Transatlantic Free Trade: An Agenda for Jobs, Growth and Global Trade Leadership

Abstract

This paper takes stock of the key arguments against a transatlantic free trade agreement between the European Union and the United States. It concludes that these arguments are no longer convincing and that it is time to launch negotiations on a free trade agreement. There are two strong reasons for such an agreement. First, it would generate significant economic gains. An elimination of tariffs alone would generate gains sizeable enough to make the effort worthwhile. In combination with a reduction in non-tariff barriers and regulations that inhibit trade in services, the gains would be significantly higher than through any other trade agreement that could realistically be achieved in the medium-term future. Thus, those who argue that sclerotic growth in the West is a strong argument against launching transatlantic trade initiatives fail to understand the economic logic of trade agreements. The EU and the US remain the two largest economies in the world; freer trade between them would generate significant additional growth because they are already large economies. Second, a transatlantic free trade agreement would generate a new dynamic in the world trading system that would make many other countries change their current defensive attitudes towards multilateral liberalisation. It has been demonstrated in the past that significant preferential liberalisation has this effect on other countries. If other countries oppose significant liberalisation—or if they increase their own trade barriers—the best counter-strategy is to press ahead with other forms of liberalisation that increase the costs of the status quo. The Doha Round of trade negotiations has stalled for many years and no change in situation is in sight. In the event that there is liberalisation within the World Trade Organization in the near to medium-term future, it is likely