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US-European Trade Deal Important for Massachusetts Economy

Posted on August 15, 2013

The United States and European Union (EU) are currently negotiating a broad trade agreement called the Transatlantic Trade & Investment Partnership.  Here’s why Massachusetts employers should pay attention.

International TradeThe EU-US trade relationship is the largest in the world.  It represents nearly half the world economy.  And the transatlantic relationship in some ways defines the shape of the global economy. 

Here in Massachusetts, more than one-third of our 2012 product exports were sent to Europe, with the majority going to the United Kingdom, Germany, Netherlands, Belgium, France, Ireland and Italy.  Most small and medium-size businesses in the commonwealth that are exporters count at least one European country among their critical markets. 

The removal of trade barriers”tariffs, regulatory barriers and protectionist restrictions”will result in job creation and economic growth on both sides of the Atlantic.  Some estimates indicate that trade could increase up to 30 percent.

“I believe (the agreement) will stimulate our bilateral relationship and also put us in a good position as we negotiate multilateral agreements,” said EU Ambassador to the US Joao Vale de Almeida on a recent visit to Massachusetts.

What are the primary goals of the negotiations?

Tariff reduction is one.  Although tariffs between the EU and US are low”3-5% average”a reduction of just two percentage points on large volumes of goods will have a huge economic impact.

More challenging is the goal to address non-tariff barriers, comprised of administrative regulations, technical regulations, standards, certification and heavily protected domestic industries, including autos, agriculture and textiles.  Differences in standards and regulations can add 10-20 percent additional cost to finished products.

Consider the auto industry.  Auto crash tests are conducted differently in the EU and the US.  The purpose of the testing is the same”protection and safety”but because of inconsistencies between the two testing processes (EU test dummies wear seatbelts, US dummies do not), autos to be shipped between the EU and US are required to go through a second complete round of testing, costing time and money.

There are several reasons for the new urgency behind EU-US trade negotiations.  The recent financial crisis, from which Europe is emerging more slowly than the US, signaled that new sources of growth are needed.  There’s more growth potential when economies act regionally and globally, not just domestically.

Another reason is that World Trade Organization (WTO) negotiations have been stalled, and the expectation is that the WTO will not soon address EU-US trade concerns and opportunities.  Today’s political and economic environment is favorable for an EU-US trade deal, with mutual interest in increasing access and opening markets.  And government officials and elected leaders in the EU and the US truly want to make this trade agreement happen.

The agreement represents an opportunity for the EU and the US to optimize existing relationships while also preparing for, and adapting to, the future. A single EU-US market would be more efficient than dozens of smaller markets.  (The EU currently has 27 member countries.)

So what happens next?  The first round of negotiations last month set the stage for areas of cooperation and mutual understanding.  More than 150 negotiators will meet again in October, in Brussels.  Already, some US industry sectors (automotive, chemical, pharmaceutical) are holding their own meetings with EU partners to achieve regulatory cooperation and eliminate unnecessary differences.

Ultimately, the US Congress will be asked to approve the transatlantic trade agreement, which would be the largest trade agreement in the world.  As negotiations take place over the next 12 to 18 months, Massachusetts employers engaged in global trade should be sure their customers and legislators are aware of the importance and value of this EU-US trade deal to our economy.