There are some potential obstacles—mainly divergent regulatory approaches—that could well block a U.S.-EU trade accord. Martin Schulz, president of the European Parliament, was recently quoted in the Financial Times as saying, “We have differing takes on food safety, consumer protection, and environmental standards.”
Indeed. There have been some nasty disputes over phyto-sanitary standards (particularly in regard to U.S. beef). One macro-issue is the “precautionary principle,”which holds that if there is a risk of harm, the burden of proof is on the provider. This is a somewhat elastic concept: how certain is science? Is it 100 percent risk-free? One of the most the most dramatic divides is over genetically modified organisms (GMOs), which are increasingly used to enhance agriculture in the United States, China, India, Brazil and other countries. GMOs are viewed by many as an increasingly important part of the answer to meeting the challenge of feeding eight billion people by 2030 and nine billion by 2050. African farmers, who have large markets in Europe, have refrained from drought-resistant GMO crops for fear of not being able to export them.
Similarly, on climate change, the EU has adopted a host of policies to comply with the Kyoto Protocol, such as a cap-and-trade scheme for GHG emissions and a tariff on foreign airlines for GHG emissions.
Under strong protest from the United States—including legislation passed by Congress—the EU has suspended its effort to apply tariffs to foreign airlines. But is there room for compromise on GMO food? There are also divergent regulatory approaches to testing and licensing on chemicals, pharmaceuticals and several other categories of goods.
The idea of “mutual recognition” of regulatory standards is one considered way forward. Last spring the United States and EU did sign an agreement on this basis that facilitiates trade for thousands of “authorized traders.” But the gap on things like FDA approval standards for drugs and the EU’s precautionary principle may be a bit of a reach. More likely is a more modest version of mutual recognition: recognizing certified compliance with respective standards and regulations. While obviously not as sweeping or elegantly simple as full mutual recognition, such an approach would facilitate trade and lower transaction costs.
If there is sufficient political will on both sides of the Atlantic to reach a U.S.-EU trade and investment accord, the impact would have ripple effects well beyond a new impetus for a transatlantic relationship. An accord could shape new global standards in areas such as intellectual property and investment, as well as emerging new sectors such as industries based on nanotechnology, biotechnology, 3-D printing and electric vehicles.
At a moment when the Doha Global trade round is effectively dead, an agreement covering the world’s largest market and 40 percent of its trade could raise standards for other bilateral and regional trade accords, if not provide momentum for further liberalizing global trade and investment—one of the foundations of the global system. A U.S.-EU accord might, for example, give momentum to the Trans-Pacific Partnership.
At a time of austerity, when many doubt the future military capabilities of NATO allies as defense budgets shrink, a trade accord could reinforce the EU role as a geoeconomic power. Europe has played a critical role, for example in tightening sanctions on Iran well beyond anything the mullahs anticipated. Collaboration with the EU is also key to pressing China to adhere to WTO rules. Acting in economic concert could be a source of leverage for the transatlantic community at a historic moment when power is diffusing to emerging economies like China, India, Brazil and Turkey.
There are multiple benefits, both economic and geostrategic, to both partners of a U.S.-EU free trade agreement—or economic partnership, as it is likely to be known. Whether its promise can outweigh the differences that must be overcome may be a key political question for Obama’s second term.
Robert A. Manning is a Senior Fellow at the Atlantic Council. He previously served in the State Department as a senior advisor to the Assistant Secretary for East Asia and the Pacific (1989-93) and on the Secretary’s policy planning staff (2004-08).