COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN PARLIAMENT AND THE ECONOMIC AND SOCIAL COMMITTEE THE NEW TRANSATLANTIC MARKETPLACE A. RATIONALE 1. INTRODUCTION The economic relationship between the EU and the US is of vital importance to both. In 1996 two way trade in goods and services amounted to more than 355 bn ECUs. The EU and the US account for around 19% of each other’s total trade in goods. It is estimated that high technology products account for 20% of the two-way trade flow. In 1995 EU-US trade in services accounted for over 38% of total bilateral trade. The EU is by far the biggest investor in the US accounting for 59% of total foreign direct investment (FDI) by 1996. At the same time 44% of US FDI is in the EU. Further details are in the Annex. Through progressive rounds of multilateral negotiations, and bilaterally since the adoption of the New Transatlantic Agenda (NTA) in 1995, we have achieved progress in lowering remaining barriers to trade and investment. But, as the Commission’s annual reports on United States Barriers to Trade and Investment illustrate, significant obstacles remain. The main reason is that the regulatory framework for EU-US trade and investment in goods and services has not kept pace with new market developments. While tariffs on industrial products have been substantially reduced, "peak" tariffs remain in some sensitive sectors. These are particularly numerous on the US side. But the main problem is non-tariff barriers. These gain increasing significance with the growing importance of EU-US trade in sophisticated manufactured goods and in services, as well as growing foreign direct investment. These areas of activity are subject to a range of domestic regulations and standards, reflecting among other things legitimate social concerns about protection of public health and safety or the environment. The EU and US business communities have frequently identified these regulatory issues as their main concern. Since the rules often diverge widely they can act as hidden barriers. They increase costs for European and American consumers and business. They also lead to delays in exploiting new economic and technological opportunities, and can hinder the creation of competitive jobs. They therefore impede economic advance. In short, these are now among the most serious issues affecting Transatlantic trade and investment. [back to contents] [top of section] In addition, there has recently been an increase in the number of difficult trade disputes between the EU and the US. Many of the recent problems are different from traditional trade disputes in that they have their roots in the sort of problems described above. Despite our great efforts we have not so far been able to establish an effective mechanism to prevent them. As a result, they require a substantial investment of time and effort, damage European and US economic interests and have a disproportionately large negative political impact. The question we should address is whether we can do more, and more effectively, to facilitate EU/US trade in goods and services and at the same time to avoid or resolve these problems, while ensuring that our high level of protection of public health and the environment is maintained and can be further developed autonomously. Under the NTA we have made some progress through a modest ‘step-by-step’ approach to resolving individual problems and promoting liberalisation in particular sectors. But the protracted negotiation leading to the 1997 Mutual Recognition Agreement showed that this approach is slow and can produce only limited results. For this reason the Commission has given careful thought to whether we should now pursue a new, more comprehensive and ambitious approach to making a reality of the New Transatlantic Marketplace (NTM), which has from the start been one of the key objectives of the NTA. Any such proposal should meet all the following requirements: i) it should address the real barriers to EU-US trade and investment; ii) it should bring economic benefit to the EU and the US commensurate with the effort involved; iii) it should not damage, and should indeed promote our objectives in the future multilateral negotiations within the WTO, to which we are committed; iv) it should not lead to the creation of new trade obstacles to third countries or reduce their access to EU and US markets. Nor should it weaken their support for multilateral liberalisation; v) it should be ambitious, capture political interest, but be technically achievable; vi) it should be consistent with and should not jeopardise the agreed multilateral rules of the WTO and other international fora (e.g. OECD, WIPO etc.); vii) it should serve to enhance the broader political relationship between the EU and the US; viii) it should benefit consumers and should preserve our high level of protection for health, safety, consumers or the environment; ix) it should not impede the further development of the Community acquis. [back to contents] [top of section] Any proposal in this area should serve to stimulate further multilateral liberalisation through deeper liberalisation and a firmer set of rules at the bilateral level, which could later be extended to other partners. Bilateral liberalisation should also focus on those impediments in EU and US trade where the multilateral route cannot offer early and effective solutions. Having considered all these factors, the Commission proposes that a negotiation should be launched for a New Transatlantic Marketplace Agreement (NTMA) to achieve the following objectives: i) a widespread removal of technical barriers to trade in goods through an extensive process of mutual recognition and/or harmonisation, promoting both consumer and business interests; ii) a political commitment to eliminate by 2010 all industrial tariffs on a MFN basis, through multilateral negotiations, provided that a critical mass of other trading partners do the same; iii) a free trade area in services, bearing in mind the criteria and requirements established by the Council; iv) liberalisation beyond multilateral or plurilateral agreements in the areas of government procurement, intellectual property and investment. The individual elements of this proposal are considered in detail in section D. [back to contents] [top of section] We should also pursue strengthened bilateral co-operation in areas such as: trade facilitation, customs procedure simplification, SME partnerships, sustainable development and the environment (taking into account ongoing bilateral and multilateral initiatives). In certain of these areas (e.g. customs, competition and science and technology) existing agreements already provide a framework for such a cooperation. The NTM Agreement will be pursued within the broader framework of the New Transatlantic Agenda. The NTA Action Plan will continue to be pursued. A number of general methodological conditions should be clearly established. Before a negotiation begins, there should be a clear understanding with the United States on which areas are covered and which are excluded. In conducting the negotiation, the EU would give due consideration to factors affecting competition, including state aids. It should be clear from the start that an Agreement should be binding on the federal states. Nor should it weaken existing EU agreements with other third countries. The initiative should take the form of a single comprehensive agreement. This might seem to be harder to achieve than the present step-by-step approach in terms of negotiation and ratification. On the other hand, it would have the considerable advantage of giving greater certainty of the implementation of the agreed commitments, including where necessary, through domestic legislative changes. Perhaps more important, the dynamic which multi-issue, multi-sector negotiations engender should make it possible to address some entrenched and long-standing barriers which at present appear intractable in isolation. This is not a proposal to create an internal market with the US, but it would allow the EU to take advantage of the unique experience we have gained from the completion of the Internal Market and to adapt some of the principles underlying it to the different EU-US context. [back to contents] [top of section] 2. THE POLITICAL DIMENSION The proposal is more than a trade policy initiative. It is also an important initiative for the EU's broader policy towards the United States, and should be considered in that light. Since the end of the Cold War we have taken a number of steps to restructure and refocus the EU’s links with the US, which remains our most important and complex external relationship, and to reinforce US support for European stability. Another key objective is to deter the American tendency towards unilateralism, which has included the adoption of unacceptable extraterritorial legislation such as the Helms-Burton and d’Amato Acts. We should continue firmly to oppose action of this sort. An early comprehensive settlement of our differences arising from the Helms-Burton and D’Amato Acts, based on the April 1997 Understanding, remains necessary. The New Transatlantic Agenda of 1995 established a habit and pattern of co-operation and joint action between our administrations at all levels and on many issues. It has been invaluable in this regard, and has enabled us to achieve a number of tangible results including the Mutual Recognition Agreement of 1997 and other agreements. However, the NTA as it now stands has not been able to engage the highest level of political attention on both sides of the Atlantic, and is not sufficiently dynamic to deliver major political and economic results, although it has delivered useful ones. The time is ripe to consider whether a more ambitious, comprehensive approach is required. The proposal to create a New Transatlantic Marketplace reducing barriers to trade and investment was an integral part of the NTA, but has not yet been developed in a coherent manner. This initiative takes up that challenge, building on the steady development of the EU’s relationship with the US and on the dramatic growth of our economic relations, notably in services and investment. It is designed to use an economic instrument to give a much broader impetus to the overall political relationship; to produce important economic benefits; and to provide a new mechanism and stronger incentives to prevent and resolve disputes between us. The timing for such an initiative is good. The European Union has established a leading role in international trade policy. Our economy is set to grow strongly. We stand on the threshold of the Single Currency, and we have behind us the experience gained from building the Internal Market. The broader international context is also favourable: Europe at present is a strong and stable partner for the United States. At the same time, this initiative has benefits going beyond the bilateral political and economic relationship with the United States. For reasons discussed below (section 4), it will promote achievement of our objectives in future multilateral trade negotiations. It also gives the EU an opportunity to pursue proactively our own clear policy objectives in promoting the interests of European citizens and advancing important values of European society. It should be pursued in a manner which preserves and further enhances our high standards of consumer protection, health and safety. It should not affect internal EU policy making on the provision of services of general economic interest, as recognised in the relevant EC Directives and the Amsterdam Treaty. The macroeconomic growth predicted (see section 3) would bring potential for significant job creation in the EU. In ways such as these, the NTMA will enable us to respond to some of the uncertainties arising from global economic liberalisation. It would also lay the basis for better and more effective EU-US dialogue and co-operation on issues like sustainable development and environmental protection, including at the multilateral level. [back to contents] [top of section] 3. THE ECONOMIC BENEFITS Macroeconomic studies, including studies carried out at the request of the Commission, suggest that the removal of existing tariff and non-tariff barriers to Transatlantic trade in industrial goods and in services would have positive macro-economic effects for both partners. For the EU, it could add some 125 billion ECU (over 1%) to annual national income, broadly commensurate with the effects of the Uruguay Round. Another 25 billion ECU annually would be added if the initiative achieved a wide multilateral elimination of industrial tariffs. At the micro-economic level, it would mean greater economies of scale, reduced costs for producers and consumers and less uncertainty for EU and US firms. A bilateral elimination, on a preferential basis, of all industrial tariffs between the EU and the US is not part of this proposal. The average level of tariffs prevailing in both economies is already low, though major gains remain to be made in sectors where ‘peak’ or significant tariffs remain. These gains will be well worth having, but much greater gains will accrue from the elimination of industrial tariff barriers on an MFN basis involving a broad range of other countries, on the model of the ITA agreement. This would have the added advantage of addressing the recent difficulties which European firms have experienced in key mid-income country markets. Still larger benefits accrue once non-tariff barriers are addressed, as a result of many factors, including increased efficiency, larger scale economies (for instance when, through the mutual recognition or harmonisation of technical requirements, production lines can be unified), more transparent procedures, lower costs of complying with different standards, better intellectual property protection, less intellectual property litigation, greater trade, investment and procurement opportunities (the last estimated at 35-40 bn USD). In some sectors, benefits to be gained by Small and Medium-sized Enterprises (SMEs) are likely to outweigh those expected by large companies, with significant employment benefits. Overall, the realisation of a freer Transatlantic Marketplace will improve the conditions and opportunities for business on both sides of the Atlantic with a beneficial economic impact on industry, consumers and the EU and US economies as a whole. The economic aspects of the proposal will be the subject of further examination in accordance with the requirements established by the Council. The Commission will now proceed to produce the requisite more detailed impact studies as a further contribution to discussion in the Council of these proposals, and indeed their further elaboration. [top of section] [next section] [back to contents]