(1) Exporting stuff nobody buys at home because folks are hard up doesn't assure sales abroad when your trade partner is equally hard up. The underlying premise of this FTA, trade creation, is highly dubious. We owe a debt of gratitude to none other than Karl Marx in the stupefaction sweepstakes evident here: We know that both the EU and the US are terminally stuck in reverse gear. Both economies are shrinking. Household incomes in both have been stagnant-to-declining for well over a decade. Hence, lowering trade barriers doesn't really matter when there's not enough money to go around despite unprecedented easy money policies on both sides of the Atlantic. Why are we to believe that ridding EU-US trade of the negligible 3% average tariffs remaining will result in much of anything when trillions in stimulus-- far greater inducements to consume--have failed to get these economies out of their respective ruts? Peugeot cars selling well in America--dreaming is free, no?
You'd think that countries go abroad in search of more promising markets than those at home once they reach saturation alike what Marx said, but here you have two equally saturated markets wishfully thinking that salvation lies in each other. You keep dreaming.
(2) Stated potential gains from this FTA are likely overstated. People clowning with DGSE models is usually the source of wildly overestimated gains from lowering trade barriers. It has been some sort of pastime estimating gains (if any) from this FTA. I am thus astounded that the claimed gains for both sides exceed some that I've seen made for the completion of the (global) Doha Round. It's easy enough to get a hold of the software, set optimistic parameters and wind up with trade creation figures in the tens of billions and I suspect that's what's going on here.
(3) Tariff lines won't be negotiated where they are highest--in agriculture. European agricultural subsidies are, in a number of ways, even worse than already-high American ones. The assumption going in is that both parties will want opt-outs for their respective agricultural lobbies. End result? No progress where substantial reductions in tariffs actually are possible.
(4) Most of the expected gains lie from reducing non-tariff barriers alike through standards harmonization. The EU admits as much:
Given the low average tariffs (under 3%), the key to unlocking this potential lies in the tackling of non-tariff barriers. These consist mainly of customs procedures and behind the border regulatory restrictions. The non-tariff barriers come from diverging regulatory systems (standards definitions notably), but also other non-tariff measures, such as those related to certain aspects of security or consumer protection.Once again, think of agriculture. Famously, the US has had no luck gaining access for its genetically modified foodstuffs and meat products using beef hormones in European markets. I doubt whether the Europeans are willing to make significant concessions over these issues now when they have not been willing to do so before. Moreover, why are we to believe that, say, harmonizing automobile crash safety testing is going to unlock the sales of Peugeots Stateside multiplied across dozens of other industries?
(5) Canada has been negotiating an FTA with the EU for four years now with limited progress over issues that will almost certainly reappear when Europe negotiates with the 10x larger United States. Chances are that discussions will be even more contentious given the money at stake. The EU-Canada deal isn't exactly a promising precedent. From Reuters:
EU Trade Commissioner Karel De Gucht had hoped to wrap up talks for a free-trade agreement with Canada in Ottawa in early February, when he met his Canadian counterpart Ed Fast. But negotiations are held up over contentious issues including agricultural exports, intellectual property and the ability being to bid for government contracts on both sides of the Atlantic. "What was on the table was simply not feasible," De Gucht told the European Parliament's trade committee, when asked by one lawmaker to explain why a deal had not been reached. "On a number of issues they will have to make additional exceptions," he said, referring to the Canadians.Also consider that negotiating this deal would terminally wound the Doha Development Agenda and you must wonder how desperate the brokeback Yanks and their European counterparts have become. Make no mistake that they would not have even proposed going down this road if things weren't so bad that they are now trying to make lemonade out of the lemons they've been dealt with.
Here is my fearless prediction: There will be heated negotiations--and perhaps even a done deal sometime around when Obama (mercifully) exits. Even so, it will all have been for not much of anything in the end.
If this is the rescue plan for both America and Europe, they are as delusional as they come.
(6) 2/23 UPDATE: To throw another monkey wrench into the proceedings concerning (surprise!) agricultural products, the EU has now applied blanket tariffs against US bioethanol exports over "dumping":
The EU will place a duty on all U.S. bioethanol imports to the 27-nation bloc from Saturday, in a move that has prompted Washington to express "serious concerns" and that comes as both sides prepare to launch negotiations on a free-trade deal. The European Union will levy a 9.5 percent tariff on all bioethanol coming from the United States, the bloc's Official Journal said on Friday, concluding a 15-month investigation that argued U.S. bioethanol was being dumped, or sold below cost.The US will likely appeal as FTA negotiations get underway. It's not such a good omen after so many unresolved squabbles over agricultual products, don't you think?
Since most bioethanol is a component in blended fuel, the ruling sets a fixed charge of 62.30 euros ($82.38) per net tonne of bioethanol present in fuel. Brussels says that U.S. incentives to produce clean fuels constitute an illegal subsidy under world trade rules, and have allowed U.S. producers to sell cheap fuel to Europe, an accusation rejected by U.S. producers.
