An EU-US High Level Working Group is expected in December to issue a report recommending the negotiation of a comprehensive transatlantic trade and investment agreement. At the same time negotiations of a Free Trade Agreement between the EU and Japan will likely be launched in the coming months following joint scoping exercises concluded earlier this year. Yukio Hatoyama, a former prime minister of Japan, has already called for it to be turned into a more comprehensive Economic Integration Agreement by covering areas such as regulatory convergence and approximation of legislation.
Agreement among the EU, the US and Japan would have the potential to significantly contribute to economic growth at a time when expressions such as „new normal” or „lost decade” are increasingly used to describe the medium term economic outlook. The European Commission estimates that medium term growth rates could be raised by as much as 2% and over 2 million jobs could be created by the EU pursuing an ambitious trade agenda. Similar benefits could accrue to the US and Japan. Freer trade would also allow the benefits from innovation to spread faster. Even non-participating countries can be expected to receive some benefits from faster economic growth and higher incomes in the three. In the future the geographical scope could certainly be expanded with countries such as Canada or South Korea being logical candidates to join. If the broader Asia-Pacific Economic Cooperation group (APEC) participated in such a union, the resulting unit would include a very high percentage of world trade. It would be easy to dismiss the idea as unrealistic, but prior to the Treaty of Rome in 1957, many skeptics denounced the idea as unrealistic. In spite of current problems with the Euro, the single market features of the EU have benefitted members for more than half a century.
Despite the enormous potential and initial momentum, the obstacles faced by the proposals would certainly also be huge. While benefits would significantly exceed costs, the former are likely to be more dispersed and the latter more concentrated, in particular, because some of the benefits would also accrue to customers rather than businesses. This means that pressure against liberalization from interest groups in some industries will be significant. Tradeoffs between the scope covered and the speed with which the negotiations can move ahead will have to be made. For example, already before the start of negotiations it appears to be clear that the highly sensitive agricultural sector or at least large parts of it will have to be excluded from the agreements.
In the past, economic crises such as the Great Depression of the 1930s have often resulted in retrenchment and increased protectionism that included the infamous Smoot-Hawley tariff. The result was lose-lose outcomes. The current bold proposals show that some policymakers today realize that more trade, not less, is needed to improve the economic outlook. The obstacles faced will be significant, but the potential benefits are much larger. Successful implementation of the above proposals could be the difference between a lost decade and one where economic growth is reignited.The benefits of innovation could be difused more widely and more productive jobs could be created by increasing trade and economic integration.
References
European Council, “18/19 October 2012. Conclusions”, October 19, 2012
Hatoyama, Yukio, “Free Trade Can Lift Japan and Europe”, The Wall Street Journal, October 19-21, 2012
Reuters, “EU, U.S. to negotiate free-trade deal from spring 2013: officials”, October 17, 2012