Bonker and Stearns: US-EU Trade Agreement as Opportunity or Peril?

Posted April 25, 2013 at 1:38pm

President Barack Obama’s brief reference to a trans-Atlantic trade agreement in his State of the Union address was greeted with high-fives throughout Europe and signaled an obvious commitment to removing trade barriers and increasing investments to boost economic growth in both countries.

Typically such trade pacts are launched in the spirit of lofty goals and mutual enthusiasm, but ultimately they become contentious and controversial, and difficult to have ratified.

The Transatlantic Trade and Investment Partnership is the largest trade initiative since the World Trade Organization was created in the 1980s (Uruguay Round) and, if approved, will become the world’s largest trade zone.

It could also prove timely given the global challenges facing both the United States and European Union. The latter’s economy is coping with a threatening financial crisis and enduring recession while U.S. growth is lagging in investments and job creation. Removing trade barriers, it is believed, will jump-start the respective economies by generating greater demand and supply and improving market access, plus the added value that comes with economic cooperation. All this at a time when China, India, Brazil and other developing countries are emerging as major forces and serious competitors in the global economy.

So why should a trade agreement be so difficult? If recent history is an indicator, there is plenty of evidence. In the last 20 years, the United States negotiated 20 free-trade agreements, including multilateral pacts; all were met with opposition on Capitol Hill. NAFTA tested President Bill Clinton’s political savvy and persuasive skills to get through a Democratic Congress. The five FTAs negotiated by the George W. Bush administration were dead on arrival and eventually received approval in a rare display of bipartisanship during the first Obama administration.

Many of those FTAs were overseen by Robert Zoellick, the U.S. trade representative at the time, who astutely observed that “trade agreements are more about politics than economics.” He realized that the “politics” of trade is rooted in the United States Constitution, which makes clear who has the final say: “Congress shall regulate interstate and foreign commerce.” A U.S. trade representative (position vacant at the moment) may put in a star performance as chief negotiator, but he merely initials the document and then submits it to Congress for approval.

The High Level Working Group on Jobs and Growth, created in November 2011 by Obama and the European Commission president, has already begun framing the TTIP, but the big question is what sectors and issues will be covered and which will be left out. The most controversial on both sides of the Atlantic is agriculture. Over the years, powerful lobbying forces have established a series of protectionist subsidies and import barriers that will be a nightmare for any negotiator. It was the EU-U.S. conflict over agriculture that caused the WTO Doha Round to collapse.

And what about the “Buy American” provisions that pop up in appropriations bills? Government procurement is a big item for the Europeans; therefore, is Congress prepared to eliminate them when approving TTIP? There are also food and product safety standards and the digital and data privacy issues, which have been contentious.

These may appear to be economic issues but, as Zoellick reminds us, it is mostly about politics when the respective parliaments get involved and the ensuing trade-offs inflict pain on their constituents and supporters.

While there may be enthusiasm in business circles and the policy community, the American public sentiment on trade remains very skeptical. By one typical poll, 63 percent of the respondents declared trade “bad” because it results in the loss of jobs and lower wages. Only 30 percent believed that it reduces prices and expands choices for consumers. The fundamental belief is that trade agreements result in American jobs being transferred to other countries.

The TTIP will be a major challenge for both the U.S. and EU. The U.S., for its part, is already heavily involved in trade negotiations with nine Asian countries (ultimately 11, if Japan and South Korea are included), and at the moment the U.S. chief negotiator is the U.S. trade representative, an unfilled position in the Obama administration. On the EU side, there are multiple public agencies that must be consulted, which all but guarantee years of negotiations.

Hopefully this time the trade agreement will be more about economics and less about politics!

Don Bonker, executive director at APCO Worldwide, is a former congressman and chairman of the House Foreign Affairs Subcommittee on Trade. Cliff Stearns, who currently works at APCO Worldwide, is a former congressman and former chairman of the TransAtlantic Dialogue with EU.