Will US-EU trade talks spur growth - or show globalization's limits?

Negotiations over what would be the world's largest free trade deal begin today in Washington.

When American and European negotiators sit down this week to launch talks on a free trade deal between the US and the European Union, they are moving into uncharted waters – whether the deal succeeds or fails.

The Transatlantic Trade and Investment Partnership (TTIP) would be the world’s largest free trade deal, far surpassing the North American Free Trade Agreement (NAFTA) between the US, Mexico, and Canada.

It’s also ambitious in content. With tariffs already low, this deal will focus more on business barriers such as safety standards or inspection procedures. The issues might seem pedestrian, but are some of the trickiest to negotiate, going to the very heart of the way people live their lives: the way chicken is cleaned, or the assumptions people make when they walk into a pharmacy or get into a car.

A trade deal would deeply integrate US-European relations at a time of drift, and during a rocky patch, amid friction over American spying allegations. If it succeeds, some say it would create a more level playing field with the rise of China and other emerging markets, as well as reinvigorate other global trade initiatives.

Yet even if it fails – and there are plenty who think that the obstacles such as agriculture and, most recently, data privacy are insurmountable – a failure would be pivotal, showing that tariffs can be dropped but non-tariff barriers, which are often more cultural in nature, remain stubborn. A failure, says Fredrik Erixon, the director of the European Center for International Political Economy (ECIPE) in Brussels, “could lead to a larger standstill in efforts to address 21st century trade barriers.”

Long-standing obstacles

Tariffs between the US and EU are already relatively low, but because of the sheer size of trade between the two – representing half of global economic output – advocates say it would be a major booster of growth and jobs, especially in debt-stricken Europe that has seen record high unemployment at 12.2 percent.

The two already invest nearly $4 trillion in each other’s economies, according to US statistics, which translates into 7 million jobs.

It’s the non-tariff barriers, however, that most are watching in TTIP talks. Today, if a product is made in France, for example, it goes through the various regulatory hurdles to bring it to the marketplace; it then has to go through another set of strenuous – and often redundant – hurdles to reach the US market. Under the TTIP, both sides could agree to mutually recognize the others’ systems.

When it comes to car safety, reducing red tape may be an easy compromise. But other issues on the table have long vexed negotiators. That includes French subsidies for its film industry, European resistance to genetically modified foods (GMOs), or data privacy laws – especially in the wake of the information released by former National Security Agency (NSA) contractor Edward Snowden revealing the US systematically spies on its own citizens, as well as European institutions.

“One of the sleeper issues in the deal is how to deal with privacy,” says Bruce Stokes, the director of the Global Economic Attitudes program at the Pew Research Center. Europeans, particularly Germans, are far more sensitive than Americans when it comes to data privacy.

“There is a disconnect between Europeans and Americans about this new digital economy,” Mr. Stokes says. And even if the Snowden case is about government, not industry, it bolsters European assumptions that Americans don’t care about privacy, he says.

Supporters of the agreement know these talks will be arduous, but at a time of economic weakness, they might have the political will to push forward. “Europe is stuck, and the US is also stuck, although not quite as bad,” says Thomas Wright, a fellow in the Managing Global Order project at the Brookings Institution. “This offers a way that leaders can be proactive and generate growth. I think that resonates with people, particularly in Europe.”

Mr. Erixon also says that regulators in specific industries have more of an incentive to find solutions now, because their refusal to compromise would influence every other industry included in the talks. On the issue of the US using chlorine when washing chicken, for example, compromise has been impossible because the context was always too small. “Regulators were trying to defend their position, with no interest at all in participating in negotiations with other countries,” he says. “If you play filibuster now, the cost is higher.”

'Cultural exceptions' – and similarities

So far TTIP has not generated widespread controversy in the US. That might be because it’s still early days. But it’s also because of the nature of the deal, says Charles Kupchan, a transatlantic expert at the Council on Foreign Relations in Washington. “Since trade is relatively free and since [the US] and the EU are at similar stages of development, this is not a deal that is going to cause major dislocation,” he says. “This is an easier sell politically.”

Opposition might be stronger on the European side. Already the French sought to invoke the so-called “cultural exception” in the talks, as a way to protect its movie industry from an incursion from Hollywood. France ultimately agreed to allow media to be included in talks so that they could officially launch, but it will be among the most difficult issues to negotiate.

“It’s not a little issue. It’s the cultural meat of a nation,” says Josef Braml, transatlantic expert at the German Council on Foreign Relations in Berlin, who has little hope that a deal is attainable – above all, he says, because of the weakness of President Obama.

But the “cultural exception” debate could be a harbinger of sentiments that develop as the trade talks get underway.

Guillaume Xavier-Bender of the German Marshall Fund of the US in Brussels says that in many ways the talks will show how similar regulations between Europe and the US are. “There are more things in common between Europeans and Americans than there are differences,” he says.

But on the politically most sensitive issues, claims that TTIP is merely an American instrument to change European values could be made. “It is possible in Europe you see anti-globalization and anti-liberalization movements evolve into anti-Americanism,” he says.

If an agreement becomes impossible to forge, it may ultimately illustrate more than transatlantic differences. Mr. Stokes says that global economies have continuously become more closely integrated over time. But if in the TTIP it’s possible to get rid of tariffs yet not non-tariff barriers, he says it will be telling for the future of trade agreements globally – a sign, he says, that “we may be encountering the edges of the limits of globalization.”