Last week, in his State of the Union Adress, US President Barack Obama mentioned an idea that, since being initially conceptualized, has been as tantalizing as it has been elusive: a free trade agreement between the United States and the European Union. A Trans-Atlantic Free Trade Agreement, or TAFTA, is currently being presented by some economists as a way to finally overcome the economic malaise that has engulfed the US and EU since the beginning of the great recession in late 2007 and as an effective tool to counter the growing economic dominance of China.
Why TAFTA now?
For many years, conventional economic logic dictated that trade agreements between similarly developed entities made no sense and trade agreements would only be effective between entities with a developmental difference; however, thanks to agreements such as the Treaty of Rome (1957), which created the European Economic Community, and the initial US-Canada Free Trade Agreement (1988), the traditional economic dictate has come under scrutiny. In fact, as a result of the rapid development of emerging economies such as China, India, and Brazil, and the trade barriers which they have put in place to further fuel there economic growth, hyper-industrialized regions, such as the EU and North America are now looking to each other for future growth- and there seems to be good reason for this policy. According to a recent article in The Economist, “the European Commission reckons an ambitious deal could boost transatlantic trade by about 50%;” this number is all the more considerable when the approximate 2011 figure for US-EU trade totaled $636.4 billion ($367.8 billion EU to US and $268.6 billion US to EU).
Effects on business
Realistically, with the already existing openness of the American and European economy as well as tariff rates that reach a maximum of 4%, this isn’t a scenario of “opening new markets,” and will subsequently not yield similar gains. However, eliminating tariffs and harmonizing regulations, especially considering the size of the economies in question, will unleash an economic potential that is currently stifled buy said tariffs and regulations and will undoubtedly make a significant economic impact on both sides of the Atlantic. For individual businesses, a Trans-Atlantic Free Trade Agreement will allow more efficient access to a more streamlined market. Though it will take time to negotiate and implement, TAFTA has the potential to streamline transatlantic trade and link North America to Europe in ways that were unimaginable just a decade ago thereby providing another option, for both economies, to tackle the new economic challenges of the 21st century.
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