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Corporate Europe Observer

Favourable Winds for Transatlantic Free Trade?

The European Commission (EC) launched a proposal in February to start negotiations with the United States about creating a New Transatlantic Marketplace (NTM). The NTM would become the world's largest borderless area for goods, services, intellectual property and investment. If the EU's Council of Ministers agrees, negotiations could start on May 18th at the EU-US Summit in London. 

he Transatlantic Marketplace is the baby of Commission Vice- President Sir Leon Brittan, known as a hard-line protagonist of free trade. After having worked since 1995 on so-called mutual recognition agreements between the EU and the US within the Transatlantic Business Dialogue (TABD), which has been creating a free trade zone step by step, Brittan feels the time is now right for a more ambitious approach. The NTM would dismantle all barriers to trade in services and all tariffs on goods. Technical and non-tariff barriers to trade would also be scrapped through harmonization and mutual recognition of standards and regulations. Government procurement, intellectual property and investment would be fully liberalized.

Brittan's Great Leap Forward

The Transatlantic Marketplace is not a new idea. Free trade enthusiasts on both sides of the Atlantic eagerly talked about a Trans-Atlantic Free Trade Agreement (TAFTA) as long ago as 1994. The European Commission was hesitant about beginning to talk about a transatlantic free trade zones, and some EU member states, particularly France, were directly opposed to the idea. Nonetheless, the New Transatlantic Agenda which was signed in December 1995 at the EU-US Summit in Madrid commits the EU and the US to "progressively reducing or eliminating barriers that hinder the flow of goods, services and capital between us."[1] Much of this work has since then been carried out within the Transatlantic Business Dialogue (TABD), which concluded that a step by step approach of harmonizing regulations and standards would be the most strategic (see elsewhere in this issue). Commissioner Brittan, however, is not satisfied, complaining that "this approach is slow and can produce only limited results".[2] The Commission now wants "a new, more comprehensive and ambitious approach ... a single comprehensive agreement".

One of the major proposals for transatlantic deregulation is to commit to removing all remaining tariffs on trade before the year 2010. But, in fact, other elements are even more far reaching. "The main problem is non-tariff barriers", says the Commission, the whole "range of domestic regulations and standards", which since they "often diverge widely can act as hidden barriers".[3] With the NTM, the EU and US would commit themselves to "convergence and ... mutual recognition of law, procedure and practice"[4] to reach the ultimate aim: "conditions in which goods legally marketed in the territory of one party can, as far as possible, move across the Atlantic and be marketed in the territory of the other without facing further formalities or duplicate requirements".[5] Agriculture is excluded from the NTM but food products are not, included genetically modified products. "The field of biotechnology is highly sensitive", the Commission acknowledges, but continues "this should not discourage us from addressing it under the NTM".[6]

The Commission generally denies that it wants a transatlantic free trade zone or an expanded internal market, except for the area of services where it calls for a free trade area (FTA). Such an agreement would cover all sectors with the exception of audiovisual media. Apart from telecommunications and financial services, this means for instance medical services, aviation, energy, legal services, transport and educational and training services. For government procurement, the Commission also proposes "the extension of full national treatment" for all companies from the EU and the US.[7] The Commission sees this as a way to get rid of "Buy American and related requirements and local preferences applied at both federal and sub-federal level". [8]

Why Now?

Sir Leon Brittan's initiative is clearly also a strategic move to push deregulation in other fora -- for example the WTO, in which the EU is pushing for a new round of global trade negotiations to start next year. Brittan's proposal for a new round -- dubbed the Millennium Round -- includes a wide range of issues, from agriculture to services and from investment to competition policy. Leading industrialists such as Étienne Davignon and Peter Sutherland have also reacted hesitantly to the New Transatlantic Marketplace initiative, preferring new trade rules within the WTO.[9] Brittan, long a proponent of WTO liberalization,[10] sees no contradiction, believing that negotiations on a transatlantic marketplace would increase the momentum for the new round of global trade negotiations.

The Commission talks about "the incentive effect", and the NTM proposal explicitly states that the EU and the US, working closely together, have managed to push through other WTO agreements.[11] As Brittan explained during a US visit in late March: "The proposal has been carefully designed to be entirely compatible with all multilateral commitments. But beyond that, it is designed actually to promote the European ambitions ... for further multilateral liberalization in future negotiations. The proposal for tariff liberalization is explicitly multilateral. The proposal for bilateral free trade in services is intended to set an example for others to follow, and to create a strong inducement for them to do so. Indeed I believe that by working together... the EU and US will be able to lay much of the ground work for a further multilateral negotiation and so to kick start the process"[12] It is expected that Brittan will already start to build up pressure for the "Millennium Round" at the WTO Ministerial Conference from 18-20 May in Geneva.

Another element behind the Commission's new deregulation offensive is the troublesome negotiations on the Multilateral Agreement on Investments (MAI) within the OECD. Opening up a new front -- the Transatlantic Marketplace -- might smooth the path for investment negotiations within the OECD as well. The EU's NTM proposal includes many familiar elements of the MAI, including full national treatment for foreign investors and an international dispute settlement mechanism. The Commission sees the NTM as a way to go beyond the expected outcome of the MAI negotiations: "It is important to maintain an ambitious approach to develop a Multilateral Agreement on Investment (MAI) ... At the end of that negotiating process, an evaluation should be made of what has been achieved and of what more might be done with the US".[13]

Mixed Feelings

There are ample stumbling blocks that could prevent NTM negotiations from setting sail. The US government has reacted positively to Brittan's proposal, but says that agriculture is a crucial part of a free trade agreement. Brittan has excluded agriculture, knowing that transatlantic free trade in this sector would meet strong opposition both from farmers and many governments.

Within Europe, UK Prime Minister Blair and German Foreign Minister Kinkel welcomed the NTM as a source of economic growth and employment, whereas French government reactions to the NTM have been explicitly hostile. President Chirac said it goes against the "vital interests" of his country, where as Prime Minister Lionel Jospin said Paris had not been consulted about the initiative, which he feels would result in US dominance in European agricultural, communication and culture markets.

The summit of EU foreign affairs ministers on 30-31 March confirmed the conflict of opinion, with seven ministers speaking in favour of the NTM and France remaining firmly opposed. French Minister of Foreign Affairs Vedrine afterwards stated that the European Commission had not been given a mandate to start negotiations at the EU-US summit on 18 March in London. Present at this summit will be Sir Leon Brittan and Jacques Santer on behalf of the European Commission, together with Clinton and UK Prime Minister Blair, whose country currently holds the EU's presidency. The issue has now been passed on to the Committee of EU Permanent Ambassadors, the COREPER, and it will be picked up again by the ministers of foreign affairs again in late April.[14]

EU Hit List US "Barriers Trade and Investment"  

For the past 13 years, the EU has published annual reports on barriers to trade and investment in the US. In its 1997 report, the EU notes with satisfaction the ongoing removal of barriers following the Uruguay Round and other WTO agreements as well as the results of the Transatlantic Business Dialogue.[15] But a huge amount of barriers, "ranging from more traditional tariff and non-tariff barriers, to differences in the legal and regulatory systems" remain, in the EU's view. 

The purpose of the report is "identifying problems of access to and of operating in US markets", and it will be used in negotiations between the EU and US and in the WTO. It is, in other words, a tool for mutual deregulation. The most famous complaint is of course the "extraterritorial provisions of certain US legislation which hamper international trade and investment by seeking to regulate EU trade with third countries (Cuba, Libya and Iran) conducted by companies outside the US", to which the EU is strongly opposed. But that is only the start. The EU lists numerous barriers to the free flow of goods and money, in areas like food standards, labelling, public procurement, taxation, intellectual property, telecommunications, air transport and much more. 

Tariffs are not the main problem area for the EU, as these have been reduced step by step during the various GATT rounds. The EU, however, wants tariff reduction in the remaining sectors "where less progress has been made", including for instance food products, textiles, footwear and trucks. The EU sees many US regulations for food products as barriers to trade, including the 1990 Nutrition Labelling and Education Act which "requires certain products to be labelled as to their content". These rules are in some cases stricter than the international standards on labelling established by the Codex Alimentarius.[16] According to the Commission report, "providing consumers with accurate, useful information is certainly in everyone's best interest. However, sometimes the information required to be put on a label seems to be specifically designed to influence consumer behaviour". The report also identifies US requirements for imports of tuna ('dolphin-free') and shrimp (fishing methods which protect sea turtles) as barriers to trade. 

The EU is very upset about "the wide variety of 'Buy America' provisions in the US" in the area of public procurement and government-funded purchases. "Some prohibit public sector bodies from purchasing goods and services from foreign sources; some establish local content requirements, while others still extend preferential price terms to domestic suppliers", the Commission explains. The "Buy America Act" also allows "procuring entities to set aside procurement for small businesses and firms in labour surplus areas". A particularly "unwelcome new development" in the EU's view is "the introduction of several sub-federal selective purchasing laws restricting the ability of EU and other companies doing business with specific countries to bid for contracts in various states and cities", referring to state and town investment boycotts against Burma and Nigeria. Also very unpopular in the European Commission is the Small Business Act, which "requires executive agencies to place a fair proportion of their purchases with small businesses". The long list of complaints also includes restrictions on foreign ownership as well as performance requirements, "relating either to the contribution of the foreign controlled company's activities to the US economy and employment, or to the realization of specified parameters of production (volume, local content)". 

Transatlantic Trade Trap

Based on a study by the European Commission, Sir Leon Brittan claims that an EU-US free trade zone would boost economic growth by as much as 1% per year. A unified market with over 600 million consumers might be a dream for large transnational corporations lobbying for the removal of barriers to their growth and economic control, but the study lacks any serious insight into the effects on jobs, health and the environment on both sides of the Atlantic. The European single market and the North American free trade zone, NAFTA, both resulted in a wave of mergers, faster automation and centralization of production and distribution centres, causing massive job losses and increased long distance transport of goods.

The Transatlantic Marketplace is furthermore likely to increase the downwards pressure on environment and consumer protection legislation. The US government, for instance, is quite explicit about its desire to get around European barriers to genetically manipulated products. The EU also has a long list of US regulations it would like to see 'harmonized' (see box). An expanded single market further undermines the possibilities for democratically-elected governments to regulate the economy, and would undermine the potential for the EU to take over this role. Proponents of a strong, unified European Union have warned against what they see as "the dilution of the United Europe in a global free trade area [...] without any other rules or disciplines other than those of the WTO".[17]

If the EU and US decide that negotiations on creating a New Transatlantic Marketplace can begin, it would be another sad example of how policies with very far-reaching implications are adopted without neither public consultation nor any popular mandate whatsoever. This disastrous habit of the EU will likely eventually turn against those currently drawing up plans like the NTM.

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1. Communique NTA. | Back to Text |

2. "The New Transatlantic Marketplace", Communication of Sir Leon Brittan, Mr Bangemann and Mr. Monti. | Back to Text |

3. Ibid, p. 1. | Back to Text |

4. ibid, p. 24. | Back to Text |

5. ibid, p. 12. | Back to Text |

6. ibid, p. 13. | Back to Text |

7. ibid, p. 18. | Back to Text |

8. ibid, p. 19. | Back to Text |

9. Étienne Davignon (CEO of Société Générale de Belgique) and Peter Sutherland (Chairman of Goldman Sachs International and British Petroleum), both former members of the European Commission, are prominent members of the European Roundtable of Industrialists (ERT) and represented in government- business fora such as the Transatlantic Business Dialogue and numerous EU working groups. | Back to Text |

10. Other industry groupings have reacted enthusiastically, such as the EU Committee of the American Chamber of Commerce, which in a statement expressed the support of "European companies of American parentage on both sides of the Atlantic". Keith Chapple, Chairman of the EU Committee, "urged governments to take up this opportunity with enthusiasm, creating the momentum for eliminating trade and investment barriers bilaterally and then multilaterally". (Press Release 13 March 1998, "EU Committee Welcomes Proposed New Transatlantic Marketplace") | Back to Text |

11. The New Transatlantic Marketplace", p. 14-15. | Back to Text |

12. Sir Leon Brittan: "New Transatlantic Marketplace -- Europe: the New Tiger? The Shape of Tomorrow's Global Economy", speech at The Kennedy School, Harvard, Boston, 18 March 1998. | Back to Text |

13. "The New Transatlantic Marketplace", p. 21. | Back to Text |

14. "France Keeps Up Barrage Against Brittan Trade Plan", Tom Heneghan, Reuters, 31 March 1998. | Back to Text |

15. "Barriers to Trade and Investment 1997", European Commission, Brussels, July 1997. The annual report is compiled by the Unit for Relations with the United States of America in cooperation with the Market Access Unit, both part of the Directorate General for External Relations: Commercial Policy and Relations with North America, the Far East, Australia and New Zealand. | Back to Text |

16. The Codex Alimentarius Commission is a United Nations food standards body which develops food safety and quality standards. The Codex is heavily dominated by industry interests (see for instance "Cracking the Codex", National Food Alliance, UK) | Back to Text | 

17. EU -- A Look Behind the News", Ferdinando Riccardi, Agence Europe Bulletin No 7176, 9/10 March 1998. | Back to Text |

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