New Atlantic Capitalism - Reshaping the EU-US economic model

21 March 2012

The USA and Europe are both facing the same challenge: achieving growth at a time of austerity. “Trade and investment plays a key role here,” said Marc Vanheukelen, head of cabinet for EU Trade Commissioner Karel de Gucht.

“90% of growth in the world economy will be outside Europe by 2015. 36m EU jobs are dependent on foreign trade. With the right trade agreements, there’s huge potential to expand this,” he declared.

“The EU’s ambitious trade strategy targets all areas of the world. But the USA is now a more crucial partner for the EU than ever before,” he added.

“The financial crisis had disastrous consequences for both our economies,” Vanheukelen said, pointing out that the EU economy shrank by 4% compared to 3.5% in the US.

“The EU-US trading relationship is the world’s largest by far,” he said.

Although bilateral trade in goods and services between the two entities is worth €2 billion every day, “foreign direct investment is by far the most significant area,” he explained, pointing out that 56% of all US FDI is in Europe, while 72% of all FDI in the US comes from Europe.

He argued that there were three main conclusions to draw from the report:

  1. Any solution that doesn’t involve both of the two partners is second-best. “There can be no closing of markets,” he said.
  2. The EU-US economic relationship is so large that boosting it can only bring more benefits.
  3. Tariffs are much less significant obstacles than regulatory ones.

He outlined three levels of ambition for future development of the EU-US relationship: beefing up the Transatlantic Council, boosting trade in goods and services, and establishing an EU-US free-trade agreement (FTA).

“An effective agenda to boost our economies must be both ambitious (comprehensive) and realistic (offering success within a limited time period),” he explained.

“It must be doable within two years max. It’s no use dragging on for years. Get a global agreement – don’t take a piecemeal approach. Dealing with it issue by issue puts the most important ones at risk of falling by the wayside,” the high-ranking EU official said.

 “The real problems faced by businesses can only be solved by tackling the most difficult issues,” he argued.

“EU-US trade liberalisation could benefit the rest of the world and send out a positive signal to others, potentially impacting on the WTO at a time when the risk of protectionism worldwide is growing,” Vanheukelen said.

“Emerging economies are already modernising their own regulatory regimes. Let’s lead by example,” he added.

Presenting the recommendations contained in the report, Bruce Stokes, senior transatlantic fellow at the German Marshall Fund of the United States, offered the following advice:

  • Create a transatlantic environment that leads to a barrier-free market by 2025.
  • Establish a binding timetable for eliminating all tariffs on transatlantic trade of goods.
  • Reduce non-tariff barriers and aim for regulatory coherence (rather than full regulatory harmonisation, which is too difficult to achieve).
  • Establish an annual strategic economic dialogue involving EU finance ministers and officials from the Federal Reserve, the European Central Bank, and the US Treasury.
  • Conduct regular peer reviews of each other’s economic assumptions. “Brussels has already started to do this in Europe in a very concrete manner. We’re not suggesting the same, but something similar,” he said.
  • Remove the remaining obstacles preventing the establishment of a comprehensive new framework for financial regulation. “We’re at risk of tragically missing this historic opportunity,” he warned.
  • Establish a dialogue on the future of financial services in our economies. “Have they become too big? Can we curb their excesses? Can they be returned to their role as a facilitator of economic activity, rather than its dominant force?” Stokes asked.

“Multiply opportunities for growth, jointly identify potential sources of trouble, and reinforce the global level playing field,” ,” said Paweł Świeboda, president of demosEUROPA – Centre for European Strategy, presenting the key recommendations for boosting EU-US trade relations made by the report.

Świeboda outlined more of the report’s recommendations:

  • Identify opportunities to cooperate on energy and climate research, including into major new technologies across the energy mix, for example: smart grids, hydraulic fracking, shale gas, energy storage, nuclear fusion, and carbon capture and storage.
  • Share experience of energy subsidies and regulation.
  • Blunt China’s mercantilist ambitions in the renewables field.
  • Create an integrated transatlantic space for research and innovation, including joint public funding of projects.
  • Adopt a joint approach to intellectual property rights.
  • Align trade liberalisation and funding to Eastern Europe and North Africa, particularly to boost growth and encourage entrepreneurship.
  • Countries that benefit from EU/US aid should open up to trade between themselves.
  • Work to maintain a global level playing field by ensuring that genuine market standards are respected and by keeping protectionism at bay.
  • Establish common rules on subsidies, inward investment and public procurement.