Tariffs and Possession

The European Commission wants to keep the issue of free trade with the U.S. out of the election campaigns. Things are difficult enough for Europe. Yet, the agreement could be economically quite sensible.

Discussions will start this week on an informal level. EU Commissioner Karel De Gucht is discussing a free trade zone with U.S. representative Michael Forman. At the same time, the first successful citizen initiative that opposes the liberalization of the water market will take place in the European Parliament. The intended liberalization has long been abandoned, but it gives us a valuable lesson in relation to the free market: It is difficult to fight emotions with numbers only.

Not least because of the trans-Atlantic relations that were invoked at the beginning of the free market discussions with the U.S. EU Chief Commissioner José Manuel Barroso spoke about a win-win situation, but he was also honest enough to outline the weaknesses of the partners. “Both of us need growth. Both of us have budgetary problems.” It appears to be more like an agreement between staggering giants.

What makes things more difficult is that shortly after the start of negotiations, the National Security Agency affair came to light. Although eavesdropping on friends is generally regarded as inappropriate, it still happens. The European Parliament concluded that the spying activities were also conducted on businesses. These do not look like good premises for the trans-Atlantic image.

It is likely that simple trade is overrated for fostering good relations. What happened to the culture, human encounters and the constantly quoted common values? Does one like America because of the common exhaust pipes or because of its way of life and Hollywood? Even though the EU also trades with China, the U.S. is beloved for more than just its trading power and is despised for more than just the NSA.

There does not necessarily need to be love. In fact, a very small number of contracts are being made because of warm hearts. Economically, we are talking about tariffs and possession: Both customers and companies benefit from sinking tariffs, low prices and common standards. It is precisely because of this that a weakened Europe is seeking to establish a common trans-Atlantic market. The Bertelsmann Foundation sees this as benefiting employment as it would provide an additional 2 million jobs, including 1.1 million of them benefiting the U.S. Those that would profit the most in Europe would be the U.K. and the Scandinavian countries, as they are more approachable to the U.S. and to free trade more generally. Germany is to be content with 180,000 new jobs.

When some relations are strengthened, others are loosened. Franco-German trade would be weakened, whereas the trade of goods coming from Spain and other southern countries would reorient itself toward the U.S. An agreement would also bring about trans-Atlantic growth, but within the EU the new trade flows might have a disintegrating effect.

Something else is bothering the partners. In the field of agriculture, the U.S. is in fear of the French blue cheese and the European chlorine-washed chicken. These appear to be strong emotional reservations that are far from any real risks. The most novel discussion regarding genetically modified corn shows to what extent emotions are at play. And against the force of emotions, it is hard to stand ground. Indeed, an upheaval from the bottom has long been forming itself. Recently, international arbitration courts have mediated disputes between foreign firms; in such proceedings, extremely loose arguments are being used. For instance, the Swedish corporation Vattenfall is suing the Federal Republic for its nuclear phase-out. However, the fact that a federal court held RWE accountable for a sum that is to be measured in hundreds of thousands of euros because of a legal error during the shutdown of Bibli’s nuclear reactor has not been mentioned. German courts can also turn out to be expensive.

Although at a relatively late stage, the EU commission has now reacted to the criticism. In the future, a number of industry and consumer groups will be given the power to oversee activities in order to ensure more transparency during such negotiations. The consultations regarding the arbitration courts are being stopped, but there will be a hearing. The European Commission wants to withhold such an emotional topic from the election campaign. Europe already has it tough enough.

The agreement makes sense from an economic perspective. The proven discontent, however, shows that the EU Commission has lost its prerogative of interpretation. De Gucht can ask his colleague at the Commission, Michel Barnier. In 2013, the latter exasperatedly abandoned his plan to expand the market for water works as the opposition was too great and the fear of an alleged wave of privatization too strong.

The people have a bad feeling regarding the standards coming from the top and the overmarketization of absolutely everything. For many, Roquefort cheese is more important than uniform bumper bars. The situation can be summed up as such: Frikandel (a Dutch and Belgian snack), but not a free market. Ultimately there is a bit of Switzerland to be found everywhere. Such issues momentarily make the trans-Atlantic divide quite entrenched.