TCS Daily

Time for TAFTA?

By Joshua Livestro - December 1, 2004 12:00 AM

In his first week in office, the new European Trade Commissioner Peter Mandelson dropped some interesting hints about his ambitions for the next five years. There was first of all a welcome acknowledgement of what he called Europe's "relative decline vis-à-vis the rest of the world." To break out of this downward spiral, Mandelson said he wants Europe to rethink its priorities on global trade. Simply trying to block out the competition from low-cost countries like China is no longer an option. In his view, the way forward is for European companies to "move up the value chain" by focusing on new, high-tech markets, and to make more effective use of marketing tools like branding in distinguishing their products from those of their foreign competitors.

Mandelson also used his first interviews to distance himself from the transatlantic collision course of the previous Commission. According to Mandelson, "greater efforts should be made on both sides to discuss issues extensively before deciding to go to the WTO." Truer words were never spoken. Europe and the US have spent most of the past five years bombarding each other with sanctions and punitive tariffs. The WTO appeals panel was working overtime issuing rulings on anything from textiles to tax regimes. If he succeeds in pulling the parties back from the brink of a full-blown trade war, history will undoubtedly judge him kindly.

But if he wants to persuade his American counterparts to stop using the WTO as a strategic tool against European interests, he would first have to convince them that he is a man they can really do business with. During his time in office, his predecessor, the French Commissioner Pascal Lamy, did little to further the cause of global free trade. Instead of embracing multilateralism, he pursued an agenda of strategic bilateral trade agreements, turning the world into a horrible tangle of (sometimes contradictory) trade deals. Mandelson should waste no time in consigning this typically French 'divide and rule' approach to trade negotiations to the dustbin of history.

If there is to be any progress towards a more integrated world market in the next five years, it can only be achieved through a comprehensive multilateral agreement at WTO level. While he's at it, he could use the same dustbin for Lamy's suggestion that fundamentally anti-free-trade organizations like the ILO and the WHO should be given a role in the governance of the global free trade system.

A clean break with Europe's recent protectionist past would serve more than one purpose. First, and most obviously, it would help the EU area to speed up its economic recovery. History shows that significant increases in trade volumes in both import and export usually coincide with periods of strong economic growth. Since 2000, however, transatlantic trade has been slack, to say the least. At the same time - or perhaps: as a result - the main EU economies have ground to a halt. Protectionism has led to a vicious economic cycle of zero growth, rising unemployment and falling consumer spending. Cutting yourself off from the world's most important marketplace simply doesn't make any economic sense.

But it's not just bad economics. It's also bad politics. Without US military assistance, the EU would be hard pushed to deal effectively with the many security challenges it faces on its south-eastern and eastern borders. Europe simply cannot afford to alienate its most important ally at a time when totalitarianism seems to be raising its ugly head again in Russia and when Muslim fanatics are waging a war of terror aimed at destabilizing the entire Middle East. President Bush was surely right when he observed that "when Europe and America are divided, history tends to tragedy. When Europe and America are partners, no trouble or tyranny can stand against us." If Europe wants this partnership for freedom to continue, it should use every opportunity it gets to cement the strategic transatlantic ties.

The most effective way of doing this would be by building institutions that help to put flesh on the bones of the idea of a transatlantic community of values. Though he shied away from embracing it fully, Mandelson hinted at one such institutional arrangement as a future possibility: a transatlantic free trade area or TAFTA. Under Lamy, the idea of transatlantic free trade was anathema. Mandelson will find that even within the current Commission the forces of opposition against such a transatlantic rapprochement will be very difficult to overcome.

Apart from these internal political difficulties, he would also have to tackle the many practical regulatory obstacles that would have to be overcome before TAFTA could become a reality. But if he can at least succeed in forcing Europe to debate the idea of transatlantic free trade, he might eventually be able to make a straight path for the eventual signing of a transatlantic trade treaty by one of his successors.

As fate would have it, Mandelson's closest political ally on this issue would be the very same man who has spent much of the past ten years plotting his downfall: the British Chancellor of the Exchequer Gordon Brown, whose legendary dislike of Mandelson dates back to the days when the latter switched from the Brown camp to the Blair camp, thereby creating an unstoppable momentum for Blair's bid for the leadership of the Labour Party.

On more than one occasion, Brown has pleaded for a transatlantic free trade area as a solution to Europe's economic problems, citing enormous potential benefits for all parties involved. According to a British Treasury study, the elimination of tariff and non-tariff barriers could boost Europe's economic growth by as much as €100 billion annually. The US would stand to profit by a further $75 billion.

If Mandelson is looking for someone outside the Commission to be his champion of transatlantic free trade, Brown is his man. Unfortunately, the odds on Messrs. Brown and Mandelson doing anything together are about the same as those of Elvis winning the Eurovision song contest. TAFTA's future, it seems, is riding on the most unlikely of alliances. But then again, stranger things have happened...


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