Transatlantic Trade Goes Global

But the devil is in the details. Tariffs are generally modest already, so gains from their further reduction would be modest as well. It is vital to remove non-tariff barriers, such as localized rules and restrictions not based on scientifically legitimate safety or health concerns, despite political pressure to maintain or tighten them. Limiting the scope of trade and investment covered by the TTIP would likewise reduce the benefits.

Trade negotiations become either broad and deep or narrow and limited. NAFTA, for example, followed the former route, greatly boosting trade among the US, Canada, and Mexico. Its copycat, SAFTA (the South Asian Free Trade Agreement), moved slowly to reduce tariffs and the list of excluded items, so India signed separate bilateral FTAs with Bangladesh and Sri Lanka.

The TTIP is being divided into 15 specific working groups. While the negotiations are new, the issues separating the two sides are long-standing and widely known. One of the most difficult is the EU’s limitation of imports of genetically modified foods, which presents a major problem for US agriculture. Another is financial regulation, with US banks preferring EU rules to the more stringent framework emerging at home (such as the much for large banks recently proposed by America’s financial regulators).

Several other serious disagreements also stand in the way of a comprehensive deal. For example, US pharmaceutical companies have stronger intellectual-property protection at home than in the EU. Entertainment will become increasingly contentious with online distribution of films. And the anachronistic requires cargo carried between US ports to be shipped only on American ships (recall the confusion about the possibility of foreign ships coming to help during the BP Gulf oil spill). Safety regulations and restrictions on foreign control of companies in sensitive industries are further points of contention.

The TTIP is not just about the US and the EU. Mexico already has an FTA with the EU, and Canada is negotiating one. At some point, NAFTA and TTIP will need to be harmonized.

Meanwhile, the world’s other countries – still accounting for more than half of world GDP and the bulk of global trade and FDI – are wondering how the TTIP would affect each of them. One possibility, suggested by my ex-colleague, former US Trade Representative Carla Hills, is that a successful TTIP would be a major impetus for rekindling the moribund Doha Round of global free-trade talks. The Uruguay Round received a similar boost soon after NAFTA was signed.

Everyone everywhere has an interest in how the TTIP talks develop and in what ultimately results from them. To take a simple example, more reasonable EU rules on genetically modified agricultural imports from North America, if translated with appropriately careful monitoring to Africa, could be a tremendous boon to African agriculture. Failure to make any inroads on this score in the TTIP negotiations would almost certainly block genetically modified food in Africa.

Analogous issues arise in sector after sector, and in one regulation after another. We can hope, but in no way guarantee, that the details agreed at the end of the TTIP negotiations justify the enthusiasm at their start.

Michael J. Boskin, Professor of Economics at Stanford University and Senior Fellow at the Hoover Institution, was Chairman of George H. W. Bush’s Council of Economic Advisers from 1989 to 1993.

Copyright: Project Syndicate, 2013.

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