Trans-Atlantic Trade and Its Discontents

The North American Free Trade Agreement will be 20 years old in 2014, and all those who predicted it would bring about disaster have long gone silent.

Despite a painful initial adjustment period, Nafta boosted intra-North American trade, pushing its members to improve competitiveness and focus on their comparative advantages. Mexico is now a manufacturing powerhouse, and a North American energy revolution only furthers the bloc’s global competitiveness.

Something similar is occurring in Europe, where the euro crisis never became a trade crisis, in stark contrast to the 1930s trade wars. In fact, one of the key conclusions to be drawn from the balkanization of European finances and divergent euro-zone growth over the last three years is that the European Union’s single market needs to be deeper.

And now there is a new trade horizon. At the Group of 8 summit meeting, official talks were launched for an E.U.-U.S. free-trade agreement. The E.U. commissioner for trade, Karel De Gucht, has talked about a “living agreement” to be finished by the end of 2014.

On the surface, this is good news for everyone. The collective interests of the world’s first- and second-largest markets would be served by an agreement that would boost combined G.D.P. by almost 1 percent. There is great hope that cooperation would reduce unnecessary regulation on both sides of the Atlantic.

But the politics, as they now stand, do not serve to achieve that goal.

De Gucht’s goal is understandable. The current commission will end its term in October 2014, and both he and the current leadership want the credit for finalizing an agreement with the United States. Yet the first rule of trade talks is that they take time.

The second is that politics can shift the sands very quickly, creating a typical “tragedy of the commons” scenario in which an overall positive outcome is blocked by special interests.

Take the E.U. negotiations with Canada: They have been going on since 2009 and are hostage to agricultural interests on both sides. While Irish and French farmers fret about the inflow of Canadian beef, Canada’s dairy producers are wary of losing their comfortable margins, currently ensured by quotas.

The political barriers for the United States and the E.U. run even deeper.

The first hurdle is France. It is not the most free-trade-loving of E.U. members, and the administration of President François Hollande is no exception. His government has threatened to block negotiations if the E.U. does not preserve Europe’s “cultural exception,” to protect audiovisual arts. Last Friday’s murky compromise, whereby art is “not in, not out,” allows everyone to claim victory, but it weakens the E.U.’s negotiating position fundamentally by inviting the United States to respond in kind.

Like health care or defense, art is not an arena where the free market works perfectly. Yet “l’exception culturelle” has as much potential to protect diversity as it has to destroy it. In any event, the protection of French-Italian art films from Hollywood blockbusters should not be used as an excuse to derail trans-Atlantic free trade.

For every area where the market may not know best — and film is one of them — there are quite a few others where entrenched, protected interests work against society at large. There are certainly those within the French administration who would like to turn the cultural exception into a rabbit hole for everything from inefficient beef production to digital services.

In Germany, freer trade is a good talking point ahead of federal elections in September. But will those who oppose deeper integration of finance and services within Europe really be willing to give American companies that kind of access? Don’t hold your breath.

Just as worrisome is the political situation in the United States. President Obama is a late convert to free trade; in his first term, he did nothing on the issue. It remains to be seen whether the president is serious in his second term about confronting the critics of free trade in his Democratic Party.

Given the complexity of the deal, it may be best to seek what Commissioner De Gucht called a “living agreement,” one that can be furthered if and when the politics allow. We would suggest that it should also be “living” from a geographical perspective: The open-ended nature of the groundbreaking 1957 Treaty of Rome, which enshrined the concept of an “ever closer union” in Europe, should be used as a template.

The two regions that have done the most for global free trade in the post-war era should leave the door open for others to join in. This would allow a U.S.-E.U. trade deal eventually to serve as a platform for the inclusion of regions with which both parties have negotiations or agreements, in Latin America and a wider Atlantic basin. That is worth fighting — and waiting — for.

Karl-Theodor zu Guttenberg, a former German defense minister, is a distinguished statesman at the Center for Strategic and International Studies in Washington. Pierpaolo Barbieri is the Ernest May Fellow at the Belfer Center for Science and International Affairs at the Harvard Kennedy School of Government.

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