GO
Loading...

US-EU Trade Deal: Rosy Picture, but Long Road Ahead

Arjun Kharpal, special to CNBC.com
Friday, 5 Jul 2013 | 8:29 AM ET
Cristian Baitg | Photographer's Choice | Getty

U.K. Prime Minister David Cameron has billed it as potentially the "biggest bilateral trade deal in history", but the U.S.-EU trade talks have suddenly entered tricky waters.

Recent claims that the U.S. National Security Agency (NSA) bugged EU offices and hacked into its computer network have complicated the first round of negotiations over the Transatlantic Trade & Investment Partnership (TTIP), which is set to get underway on Monday. France called for discussions to be halted for two weeks, but many in the EU feel that a compromise should be reached due to the economic benefits the deal can bring to the 28 member bloc.

The EU and US account for nearly half the world's gross domestic product (GDP), and both sides are hoping the deal will create a massive trading bloc able to compete with China.

Elmar Brok, a German member of European Parliament (MEP) said that while there is a "lack of confidence" after the spying allegations, "the deal is of common interest and we should overcome these problems to find a win-win situation for both sides."

(Read More: US Spying a 'Slap in the Face': EU Lawmaker)

According to the Centre for Economic Policy Research (CEPR), a U.S.-EU free trade agreement could boost the U.S. economy by an estimated 95 billion euros ($123 billion) a year and the EU economy by around 119 billion euros ($154 billion). It could also increase GDP in the rest of the world by almost 100 billion euros ($129 billion).

Under a deal, the U.S. and EU would get greater access to each other's markets by removing tariffs, opening up the services sector, and improving investment with the aim of kick-starting growth.

"A deal will open up the agricultural markets and certain elements of public services across the Atlantic, which could add a significant amount of jobs across the EU. And given that we have such a sluggish economy at the moment, even half a per cent of growth will be massive," David Martin, a Scottish MEP on the international trade committee of the European Parliament, told CNBC.

(Read More: Brussels Threatens to Suspend Data Sharing with US in Spying Row)

Did EU Leaders Know About US Spying
Tony Fratto, former White House deputy press secretary and Thomas Snegaroff, senior research fellow at IRIS, debate on the NSA spying scandal, the EU's reaction and whether free trade talks will be impacted.

Harmonizing standards and regulations is seen as a vital part of the deal that will benefit industries on both sides of the Atlantic.

"Synchronization of regulations will be key. It should be a benefit to EU and U.S. firms and companies. If there is a race to the top, it is good for the environment and workers," said Robert Elliot, a professor at the University of Birmingham's Department of Economics.

Overall, EU exports to the U.S. are expected to rise 28 percent, equivalent to an additional 187 billion euros ($241 billion) per year. EU and U.S. trade with the rest of the world would also increase by over 33 billion euros ($43 billion) a year.

Several industries will benefit from the freer movement of goods and coordinated standards.

(Read More: Ford to Add 800 White-Collar Jobs, Mainly in Michigan)

European car companies will be able to export more vehicles to the U.S. and even start manufacturing cars there. EU exports of motor vehicles to the U.S. are expected to increase by 149 per cent, while the EU auto industry's output is expected to rise by 1.5 percent. Aligning safety and environmental standards will cut out the red tape surrounding exports.

The chemical industry would also be a winner as importing products across the Atlantic would become cheaper. Pharmaceutical companies would find it easier to market products in the EU or US, creating more competition and pushing prices of drugs down.

Jeffries Briginshaw, managing director of British American Business, a lobby group, hopes it will encourage the movement of capital and boost the financial services sector.

"Nobody is trying to renegotiate the EU or U.S. finance rules, they are just asking what would happen when we put all the rules together," he said. "As the U.S. regulatory system and EU system becomes clearer together, we would like to see conversation between regulators about how you pass products through the system."

Labor Opposition?

But there are also concerns on both sides that the deal could stumble on some key areas.

Professor Elliot said the labor would be anxious about lower labor standards. "Labor regulations are weaker in some respect in America, so European workers could worry that there would be a race to the bottom for lower labor regulations in Europe which would have a negative effect."

The powerful trade unions in the U.S. car industry may oppose the deal for fear lower tariffs could lead to a shift in American jobs to Europe.

Scottish MEP Martin hopes the EU will learn from past mistakes and not include an investor-state dispute mechanism in the trade deal, which would allow a U.S. company to sue the EU in a private tribunal if it feels that European regulations have disadvantaged it.

"This is not in the deal, and I don't want it in the deal, but the U.S. has done this with Canada," Martin added.

The U.S. and EU hope to push the trade deal through within 18 months, though judging on past EU trade agreements, this seems unlikely.

Featured

  • Pro-Russian activists seized the main administration building in the eastern Ukrainian city of Donetsk.

    Deadly clashes in eastern Ukraine have spiked fears of all-out war in the region. So who are the armed, flag-waving rebels who appear to be behind it all?

  • An employee wipes a TV screen in a shop in Moscow, on April 17, 2014, during the broadcast of President Vladimir Putin's televised question and answer session with the nation.

    Russian President Vladimir Putin warned of possible disruption to Europe's gas supply on Thursday, as the U.S. confirmed it would send additional military support to Ukraine.

  • The recovery in the EU's car industry carried on through March, providing some much needed cheer for automakers.

  • Amazon is facing fresh strikes in Germany after pay negotiations with the country's second-largest union Ver.di broke down, the Financial Times reports.

Contact Europe News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More

Europe Video

  • Jan Dunning, CEO of St Petersburg-headquartered hypermarket chain Lenta, says the situation in Ukraine has had no impact on the group, as consumer confidence remains unaffected in Russia.

  • Vincent Deluard, European strategist at Ned Davis Research Group, says the strong euro is a problem for the region's companies, especially for the large exporters.

  • European shares closed higher on Thursday as investors brushed aside concerns regarding Ukraine and focused instead on Wall Street earnings and the latest U.S. jobs data.