Will the EU and US Form a Free-Trade Zone?

The West, united in a common front in the face of growing competition from China and India. Within two years, the EU wants to conclude a contract with the U.S. that would create the biggest free-trade and investment zone in the world.

“A future deal among the two most important economic powers will be a game changer,” said José Manuel Barroso, President of the European Commission.

The negotiations for the Transatlantic Trade and Investment Partnership are expected to begin by mid-year. They were announced yesterday by the head of the European Commission, European Council President Herman Van Rompuy and President Barack Obama.

In his State of the Union address a few hours earlier, Obama had told Americans to begin talks with the EU. The green light for negotiations was given by EU leaders during the summit last Friday. According to Reuters it was a success for the chancellor of Germany, Angela Merkel.

Brussels and Washington want to carry out the negotiations at full speed. European Commissioner for Trade Karel de Gucht said yesterday that they can finish within two years. At the beginning of February, Vice President Joe Biden voiced encouragement from Munich: “If we go down that road, we should try to do it on one tank of gas and avoid protracted rounds of negotiations. This is within our reach.” British Prime Minister David Cameron added yesterday, “I am determined to use my chairmanship of the G-8 to help achieve this and to help European and American businesses succeed in the global race.”

Today the EU and the U.S. exchange 2 billion euros ($2.67 billion) worth of goods every day. The contract will bring the two sides even closer and will help to develop the economies on both sides of the Atlantic. Already these entities provide half of today’s global economic output. By 2027, the agreement will increase EU GDP by 0.5 percent, or by 86 billion euros ($116 billion) a year; U.S. GDP will grow by 0.4 percent, or $65 billion, a year.

Will signing the agreement make it possible to buy shoes over the internet in the U.S. and import them duty-free? Probably yes, because, as de Gucht announced, the EU and the U.S. should abolish the tariffs, even if they are already low. “But the point is a much wider agreement, such as free access to the services market, including banks,” emphasizes Member of the European Parliament Paweł Zalewski from Civic Platform.*

The contract will, for example, make it possible for European companies to participate in public tenders in the U.S. It will also maximally simplify the rules of investing while widening investment protection for companies on both sides of the Atlantic.

The agreement is also meant to remove barriers to trade, mainly by implementing common standards in the U.S. and the EU. For example, European car companies estimate that they will save 12 billion euros ($16.05 billion) a year if the same safety and environmental standards are in effect both here and there.

Fiat is already preparing for such changes. The weekly Automotive News Europe wrote that in 2015 Fiat plans to produce a new version of the Tychy Fiat 500 city car for export to the U.S. Currently, Americans buy the Fiat 500 from a factory in Mexico. It is a little different from the “five hundreds” from Tychy, but this factory can easily produce “five hundreds” on both continents.

The issues of agriculture and intellectual property rights protection have so far been barriers in free trade talks between the U.S. and the EU. Brussels wants to omit these pitfalls. According to Barroso, basic accords on hormones in livestock and genetically modified crops will not be part of the talks. There also will not be harmonization of the rules concerning the protection of intellectual property rights, but only an attempt at bringing them closer.

“This contract is a chance for the West to regain its leading position toward its competitors from Asia,” believes Paweł Zalewski.

“Finishing the negotiations by the end of 2014 would be unprecedented,” says Tomasz Włostowski, Esq., an expert on the trade policy of the EU.

*Translator’s note: Civic Platform is currently one of Poland’s largest political parties in office.