The Holy Grail of EU-US free trade will remain just that

Jonathan Lindsell, 18 March 2013

Like the Holy Grail and the Elixir of Life, a Free Trade Agreement between the USA and the EU sounds almost too good to be true. And like each of them, that hyperbolic promise is just enough to lead thousands of hopeful knights errant into peril.

Rather than spiritual salvation or immortality, the Barack Obama and Karel De Gucht’s FTA legend offers +0.5% to +1.0% GDP through elimination of tariffs and harmonisation of trade regulations and non-tariff barriers such as rules of origin, quotas and subsidies. This represents a $400 billion increase, a prospect which whispers of an end to recession and even the wresting of economic primacy away from China.

Like all fables, the reality is rather more mundane. Trade agreements require the support of all 27 EU countries, and each have their specific wishes. Francois Hollande recently demanded that French laws protecting radio and television be off the table (£). He added that France would force “guarantees” in numerous fields including healthcare provision.

It’s hard to believe that we’ve even seen France’s whole bite of the cherry, given its disproportionate attachment to the Common Agricultural Policy, a protectionist issue America is sure to oppose. Of course, in return America will not budge until the EU stops prohibiting genetically modified crops and hormone-stimulated beef products. Barroso has promised the EU will uphold food safety, pointing to a huge fight. The horse-meat farce probably hasn’t contributed to trans-Atlantic confidence, and there might be a fight over Californian use of the innocent term ‘champagne’, too.

Add Britain’s own concerns – the City is already jittery about EU pipeline regulation, and would probably oppose further modification to please Wall Street. Equally, Wall Street won’t be delighted by FTT pressure or restrictions on Euro-bond trading. In video games, the UK has just managed to match Canada’s de facto subsidy. Would this be off the table too?

Then there’s Germany. Given America’s modest manufacturing growth, Big Business sectors are likely to oppose open competition with the European powerhouse. Why would Germany bother participating if its car industry won’t see benefits? If they will, what’s to stop Italy derailing the process as it did with South Korea?

Then there’s American textiles versus Eastern Europe. And the fear of Brexit. And the need to get any agreement through the European Parliament. And ‘Buy American’ procurement rules. And America’s famous immigration barriers. And Obama’s energy autarky plan. And Boeing vs. Airbus. And the ludicrous November 2014 deadline.

Thanks to GATT/WTO, tariffs between the two blocs are already down to 3%, so low that currency fluctuations are far more pressing. There is zero charge on many areas. The remaining protectionism appears on no-budge issues. The Holy FTA will turn out to be largely worthless.

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