Setting Standards Together: For a New Transatlantic Partnership Between the EU and North America

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Originally published in May 2007, this brief explores the creation of a new transatlantic economic partnership, which would increase trade and investment, set global standards, attract new stakeholders, and lend fresh impetus to multilateral trade negotiations.
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Polic y Brief 1744 R Street NW Washington, DC 20009 T 1 202 745 3950 F 1 202 265 1662 E info@gmfus.org Economic Policy Program Oceans divide, but common values unite The Atlantic Ocean may separate Europe and North America, but the two economic areas have historically been bound together by a unique wealth of fundamental values and principles. With no other region in the world is Europe so closely linked as with North America. Hannah Arendt2 summed this up succinctly when she spoke of an ‘Atlantic civilization’. The mutual recognition of basic values such as freedom, democracy, human rights and the rule of law still forms the foundation of the transatlantic re- lationship, but its continuation has too long been taken for granted. Instead of fostering its inherent potential with the appropriate level of political com- mitment and interest, the relationship has been viewed with benign indiffer- ence and even, in recent times, with latent distrust. Accordingly, European politicians must focus once more on nurturing and promoting the things we have in common with North America instead of reducing them to the traditional bonds of common security interests. In figures: significant joint potential The European Union (EU), on the one hand, and the United States (U.S.) and Canada on the other, jointly account for about 60 percent of global GDP, mak- ing them the world’s two largest eco- nomic regions. The fact that the North American economic area is the desti- nation for more than 25 percent of all goods exported from the EU illustrates its particular importance to European exporters. The share of the two North American countries in all EU trade in services (exports plus imports) is even higher, topping 37 percent. In the web of transatlantic economic relations, prime importance attaches to mutual foreign direct investment; about 43 per- cent of all inward investment in the EU is made by U.S. and Canadian investors. Setting Standards Together — For a New Transatlantic Partnership Between the EU and North America by Matthias Wissmann1 Summary: The United States, Canada, and the European Union are inextricably linked through their shared economic principles and political values. However, much of the economic potential between the European Union and its transatlantic partners remains untapped. The creation of a new transatlantic economic partnership would increase trade and investment, set global standards, attract new stakeholders, and lend fresh impetus to multilateral trade negotiations. Transatlantic Marketplace 1 Matthias Wissmann is chairman of the German Bundestag Committee on the Affairs of the European Union and was a federal minister in the govern- ment of Helmut Kohl. Effective June 1, 2007, Mr. Wissmann will vacate his position from the German Bundestag to serve as president of the German Automotive Industry (Verband der Deutschen Auto- mobilindustrie, VDA). The author is thankful for the valuable assistance provided by Christoph Muhle as his scientific assistant at the German Bundestag. 2 Hannah Arendt (October 14, 1906–December 4, 1975) was a German Jewish political theorist.Policy Brief Economic Policy Program 2In spite of these impressive bilateral trade and investment figures, there is still a great deal of untapped potential in the economic relations between the EU and its transatlantic partners. Non-tariff barriers to trade still exist in many areas of economic activity, and their removal offers great new scope for more competition and hence greater prosperity for everyone on both sides of the Atlantic. The new transatlantic economic partnership: an engine for world trade We should not see a new system of transatlantic economic cooperation as in any way a means of protection from third parties. On the contrary, its primary purpose would be to strengthen our own business locations, and it should be designed from the outset to allow for the subsequent acces- sion of other parties — without such a condition its creation would be pointless. Barriers against the emerging Asian markets would slow down the wage growth that has already begun in that part of the world. Globalization, instead of being a formidable challenge with great potential rewards for the transatlantic partners, would thus degenerate into an ever-heavier and inescapable burden. This is what we seek to prevent through greater transatlantic cooperation. Like the single European market, the new trans- atlantic economic partnership would be open in the long- term to additional participants that were able to adopt the prescribed standards and accede either in full or in part to the economic area. The example of the single European market has shown that the will to belong to this type of common mar- ket generates strenuous reform efforts on the part of applicant countries despite the imposition of stringent conditions. Rather than being a fortress, such a transatlantic market would act as a magnet. Through this magnetic attraction for other countries, a system of Euro-American trade based on common standards could serve as a new engine for the world economy. Closer cooperation between the EU and North America could establish new benchmarks in other areas too — we need only think of efforts to protect the global climate or cooperation in the provision of develop- ment aid. An agreement based on these conditions would be quite different from a free-trade agreement in the traditional sense; only 10 to 20 percent of the negotiating agenda would be devoted to the usual trade barriers such as customs duties. Instead, we could grasp the opportunity to secure worldwide acceptance and application of our standards. A new transatlantic economic partnership would have the potential to be a force for good beyond its own confines and thus lend fresh impetus to the multilateral trade nego- tiations. For this reason, such cooperation must not be, in any respect, an obstacle to the multilateral Doha Round, let alone as a substitute for the Doha process. On the con- trary, the latest talks between EU and U.S. representatives have opened a new window of opportunity for a successful conclusion of the multilateral negotiations on trade liberal- ization. In the long run, a system of transatlantic economic cooperation could become a trailblazer and pacemaker for the further development of free world trade beyond Doha. From vision to reality: kick-starting a new transatlantic economic partnership Numerous examples can be cited in support of the thesis that the creation of a new transatlantic economic partner- ship would create new opportunities for increased growth and hence more jobs. Recent studies3 indicate, for instance, that a fully open aviation market — the most recent agree- ment can be no more than the first step in this direction — would increase the output of the relevant industries by nine billion dollars a year. Likewise, harmonization of the securities market holds the promise of a 60 percent reduc- tion in transaction costs4. Divergent standards apply in many other fields, to the detriment of both sides. The most prominent examples are technical requirements in the auto- motive industry, the lack of coordination in the fight against corruption and in the protection of intellectual property, provisions of anti-trust legislation and energy policy, rules governing the supervision of stock exchanges and interpreta- tions of the concept of liability. The case of the common aviation market The most recent breakthrough in the negotiations on a joint 3 Cf. D. Hamilton and J. Quinlan. Transatlantic economy 2006 — Annual survey of jobs, trade and investment between the U.S. and Europe. Center for Transatlantic Relations, Johns Hopkins University, 2006. 4 Cf. D. Hamilton and J. Quinlan. Opening Transatlantic Markets, appeared in: Frankfurter Allgemeine Zeitung, Nov. 30, 2006.Policy Brief Economic Policy Program 3 aviation agreement between the EU and the U.S. is a wel- come and important signal for the development of trans- atlantic economic relations. Existing rules did not permit foreign airlines to offer flights between the United States and third countries, but did allow U.S. airlines to fly be- tween EU countries and third countries. The new agreement puts an end to this unequal treatment. The long overdue replacement of the multitude of bilateral agreements with a Europe-wide solution will eliminate structures that cause market distortions. Reaching a joint agreement is therefore an important first milestone setting the course for the future. Swift implementation of the agreement must be followed as quickly as possible by further steps towards a genuine com- mon aviation market. The case of the automotive industry The provisions applicable to the automotive industries on either side of the Atlantic are often cited as a striking example of the adverse effects of inadequate cooperation in the field of regulatory policy. The EU must ensure that companies in one of Europe’s most important industries have the best possible conditions for transatlantic trade. Within the EU itself, manufacturers already have to comply with more than 90 directives governing the construction and operation of motor vehicles, particularly with regard to safety and environmental protection. On both sides of the Atlantic, divergent and costly authorization and test proce- dures constitute additional obstacles to the development of new technology. Accordingly, mutual acceptance of regula- tory measures can generate enormous growth potential for automotive companies. The case of hedge funds Uniform treatment of hedge funds, which already adminis- ter a worldwide total of more than one trillion euros, must become one of the main objectives of the new transatlantic economic partnership. The main focal point of such efforts should not be the regulation of these funds, so much as the improvement of transparency that investors need. Moreover, in order to minimize the risk posed to the entire finan- cial system when highly speculative hedge funds run into trouble, it is very much in the general interest that hedge funds are centrally and uniformly registered. With the aid of the International Monetary Fund and the national super- visory authorities, answers must be found to the following questions: Which hedge funds should publish data? What precise details should be disclosed? Who should collect the data? Should the procedure be voluntary? The case of intellectual property rights (IPRs) The EU and North America have a common interest and an obligation to establish effective safeguards against counterfeit goods and piracy within and outside their own borders. A firmly-enshrined right to intellectual property is essential, not only as a means of bolstering corporate confidence and en- hancing the commercial potential of creative innovations, but also as an important framework for the creation of a favorable investment climate and, therefore, for economic growth. The case of environmental protection In these times of global warming and increasingly frequent environmental disasters, a common position on the protec- tion of the environment is becoming ever more important. A uniform approach to climate protection and emissions trad- ing is vital. Even if the U.S., the greatest producer of CO2, is not ratifying the Kyoto Protocol at the federal government level, there have nevertheless been noteworthy initiatives in this domain on the part of the State governments. With Canada having already signed the Kyoto Protocol, it is im- portant for us to embrace these moves in the United States and treat them as the foundations of a common initiative for the protection of the global climate. The EU-U.S. summit The EU-U.S. summit on April 30th was a real success. It was the right time to commit to first steps towards the creation of a new regulatory framework. One of the main results was to establish a Transatlantic Economic Council. From now on Günter Verheugen (on the EU side) and Allan Hubbard (on the U.S. side) will be responsible for supervising the proj- ect and reporting on its progress. This is necessary because real reductions in bureaucracy and trade burdens are only achievable through strong and sustained guidance. On the basis of this new agreement, reports compiled before the end of 2008, if possible, will assess the cost impact ofcurrent barriers in each area of economic activity so that conclusions can subsequently be drawn about the benefits of their removal. The ambitious aim must be to create a level playing field between the EU and the U.S. with regard to all significant legal standards by 2015. An integrated transatlantic market would not be intended in any way as a rejection of the Doha Round of trade talks, but as a complement to the multilateral system of the World Trade Organization (WTO). The transatlantic partnership should be expressly open to all countries that share a belief in the promotion of free trade and investment. For this reason, at the same time as talks are held between the EU and the U.S., Canada should be brought into the negotiations with the aim of rapid accession to this uniform framework. This partnership could jointly set global benchmarks. Europe and North America stand on a firm foundation of common basic values, derived from antiquity, the Judaeo- Christian tradition and the enlightenment. This common Atlantic civilization is what distinguishes relations between these two regions from any relationship between other regions of the world. This is one of the reasons why North America and Europe need no third party to remind them of what they have in common, and their awareness of this com- mon heritage is the best argument for the avoidance of pro- tectionism and for maintaining openness to third countries. The opportunity to set global standards is there for the taking, not only in the economic sphere or in the realms of security, consumer protection and the environment, but also over a far wider spectrum of activity. The triad of market economics, democracy and human rights is at the heart of our common transatlantic civilization. The respect for individuals and the rights that derive from these values distinguish the EU and the U.S. sharply from other economic areas of the world. Their existing combined economic strength gives them opportunities to win worldwide acceptance for these ideas. A new transatlantic economic partnership is the right instrument for the pursuit of that objective. “An integrated transatlantic market would not be intended in any way as a rejection of the Doha Round of trade talks, but as a complement to the multilateral system of the WTO.” About the Economic Policy Program The Economic Policy Program is an initiative of The German Marshall Fund of the United States (GMF) that promotes cooperation between the United States and Europe on domestic and international economic policies as vital instruments of global prosperity, especially for the poor and those affected by shifts in the world economy. At the heart of the Economic Policy Program is our trade, agriculture, and development work, which leverages GMF’s unique position as a nonpartisan, transatlantic public policy institution with access to opinion leaders and policymaking processes on both sides of the Atlantic and in key developing countries. In partnership with the William and Flora Hewlett Foundation, among others, these activities seek to move forward, through research and dialogue, a pro-development trade agenda that fulfills the promise of the WTO’s Doha Round and the UN’s Millennium Development Goals. The German Marshall Fund is a nonpartisan American public policy and grantmaking institution dedicated to promoting greater cooperation and understanding between the United States and Europe. GMF does this by supporting individuals and institutions working on transatlantic issues, by convening leaders to discuss the most pressing transatlantic themes, and by examining ways in which transatlantic cooperation can address a variety of global policy challenges. In addition, GMF supports a number of initiatives to strengthen democracies. Founded in 1972 through a gift from Germany as a permanent memorial to Marshall Plan assistance, GMF maintains a strong presence on both sides of the Atlantic. In addition to its headquarters in Washington, DC, GMF has seven offices in Europe: Berlin, Bratislava, Paris, Brussels, Belgrade, Ankara, and Bucharest. Policy Brief Economic Policy Program 4
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