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Home > Blogs > Anthony Harrington > US shutdown halts talks with EU on millions of new jobs (Part One)

US shutdown halts talks with EU on millions of new jobs (Part One)

US shutdown halts talks with EU on millions of new jobs (Part One) Anthony Harrington

One of the unsung and largely unnoticed casualties of that monumental piece of political idiocy, the US Government Shutdown, was the cancellation of the second round of the Transatlantic Trade and Investment Partnership (TTIP) talks between the US and the EU, which was scheduled to have taken place between 7-11 October. The negotiations have now been shelved until the US can resolve the political gridlock that is paralyzing the country. The EU estimates that negotiations on a trade agreement will bring some €119 billion a year to the EU economy, to the order of €95 billion to the US economy, while simultaneously adding some €100 billion to the global economy; the fact that these negotiations have to be suspended because a small group of Republicans want to smash ObamaCare (President Obama's Health Care Act) beggars belief!

The EU's assessment of the economic benefits of the TTIP is based on analysis carried out by the Centre for Economic Policy Research (CEPR)  and is the subject of a recent report by the EU, but the main point is that the anticipated gains would be a permanent addition to the GDP of both countries and to the global economy.  The CEPR analysis predicts that implementing the TTIP would create millions of new jobs in both the US and the EU. Sectors such as automobile manufacture, metal products, processed foods and chemicals would see the main gains (40%, 12%, 9% and 9% respectively), and significant gains of the order of 6% for exports in manufactured goods and transport equipment. A comprehensive TTIP agreement (also known as the Transatlantic Free Trade Ara, or TAFTA) would be a massive boost to jobs across the EU and bring much needed relief to the eurozone's struggling peripheral economies.

Talks on TAFTA began back in the 1990s, so some might argue that a few weeks' delay to negotiations resulting from the shutdown are no big deal - this is a pretty slow train anyway - and may yet end up going nowhere for another decade or so. However, both the US and Europe have pumped a lot of energy into TTIP since the start of 2013. President Obama promised in his State of the Union address on 13 February 2013 that he was going to submit a formal request to start negotiations on TAFTA. The move was obviously coordinated with the EU, with both European Council President Herman Van Rompuy and European Commission President José Manuel Barroso announcing that negotiations were being initiated.

The point is that it is going to take a lot of energy for these negotiations to get anywhere because, as far as EU/US trade is concerned, the low hanging fruit has already been plucked and the barriers that remain look pretty intractable unless both sides really push for solutions - which is why the US shutdown was potentially so damaging. Momentum, on a complex issue like this is easily lost, particularly since issues of local parochialism and protectionism can loom large ("Shipping Kansas jobs to Europe? Not just no, but hell no!"). Once distracted, getting politicians back on track and on mission can be much like herding cats.

As EU Trade Commissioner Karel De Gucht pointed out in a recent speech, TTIP - Solving the Regulatory Puzzle, the really difficult hurdle to get past for trade to flow freely has to do with regulatory barriers rather than import tariffs or other protectionist measures, all of which are in principle capable of being dismantled. Regulatory issues are a different kettle of fish. As De Gucht told delegates to the Aspen Institute's Prague Annual Conference:-

"... all of the relatively easy work is done. What remains are the toughest issues. True, there are some low tariffs which should be relatively easy to remove, like the three and half per cent duty that Czech tire exporters pay into the US treasury. But many more of the other areas – like procurement barriers in US states for instance – will be anything but easy. And the most complicated area of all [is] regulatory barriers to trade."

Unlike tariffs, which are clearly designed to handicap importers and favor local producers, regulatory barriers are not supposed to be barriers at all. As De Gucht noted,
"A regulation's primary goal is to protect people from risks - whether to their health, safety, financial security or environment."

So, the immediate and seemingly overwhelming argument against removing or modifying regulatory barriers is that any step in this direction is immediately seen as exposing people to untoward risk politically - which is in itself hugely risky.

Keep an eye out for Part Two of this blog, which looks at De Gucht's view of how progress could be made.

Further reading on trade flows

Tags: Centre for Economic Policy Research , President Obama , TAFTA , trade agreement , Transatlantic Free Trade Area , Transatlantic Trade and Investment Partnership , TTIP , US shutdown
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