December 23, 2012 5:21 pm
Obama’s coming leap of faith on Europe
By acting now, the two regions still have the leverage to set standards, writes Edward Luce
Matt Kenyon illustration

Twenty years ago, Ross Perot predicted the giant sucking sound of US jobs going to Mexico. No such gloom will greet the announcement of a new US-EU trade initiative, which is expected – though not yet assured – in early 2013. Some economists will blow raspberries and talk of the limited upside to a transatlantic deal because of the existing openness between the two partners, or else outright failure given how many culturally sensitive non-tariff barriers remain. Yet economists are habitually prone to misreading the price of a thing for its value.

Fortunately, the geostrategic benefits to what is likely to be called the “transatlantic partnership” are now increasingly recognised on both sides. By 2030, Asia’s economy will be larger than that of the US and EU combined according to the US National Intelligence Council’s Global Trends report. By then the world might lookmore like Hobbes than Kant”, it says. By acting now when they still account for half the world’s economy, the US and EU still possess the leverage to set the global standards that others, including China, are likely to follow. Five years on, it may be too late. In the words of a senior EU official, the round would be “strategic not tactical, global not bilateral”.

Such talk might sound utopian at a time of sluggish growth on both sides of the Atlantic note Washington’s continued aversion even to the use of the wordtrade” in such deals. Yet 2013 presents the best moment for a serious US trade initiative since Mr Obama was first elected. Most European governments, including the French and particularly the Germans and British, are also enthusiastic.

There are three grounds to believe this will be announced in early 2013possibly as soon as Mr Obama’s State of the Union address in late January. First, Mr Obama could sell it politically at home.

Europe may attract derision but no one in the US associates it with a giant sucking sound. Wage rates are broadly similar across the Atlantic and labour and environmental standards are generally higher in the EU than the US. Thus Mr Obama would be spared the kind of union and environmentalist hostility that accompanies trade negotiations with countries such as Colombia. Given the free-trade tilt of the Republicans, this would be a rare issue that would attract bipartisan support.

Second, both the EU and the US are desperate for new sources of growth. The only realistic route is via higher productivity. Since there is little low-hanging fruit left to cut on tariffs, they would need to justify it by promising an ambitious agenda for transatlantic market integration. This would mean aiming for “equivalence”, or mutual recognition, of regulatory and product standards. For example, if a drug were approved by the European Medicines Agency, the Food and Drug Administration would accept it too. The same would apply to financial regulation, audio-visual standards and the notorious SPSsanitary and phyto-sanitary standards that keep most of America’s biggest agricultural exports out of the EU.

It is easy to see why such an agenda would invoke scepticism - think of how Europeans would react to a deal that permitted genetically modified US food imports or hormone-pumped beef. Yet the EU has bent over backwards to show it is in earnest. Last month, the EU removed one running sore when it dropped its objections to imports of US meat from abattoirs decontaminated with lactic acid, which raised (as it happens) unjustified concerns of side effects. The EU has also suspended for a year its imposition of carbon tariffs on foreign airlines, a particular bugbear in Washington.

Given the complexities of EU decision-makingBrussels’ dreaded system of “comitology” – America worries whether Europe could deliver on its side of the bargain. But the same concern applies to Washington. Mr Obama has not sought, and would be unlikely to receive, fast-track negotiating authority from Congress. Both sides would need to start with recognition of their nightmarish political systems – a mutual leap of faith. And on the neuralgic subject of agricultural protection, the climate of austerity ought to work in their favour. The time to cut subsidies is now.

Third, EU-US relations have been adrift for many years. As America’s first genuinely Pacific president, it is little surprise Mr Obama’s signature foreign policy goal is the “pivot to Asia”. But progress on the economic dimension is likely to be halting. Mr Obama’s Asia trade initiative, the Trans Pacific Partnership, is running into growing difficulties. It is clear China is not welcome in the clubBeijing sees the TPP as a form of US encirclement. But even Japan, which asked to join the TPP in May, was given a lukewarm response by the Obama administration. Selling Asian trade deals to the US public will never be easy. However frustrating dealing with the Europeans can be, they do share US values.

At a summit with EU leaders in Prague in 2009, Mr Obama sat through one of the dullest afternoons of his presidency when, one by one, 27 leaders read out their prepared statements. It gave him an early lesson on the downside of how European governments do business. But on trade, the EU tends to act as one.

And as the recent EU-Canada deal shows, they also tend to meet deadlines. Mike Froman, Mr Obama’s senior international economic adviser, and probably his next trade chief, insists any US-EU trade round should be completed on one tank of gas”. In contrast to the ill-fated Doha Round, which took a decade of torturous failure before it died, there would be a hard and fast deadline for a US-EU dealmid-2014, the date of the next European parliamentary elections and the eve of the next US midterms. In spite of everything that has gone wrong in the past four years, Europe has been far more proactive on trade than the US.

Trade liberalisation was one of the pillars of the post-second world war US world order. Under Mr Obama the global trade agenda has been suffering from benign neglect. So too have EU-US relations. The time has come for him to rectify both.

Copyright The Financial Times Limited 2012

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