Forget NAFTA – Here Comes TAFTA

The US and Europe are not in a great place at the moment, so it’s no surprise politicians are keen to grab hold of any idea or initiative that sounds like a gamechanger.

One such idea apparently came up in Barack Obama’s State of the Union presidential address, along the lines of a Trans-Atlantic Free Trade Agreement, or TAFTA, as it immediately got dubbed. The idea, as the name suggests, is for a free trade agreement between the US and the EU.

Not wholly new, but not one that had been hotly debated prior to his speech. Now it is the buzz of Brussels and Berlin, not to mention London, Paris and even New York, although pragmatically the talk in Washington is as much about the hurdles as the opportunity.

Certainly it is an idea with opportunities – TAFTA (if it ever happened) would create a free trade area to dwarf all other producing regions.

According to Deutsche Welle, a German broadcaster, goods and services traded between the EU and US constitute the largest bilateral economic partnership in the world. Daily, they amount to more than US$2.4 billion. The combined GDPs of the US and EU account for approximately half of worldwide GDP and one-third of the global flow of goods.

According to EU estimates, a comprehensive free-trade agreement between the EU and US would raise the EU’s GDP 0.5 percent, or USD 88 billion per year. A similar increase is expected for the US.

So much for the opportunity: what about the challenges that would have to be overcome?

Agriculture seems to be the biggest problem. France and many southern states fear competition in the agriculture sector and the US wants to continue to ban imports of beef from the EU for fear of mad cow disease (BSE). In turn, the EU is opposed to accepting genetically manipulated food or chlorinated US chickens into its markets.

Bureaucracy could also slow progress. European countries have already ceded much decision-making to centralized Brussels as part of their own harmonization process, but in the US, “jurisdiction is partly fragmented and relegated to the individual states,” as DW quotes a source.

Negotiations are due to start in the next two months, but have no fixed time frame. As the multi-year and ultimately fruitless worldwide trade deal called the Doha Development Agenda that failed in 2008 has shown, such agreements are so complex, with so many conflicting interests, that the chances of an early success are low.

However, political enthusiasm appears to be across the spectrum; maybe because conventional solutions to a lack of growth have been exhausted. As committed free marketers (and in spite of our skepticism) we will be following the discussions with interest.

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