Is the EU-US trade agreement stillborn?

Both France and Germany, led by German Chancellor Angela Merkel (pictured), have rebuffed ongoing negotiations on a trade agreement with the US. (File photo: AP)

Two months after the resounding Brexit vote, talks over the departure of the UK from the EU have yet to start. However, decreased British influence on European affairs is already a reality. The most salient example is the recent strong rebuff from key member states, including France and Germany, of ongoing negotiations on a trade agreement with the US.

The signing of the Transatlantic Free Trade Agreement (TAFTA) was high on former British Prime Minister David Cameron’s agenda, and London has always been the most adamant advocate of creating what would have become the world’s largest free-trade area, “protecting” investments and removing “unnecessary regulatory barriers.” In 2013, he strongly lobbied the European Commission to step up negotiations, claiming the deal would create 2 million jobs.

Studies disagree on the impact of large trade agreements on domestic job creation. While TAFTA would likely increase European growth by 0.1 - 0.5 percent of GDP, experience of similar agreements shows that the effect on employment could be negative. In particular, the agricultural sector in Europe would strongly suffer from sudden competition from American agribusiness juggernauts.
The signing of the North American Free Trade Agreement (NAFTA) between Canada, the US and Mexico, for example, led to the net destruction of 900,000 jobs, instead of the creation of 20 million as promised by former US President Bill Clinton.

Voices heard

It seems that criticisms and skepticism are finally being heard. The days when world leaders would emphatically call for a deepening of free trade and globalization are long gone. During the recent G20 summit in Hangzhou, heads of state shared their concern about the negotiation of additional trade agreements.

British Prime Minister Theresa May, European Commission President Jean Claude Juncker and others followed the footsteps of Christine Lagarde, head of the International Monetary Fund (IMF), when she pleaded for a more humane form of capitalism.

Brexit has opened eyes to people’s antagonism toward agreements that do not trickle wealth down. In most G20 countries, calls for protectionist measures are gaining momentum, and xenophobic populist parties prosper on the ashes of empty promises.

In the US, both presidential candidates have adapted their discourse accordingly. Donald Trump and Hillary Clinton, initially in favor of increasing trade partnerships, have backpedaled and muted their support for TAFTA and the Trans-Pacific Partnership (TPP).

Many Americans and Europeans view globalization as responsible for most social and economic woes: stagnation of average wages, extraordinarily unequal development, massive deindustrialization, and dismantling of social protection.

France has officially requested the end of TAFTA negotiations to the EU. Trade Minister Mathias Fekl pointed to the several negative concessions demanded by the Americans in the fields of food security, energy, health, culture and public services. Sigmar Gabriel, the German vice-chancellor and economy minister, said it was time to concede that TAFTA discussions were a failure.

Political calculations ahead of general elections in both countries next year are obvious. Backing such an unpopular deal would probably kill the last hope of reelection for French President Francois Hollande, and Gabriel’s SPD opposition party wants to end 10 years of chancellorship under Angela Merkel.

Concerns

Nevertheless, one should not understate the difficulties in reaching a deal, and Washington’s bullying posture. During the 14th round of negotiations held in July, the US failed to make a serious concession on one of the main European interests: reform of public procurement regulations that currently force American public administrations to buy only US goods.

Yet this protectionist measure is not European countries’ biggest worry. The current draft of the treaty says multinational companies will be able to sue host countries through an Investor-State Dispute Settlement mechanism. The objective is to protect companies from abusive changes in regulations, but this framework has usually been used in the past to attack much-needed environmental and social protections.

Other concerns from European consumers include the potential lifting of the ban on genetically modified organisms (GMOs) and hormone-fed beef from the US, and deregulation of national cultural industries and health sectors. All are legitimate worries, but simply rejecting trade deals is not the solution. Resorting to protectionist measures at a time of economic uncertainty has never helped establish sustainable growth.

From the Smoot Hawley tariffs that worsened the 1929 crisis, to the recent financial crisis, the history of global political economy teaches us that international collaboration can prevent economic recession and shortsighted, counterproductive, mercantilist measures.

However, to be accepted by Europeans and Americans, such deals should not be negotiated behind closed doors while the average citizen stays in the dark until NGOs such as Greenpeace leak confidential documents, as they did last year. Negotiations progress should be explained and debated.

The rise of extremist movements in Europe and populist tendencies in US politics are the direct result of the capitulation (at best) of elites to the challenges of popularizing economic information and educating populations.

Clear safeguards and frontiers should be democratically decided and concessions clearly explained. By failing to do so, the EU further deepens the democratic deficit that has caused its weakness today, and will encourage other countries to follow Britain’s path.
 

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Last Update: Wednesday, 20 May 2020 KSA 09:48 - GMT 06:48
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