Background
Issues on negotiating agenda
A single undertaking or individual agreements?
Difficult relationship between transatlantic and multilateral trade talks
Comment


Background

For years, European and US business groups have proposed the establishment of a transatlantic economic and trade framework. With the World Trade Organisation's (WTO) multilateral round of trade negotiations at an impasse, EU and US governments could soon, in response to mounting pressure from their business communities, agree to the initiation of formal trade negotiations.

During the US-EU Summit, held in November 2011 in Washington DC, the EU-US High Level Working Group on Jobs and Growth was established and mandated to identify policies and measures to increase trade and investment to support mutually beneficial job creation, economic growth and competitiveness, while working closely with public and private sector stakeholder groups and drawing on existing dialogues and mechanisms.

Since then, a noticeable increase in discussions on a possible EU-US free trade agreement (FTA) has come from both sides of the Atlantic. In May 2012 EU Trade Commissioner Karel De Gucht and US Trade Representative Ron Kirk both expressed interest in the possible initiation of trade negotiations. With the June 19 2012 release of the interim report by the working group, this discussion has picked up steam. According to a joint statement by European Commission President Barroso, European Council President Van Rompuy and US President Obama after the G20 Summit in Los Cabos, "a bold initiative to expand trade and investment could make a significant contribution to our strategy to strengthen growth and create jobs".

The share of global trade at stake here is large. The European Union and United States have annual trade flows of more than €4 trillion and the highly integrated transatlantic economy accounts for nearly one-third of world trade flows and half of world gross domestic product. The high degree of integration that already exists between these trading partners supports the initiation of trade negotiations, but also raises a number of sensitive issues.

Issues on negotiating agenda

The trade topics likely on the agenda include the usual suspects. According to De Gucht, the trading partners should negotiate:

  • reduced tariffs for industrial and agricultural products;
  • better market access;
  • regulatory cooperation in services;
  • government procurement issues; and
  • a common framework for technical, sanitary and phytosanitary regulations.

For its part, the United States has seconded most of these topics. Kirk recently highlighted the need for "full liberalisation of market access for all categories of goods, and expand[ed] transatlantic flows of services and investment" and especially "new approaches to non-tariff barriers".

The EU and US governments have already made incremental strides towards economic integration. The working group's interim report indicates the existence of both "mutually beneficial areas" of agreement and "certain areas in which further substantive work is required before a more definitive recommendation". The group's interim report covers issues identified by De Gucht and Kirk, as well as forward-looking rules for the protection of intellectual property rights and 21st-century trade issues, including:

  • trade facilitation;
  • state-owned enterprises and competition;
  • labour and environment;
  • small and medium-sized enterprises;
  • supply chains; and
  • access to energy and raw materials.

The joint presidential statement urged the working group to "complete its work as quickly as possible" and, with the input of public and private stakeholders, to provide recommendations for negotiations by the end of 2012. The European Commission's Directorate General for Trade recently initiated a public consultation on the future of EU-US trade and economic relations to better asses the impact of a bilateral agreement. All interested parties have until September 27 2012 to complete the online questionnaire.(1)

The European Union and the United States also reinforced bilateral relations by recently concluding two agreements in relation to authorised economic operators and organic product certifications. Under both of these agreements, the trading partners would each recognise 'safe' operators and certified 'organic' products that have been so classified by the other's regulatory processes. These agreements streamline certain industry requirements and lead to greater and broader trade integration. EU Commissioner for Taxation and Customs Union, Algirdas Šemeta, qualified the former agreement as "a major step forward in the EU-US trade relationship".

A single undertaking or individual agreements?

The framework for negotiations may focus on a comprehensive FTA in the form of a single undertaking or a set of individual agreements. Trading comments over the last weeks, De Gucht and Kirk reveal differences in approach. De Gucht indicated the importance of a single undertaking. Calling for a strategy that is "both ambitious and realistic", he stated that a single package "is the only way to ensure that sufficiently broad trade-offs can be found across the most difficult issues on both sides, thus unlocking the true potential for jobs and growth in the transatlantic marketplace". Kirk has highlighted "the need for realism" and, while supporting a single undertaking in principle, has stressed that the outcomes must be "at least as broad and ambitious as those contained in existing US trade agreements".

Difficult relationship between transatlantic and multilateral trade talks

The relationship between potential EU-US trade talks and the Doha Round of WTO negotiations is complex. While the absence of progress in the multilateral trade talks has created the opening for bilateral negotiations, the European Union and the United States must consider the impact of bilateral negotiations on the broader multilateral framework.

In a dramatic statement, Clyde Prestowitz, president of the Washington-based Economic Strategy Institute, argued that "a US-EU free trade agreement…would probably destroy the WTO". In order to downplay this risk, EU and US leaders have reinforced their commitment to the WTO. Kirk has highlighted "the essential role of WTO bodies to support strong existing trade rules and to guard against protectionist impulses", while exploring possible new directions for WTO negotiations. This was echoed by the recent joint presidential statement, which highlighted the goal to "enhance not only transatlantic economic ties, but also address shared market access challenges in third countries and encourage a forward-looking multilateral trade liberalisation agenda".

It is difficult to assess precisely the impact of the initiation of EU-US bilateral talks on the multilateral trade negotiations because this will depend from the scope of EU-US negotiations. The initiation of bilateral negotiations is, however, unlikely to facilitate the conclusion of the data development agenda and could lead to even more countries seeking the initiation of bilateral or plurilateral negotiations with the European Union and the United States.

Comment

The possibility of active work toward an EU-US FTA becomes more likely with each new policy statement from EU and US leaders. A number of issues remain to be leveled out, both for the framework and the substance of negotiations. Progress indicates, however, that both the European Union and the United States are committed to using all available strategies and fora to further trade, create jobs and ensure sustained global growth.

For further information on this topic please contact Charles Julien at King & Spalding LLP by telephone (+41 22 591 0804), fax (+41 22 591 0880) or email ([email protected]).

Endnotes

(1) www.trade.ec.europa.eu/consultations/?consul_id=169.

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