A TRANSATLANTIC FREE TRADE AGREEMENT IN THE MIDST OF TROUBLE?

As a potential path back to growth for the ailing economies on both sides of the Atlantic, the proposal to create a Transatlantic Free Trade Area has resurfaced. It would be a very good idea, but achieving it is easier said than done.

The potential benefits and framework of a Transatlantic Free Trade Area (TAFTA) are laid out in a new paper by the German Marshall Fund. The Transatlantic trade economy is already huge. The Center for Transatlantic Relations at John Hopkins University calculates its size at $ 5 trillion in annual commercial sales while it supports 15 million jobs. American investments in Europe is three times higher than it is in Asia. European investments in the U.S. is eight times larger than its investments in China and India combined. So transatlantic trade is crucial for both economies, particularly for job creation Indeed, it is estimated that one-third of all bilateral US-EU trade consists of internal transfers by companies that operate in both markets. 

Yet substantial trade barriers remain, in the shape of tariffs and non-tariff barriers like regulations, restrictions on investment, and government procurement practices. Removing these barriers could significantly increase the size of that trade, leading to more jobs and higher wages. Although US and EU tariffs on each others' marketed manufactured goods are already low (below 3% on average), a free trade agreement would be enormously beneficial in promoting further investment, thereby boosting economic growth and creating more jobs. Such an agreement could include trade in goods, services, financial instruments, and agriculture, and would necessitate greater compatibility of European and American regulations and legal norms, implying substantial savings.

If, however, Brussels were to insist that such an agreement be similar to the existing EU customs union, that would significantly  reduce the benefits to the United States. A free trade zone is not the same as a highly regulated customs union. Admittedly the increased volume of trade might tempt American manufacturers to adopt EU standards, but in such a case, it would be preferable to maintain separate regulatory standards.

Moving forward calls for a clear commitment of political leaders on both sides of the Atlantic together with private sector involvement, which is fundamental to sustaining urgently needed economic growth. But shouldn't the priority be at this time for both sides of the Atlantic to first clean their own house before attempting to build jointly a new one?