TRADE negotiations are not sexy. Progress is typically glacial. Debating points tend to be arcane rather than the stuff of headlines. And nobody knows the folk doing the actual horse-trading – have you heard of Michael Froman, America’s bearded chief trade negotiator?
Nevertheless, a lot is riding on this week’s blockbuster US-EU negotiations in Washington: namely, the creation of the world’s biggest free trade zone, one encompassing half the global economy. Think jobs. Think investment. Think cheap imports.
Don’t say it too loudly, but creating a special US-EU trade zone is also a good way to isolate China and the uppity Bric economies – the real impetus for the talks.
On the European side, the principal movers are the Germans. With the Chinese economy in retreat and America’s growing, the Germans are looking westwards. The respected Bertelsmann think-tank estimates that a transatlantic trade deal will create a million jobs in Europe – a lot in Germany. The Spanish are also heavily involved, looking to the huge Latino business community in the States as a future partner.
Britain is a bit player. As the US and EU are political allies and dedicated to free markets, how come they still have trade barriers between their economies? In fact, tariffs are quite low on manufactured goods traded between the two partners – under 3 per cent.
The true impediments to trade and investment are regulatory. Regulation spells “special interests”. Here is the nub of what could be years of political horse-trading: placating those special interest groups.
Europe wants exemptions from US “Buy American” requirements on public procurement projects. America wants to reduce EU opposition to GM agricultural produce, which protects European farmers.
Negotiations will start by trying to harmonise general regulatory principles. They will end in naked bartering: America agrees to give up this if the EU agrees to give up that, with the weakest special interests being sacrificed. Which explains why both sides have been reticent to disclose the nitty-gritty of their agenda.
This week’s preliminaries began with negotiators splitting into 15 different groups to deal with disputed issues ranging from GM crops to electronic commerce. Remember that the WTO trade discussions (the so-called “Doha Round”) have been meandering for a decade. Don’t expect the US-EU negotiations to progress much quicker.
Normality may be back but it’s still bumpy
This week saw Wall Street touch record highs after a string of good news about the American economy and placatory noises from the Federal Reserve that it might not, after all, turn off its monetary stimulus.
Into the bargain, the IMF raised its growth forecast for the UK. But the pessimist in me remains fixated on the disjuncture between what stock markets are doing and the business investment cycle.
Investment by the world’s 2,000 biggest firms has begun to contract. Result: the IMF, while it might be more optimistic about the UK, has just cut its global growth forecast for 2013.
Another telltale sign that capital spending is in trouble is the collapse in commodities – mining, fuels and resources accounted for 42 per cent of global capital spending in 2012.
We are moving back to a degree of economic normality. But that doesn’t mean things won’t be bumpy.