U.S. ($368 billion) than to China. In 2010, the US had $1.9 trillion of foreign direct investment in the EU, and the EU had $1.5 trillion of foreign direct investment in the U.S. Fifty percent of U.S. overseas direct investment goes to the EU and 75 percent of EU overseas direct investment goes to the U.S. Direct employment by U.S. businesses in the EU, and EU business in the U.S., total close to 8 million, not including multiplier effects.

In general terms, the list of potential benefits from such an agreement is impressive, depending, of course, on how much of the trade and investment agenda is actually addressed.

Read more: High-Risk, High-Reward: Will Obama Seek a Free-Trade Pact With Europe? - Ben W. Heineman Jr. - The Atlantic

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