Gentlemen, Start Your Engines: The Race for Riches in U.S.–EU Trade Begins with a Mandate from the European Commission

by Sheppard Mullin Richter & Hampton LLP

Agreements to free up the flow of trade between countries or regions are aimed to increase economic activity and wealth on both sides.  The EU and United States, however, already make up 40% of global economic output and the trade relationship between them is already the largest in the world.  Tariffs between the two partners are already low (only 4% on average) and the long-lived peaceful commerce across the Atlantic has held on through boom and bust.

So what policy change could promise potential gains of nearly $200 billion shared between the two economies?  A significant reduction in Non-Tariff Barriers to trade (NTBs) between the two trading partners.

On March 12, 2013, European Trade Commissioner Karel De Gucht announced that the European commission had proposed a mandate for negotiations on an EU-U.S. trade treaty focusing on nontariff barriers: the Transatlantic Trade and Investment Partnership.  The EU member states must now approve the mandate and negotiations may begin.  The United States and EU hope to start negotiations in June and have a deal done by the end of 2014. In terms of international trade negotiations, this timeline sets a pedal-to-the-floor pace.  Commissioner De Grucht told reporters that both he and his U.S. counterparts were aiming for a quick agreement on “one tank of gas.”  While that strategy is ambitious, the prize at the finish line may be enough to drive the countries through the course in time.

To date, differing U.S. and EU regulatory philosophies have created undesired results: they create a drag on productivity and efficiency for companies that are forced to comply with two different regulatory schemas.  The negotiations will take on the task of reducing NTBs by aligning domestic standards, cutting costs imposed by bureaucracy and regulations, and liberalizing trade in services and public procurement.  The proposed treaty will aim to open market access, particularly to the service, investment, and procurement sectors, and align regulations to mutually acceptable levels to reduce unnecessary costs and delays for companies.

The goal to reduce this regulatory drag aligns well with the Obama administration’s stated goal to streamline regulations on exports, reported on here.  The ambitions of the negotiating parties, however, do not end at harmonized EU and U.S. regulations.  Both sides hope their efforts will set a benchmark for the development of global standards and the resulting broad international regulatory framework could increase multilateral trade for both parties.

The details of the proposed NTB reductions are not entirely clear yet, but the negotiating mandate provides two options: (1) an ambitious proposal that would eliminate 25% of NTB costs and 100% of tariffs between the United States and the EU; and (2) a less comprehensive agreement that calls for a 10 percent reduction in trade costs from NTBs and a removal of 98% of tariffs.

The mandate to negotiate from the European Commission is only the call for those in the negotiations to rev up their engines.  There will be a long, but hopefully fast, race to the final trophy – a share of the increased wealth from more efficient and less bureaucracy burdened trade between the United States and the European Union.  We will follow the twists and turns of the race and report them here in the coming months.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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