The attractions of a transatlantic trade deal should be resisted

By Donald Bandler and Peter Rashish

Chancellor Angela Merkel has expressed sympathy for the idea of a "transatlantic market" tightening US-EU economic links in select areas – intellectual property protection, investment, and financial markets, for example – where the two sides can serve as forerunners to global rules. At the same time, the best-selling book by Gabor Steingart, Weltkrieg um Wohlstand, has promoted the much more ambitious idea of a transatlantic free trade area (TAFTA), and a number of senior German officials have expressed sympathy for a broader free-trade zone as well.

Chancellor Merkel has made clear that she wants to make the more modest transatlantic market idea a main focus of the upcoming German presidency of the EU in January. But it is not hard to see in the current political environment how the all-encompassing TAFTA notion could gain traction, and fast. A US-EU free trade zone would simultaneously have the power to respond to the public’s anxieties about globalization (Steingart controversially suggests that TAFTA is a way to respond to the rise of China) and offer an alternative to pro-globalization forces disheartened by the stagnation of the WTO Doha Round (the US and the EU account for 60 percent of world trade by themselves). So should TAFTA really be welcomed?

Given the number of bilateral trade deals that both the U.S. and the EU continue to negotiate (Latin America, India, Russia) a transatlantic free trade zone is notable by its absence. Despite tensions over the Iraq War, the U.S. and the European Union remain close partners. A TAFTA would serve to symbolize these close ties, and could even help to accelerate the recent political warming between the two sides that Chancellor Merkel has helped to orchestrate.

From the perspective of reformist politicians in the EU, a transatlantic free trade area could also step in where the Lisbon Strategy has failed to deliver on its promises. Lisbon leaves each government to initiate its own reforms, and has no enforcement mechanism. By negotiating free trade with the U.S., the European Commission would undertake commitments on behalf of all the member states, avoiding the question of who goes first. A TAFTA could include not only a liberalized investment regime, but - as a 2005 OECD study has suggested – a joint commitment to open up product markets, both of which would boost the EU’s economic output.

It is also true that the timing is tempting for a TAFTA. With the recent Democratic takeover of both the House and Senate, the U.S. Congress is now led by a party that is close to the European mainstream on social, labor, and environmental issues. While the chances of Congress ratifying the Doha Round may have gone down with the Democrats in control, the willingness of Congress to do a deal with like-minded Europeans is now much stronger.

That said, a TAFTA would face a raft of obstacles. The Doha Round has broken down mostly over the issues of agricultural market access and support. Agriculture is likely to remain a bedevilling issue between the US and the EU. And it is hard to see how the two could simply leave agriculture (which accounts for about 5 percent of US-EU trade) out of a bilateral deal - article XXIV of WTO prohibits any free trade area that does not cover "substantially all trade."

Although a transatlantic free trade zone would be of benefit to the United States and the countries of the European Union, it could both directly and indirectly be detrimental to the interests of the rest of the world. One study done has shown that a transatlantic deal would decrease welfare in North Africa and the Middle East – hardly something that should be a shared US-EU policy goal. Although a TAFTA has sometimes been portrayed as complementary to or supportive of multilateral trade liberalization, it is unlikely that negotiators in Washington and Brussels would have the time and resources to bring the troubled Doha Round to conclusion while launching transatlantic talks.

In the absence of a TAFTA, could a scaled-down initiative to harmonize regulations make sense?

This idea is not new: the 1998 Transatlantic Economic Partnership set in motion bilateral talks to achieve similar goals, although success has been scant as differing US and EU regulatory regimes and approaches have proved resistant to harmonization. These talks should go on, but there is little evidence that (another) big US-EU summit pronouncement will rapidly be able to overcome what are essentially deeply-rooted cultural differences.

Instead of trying to use economics as a way to cement the transatlantic relationship, the U.S and the EU would be better advised to redouble their joint efforts to deal with a daunting array of political and security issues – Iran, Iraq, Afghanistan, North Korea – that do not look like resolving themselves any time soon. Success on any one of these fronts would do more to bring the U.S. and the EU closer together than long and uncertain negotiations over a bilateral trade deal.

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Donald Bandler is Senior Director and Peter Rashish is Senior Advisor for Europe at Kissinger McLarty Associates.