Thursday, June 27, 2013

The Downsides of a Transatlantic Free Trade Agreement

by Mike Nelson

For the casual observer, anyone hearing President Obama announce in the State of the Union address that his administration would be working on a free trade agreement with the EU would probably ask themselves two questions: (1) isn’t trade already free between the two and (2) if trade isn’t already free, why not make it so? The resulting media coverage has been positive, and there seems to be a great deal of public support for an EU-US FTA. After hearing additional praise during a video conference with the University of Pittsburgh about this subject, I decided to research and consider the cons of an FTA between the U.S. and the EU.

To paint a more accurate picture, it should be noted that President Obama did not use the phrase “free trade agreement” in his announcement. He called it a “comprehensive Transatlantic Trade and Investment Partnership with the European Union.” It struck the panelists at the video conference and myself as curious that Obama was so cautious with his language. Obama’s speechwriters may have simply been concerned that the American audience wouldn’t know what an FTA is (Americans have a bad track record in understanding anything involving other countries, see the confusion between the Czech Republic and Chechnya for an example). I suspect that Obama didn’t want to commit to the word “free” in case there was a dispute in the negotiations between the U.S. and the EU. Finally, several sources indicate that Obama added the announcement to the State of the Union address at the very last minute, which suggests that he has some concerns.

I tried to give this issue some common sense analysis to determine what the downsides of transatlantic free trade could possibly be. Consider a scenario where there is a company that sells Product A in the United States and another country that sells Product A in the EU. Right now, Americans always buy from the American company because there are no tariffs imposed, so the price is cheaper than the European company’s product. However, with a free trade agreement, both companies would be able to compete, which would damage the American company’s sales. The other problem with an FTA could be disagreement over what constitutes a certain product. For example, there have been disputes over whether American companies can slap the word “Château” on bottles of wine and sell them in France, where there are stricter guidelines on what is or is not “Château.”

A specific area of concern with an EU-US FTA is agricultural products. In an interview, former World Bank President Robert Zoellick explained the problem with agriculture. The EU has very strict food regulations in response to the hunger faced by many Europeans during World War II, while the U.S. is not as concerned. American farmers are angry that Europeans sometimes reject American products for not meeting the high EU standards. Take into account the horse meat scandal in Europe, and this issue is all over the place right now.

Overall, none of these problems were very compelling in convincing me to think that a free trade agreement is a bad idea for the EU or the United States. It is important to at least consider these cons though when negotiating the terms of the FTA. Either way, I can rest assured that an EU-US FTA will be good for me as a consumer.

Mike Nelson is a first year MAEUS student. He graduated a year early and received his Bachelor’s degree in Political Science from the University of Illinois at Urbana-Champaign in 2012. Mike has studied French, German, and Spanish and will be tackling Swedish starting this fall. He has traveled to Germany and hosted a French foreign exchange student. During the summer, he works as a manager at a water park. He is working as a Graduate Assistant and Teaching Assistant for the European Union Center this year. 

Photo: European Parliament

1 comments:

This is an extremely superficial analysis..but it's good that someone is raising some questions. More in-depth please.

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