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US-EU Trade Agreement Negotiations Face Serious Hurdles

by Lucas Eaves, published

US-EU trade agreement

Following President Obama's State of the Union, the United States and the European Union announced their intentions to begin negotiations on the US-EU trade agreement.

Once Congress and all 27 European countries of the E.U. are notified, the real negotiations will begin as early as June if everything goes according to plan. Both sides hope to reach an agreement by the end of 2014. Since trade treaties are usually negotiated over many years, this is a very optimistic timeline.

Leaders on both sides of the Atlantic agree such a treaty would benefit everybody as it would give a strong boost to their respective bleak economies. Tweet it: Tweet

The US and EU economies account for roughly half of the world GDP and a third of global trade. Reducing tariff and non-tariff barriers between the two economic giants would, according to some estimates, increase economic growth from 0.5 to 1 percent per year for each side, which is non-negligible considering recent years. Share stat: Tweet

However, if both sides show a willingness to go forward with this trade agreement, the negotiations will be hard.

Tariff barriers between the two partners have already been greatly reduced by less than 4 percent. The remaining barriers, such as differences in the safety standards in the food industry or in the manufacturing of cars, have long been topics of contention and will remain heavily disputed. Share it: Tweet

Agriculture is already known to be one of the key issues. The farm subsidies are the biggest part of the European Union's budget and countries that benefit from these subsidies, like France and nations in southern Europe, are already up in arms to defend them.

The other agriculture issue to be considered is the safety regulations concerning food. The European Union's regulations are stricter than those in the U.S. and block the import of genetically modified crops and hormone treated beef.

Another objective will be to open the service industry more to free competition in the same way the goods market is currently open to free competition. This will include taking away the current restrictions on access to government contracts to foreign companies.

In theory, these changes will increase the competitiveness of companies on both side of the Atlantic which should benefit American and European consumers in the end.

However, this will certainly be a hard sell on both sides. In Europe, such treaty must be approved by the 27 countries. If the U.K. and Germany favor its adoption, France and other agricultural countries will certainly defend the status quo on agricultural subsidies and food safety.

In the U.S, the current economical standstill and high unemployment have caused many Americans to view free trade agreements unfavorably. Popular public opinion is that free trade means outsourcing and foreign companies taking American jobs. A favorable vote in Congress will be very hard to obtain if not every state benefits from the agreement.

However, the U.S. is in a better position at the negotiation table as it is currently negotiating an extension of the Trans-Pacific Partnership, a free trade agreement with the fast growing Asia-Pacific region.

With the recent announcement that Japan might join the negotiations, America's focus on Asia is growing stronger. This might be a threat big enough to convince European countries to make the concessions necessary to secure the broad free trade agreement wanted by Washington, Berlin, and London.

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