Lands of the free

Freer transatlantic trade a worthy G8 goal

British Prime Minister David Cameron has a worthy goal for the United Kingdom’s 12-month presidency of the G8 group of wealthy nations. He wants the group to start work on an EU-US free-trade agreement (FTA). Global trade deals are nearly impossible and bilateral ones tangle world commerce. But a pact between the two Western blocs could set new standards while also boosting the world economy.

The latest attempt at a global trade deal, known as the Doha Round, began in 2001 but broke down in 2008 amid disagreements on agriculture, services and intellectual property between the rich West and poorer emerging markets. Subsequent trade liberalisation efforts have largely taken the form of bilateral agreements such as the United States’ deals with Panama, Colombia and South Korea, all ratified in 2011. However, these deals can balkanize world trade, leading to distorted trade patterns, extra costs and suboptimal global economic growth.

Trade between Europe and America represents only about two per cent of global merchandise trade, albeit a larger percentage of services. But overall the trading relationships of the two regions represent nearly a quarter of world trade in goods, rising to a third when services are included, according to Cameron’s letter to G8 leaders.

The principal objective of an EU-US FTA would not be to lower tariffs, which are already under three per cent on average, according to the European Commission. However non-tariff barriers — quotas and subsidies for agricultural commodities, say, or differing standards and regulations — remain high in some areas. Deregulation is one option; simply harmonising rules is another. Emissions standards for cars, approaches to renewable energy sources and the rules governing intellectual property and consumer protection are examples where convergence could create significant new business opportunities, or at least reduce the hurdles to transatlantic activities.

In addition to acting as a catalyst for increased trade, an agreement between two such large economic areas could also create a new template for global trade liberalisation. That’s the bigger goal — and the reason for Cameron and the G8 to be as ambitious as possible on EU-US trade.