A trans-Atlantic trade deal

The passage of US-EU trade talks is bound to be rough: the proverbial French farmer is not about to let go his subsidies easily
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First Published: Wed, Dec 26 2012. 06 26 PM IST
Given the global gloom, if a trade deal does come through it may help revive economic sentiment.. Photo: AFP
Given the global gloom, if a trade deal does come through it may help revive economic sentiment.. Photo: AFP
As reported in The Wall Street Journal earlier this week, the US and the European Union (EU) may initiate wide-ranging trade-liberalization talks soon. Divisive subjects such as access to Europe’s protected agricultural markets, elimination of tariffs—already low—and cutting of trade- and investment-inhibiting regulations may also be on the t able .
The very fact that these talks are being contemplated is a positive development. Historically, in times of global recessions, most countries adopt beggar-thy-neighbour policies such as artificial depression of exchange rates and adoption of a mercantilist stance. In such times, it is hard to entertain ideas such as free trade, which in the short run end up hurting some businesses and individuals. The world is passing through a similar phase currently. And yet, both European and US leaders have not shied away from freeing trade between their economies. The passage is bound to be rough: the proverbial French farmer is not about to let go his subsidies easily (not to forget that a socialist president is in the Elysee Palace.)
One reason for this politically difficult decision could be the drying up of other sources of organic growth in the US and European economies. Runaway financialization and its ruinous aftermath has ensured that gravity defying financial strategies on Wall Street and elsewhere may finally have lost traction, to an extent, with policymakers on both continents. Similarly, the sector most closely linked to financial capital—housing—too has led to adverse outcomes from Spain to Florida. That leaves traditional economic areas such as agriculture worth exploring in this respect.
Given the global gloom, if a trade deal does come through it may help revive economic sentiment. The European Commission has estimated that over the long term, the deal could boost EU’s gross domestic product by 0.52%, or roughly €120 billion. The US is also expected to gain. But the main gain from the deal may be its ability to arrest the slide in trans-Atlantic trade witnessed from the start of this century.
It may be too fanciful to think that a successful EU-US trade regime can have an impact elsewhere. But a deal of this magnitude can only improve the atmospherics for other stuck trade arrangements, for example the Doha Round of trade liberalization. These positive effects should not be ruled out.
Can trade liberalizing deals succeed in a time of recession? Tell us at views@livemint.com
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First Published: Wed, Dec 26 2012. 06 26 PM IST
More Topics: EU | US | European Commission | trade |
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