US and EU Edge Closer to Trade Agreement

Following the latest round of talks, the European Union and the United States are a step closer to agreeing a deal to liberalise trade between the two economies.

According to EU officials, trade between the EU and US already stands at around €2bn per day, the highest in the world. Despite this, there is clearly a will from both sides to increase this number due to the large economic benefits a trade agreement would bring. It is believed that a deal would help create jobs, stimulate investment and result in estimated combined gains for the EU and the US of more than €300bn a year.

Surprisingly, the biggest gains are unlikely to come through any cuts in tariffs, which are taxes imposed on imports. This is because tariffs between the EU and US are already relatively low. In addition, any further reduction would be likely to lead to a political backlash as the public worry about the consequences for domestic jobs.

The real gains will be made if regulatory convergence can be achieved, with up to 80% potentially coming from this area. This refers to setting coherent standards in things such as health and safety. Currently, if firms wish to sell in both the EU and US markets they have to comply with both sets of regulation, which significantly increases firms’ cost of production. If one standard could be set for both markets, huge savings would be made.

However, there are some issues with achieving this. Many lobbyist groups oppose the idea, as they fear it may lead to a fall in health and safety standards, if the lowest level of protection becomes the new standard in each case. For instance, the environmental group ‘Friends of the Earth’ say the trade deal could result in “a dangerous deregulation of environmental and public health safeguards”.

On the other hand, those conducting negotiations for both nations have argued that a lowering in standards will not occur. Dan Mullaney, the chief US negotiator, insisted “We have received a clear message that whatever we do in regulation, we should not be undercutting the levels of protection that we have for the environment and for human health and safety.” His EU counterpart, Ignacio Garcia Bercero, also confirmed this stance, adding “We are not in the business of lowering standards”.

Furthermore, it will be a huge political challenge for a single regulatory standard to be set in some types of goods. An obvious example of this is genetically-modified food. US farmers want greater rights to sell their GM crops in Europe but the EU Trade Commissioner, Karel De Gucht, has repeatedly said that the EU will not relax its tight regulations surrounding GM food. According to negotiators, GM food wasn’t even discussed in the talks but it will be tough for a compromise to be reached when they do.

There is still a long way to go and a number of stumbling blocks to overcome, before any agreement can be reached. However, if these are overcome the deal would be the most important of its kind, with massive benefits for both the EU and the US.