President Obama announced in his State of the Union address that the Administration plans to notify Congress that it is launching negotiations with the European Union (EU) on a Transatlantic Trade and Investment Partnership.  The negotiations will address the usual issues of market access through tariff reductions and open, market-based investments in each other’s economies.  The real breakthroughs will come in reducing ‘behind the border’ non-tariff barriers that slow the flow of goods and services trade and significantly cutting the cost of differences  in regulations and standards by promoting greater compatibility, transparency and cooperation.

This decision was made based on recommendations from a High Level Working Group (HLWG) of officials from both sides formed in November 2011.  The HLWG concluded that a comprehensive agreement on a broad range of trade and investment issues, including regulatory issues, would provide the most significant mutual benefits.  The report was about six weeks late in being delivered because of the difficulties in bridging some of the key differences on the two sides. The negotiations are expected to take 18 months to two years and will likely leave some issues unresolved.

The U.S. and the EU already account for almost half of world GDP and nearly $1 trillion in annual trade in goods and services, $2.7 billion per day, one third of global trade.  Transatlantic trade and investment already supports 13 million U.S. and European jobs according to the U.S. Trade Representative’s (USTR) office.  The EU is the largest export market for the U.S. at $460 billion in 2012.  Tariffs average a relatively low 5.2 percent for the EU and 3.5 percent for the U.S.  Agriculture accounts for less than 5 percent of trade for the two economies.

Agriculture issues were not included in the various press releases and facts sheets about beginning negotiations.  During a press conference the morning after the announcement, USTR Ron Kirk and Deputy National Security Advisor Michael Froman clarified some of the issues related to agriculture.  A few analysts had inferred that EU officials have indicated that biotechnology is not part of the negotiations.  According to the USTR, biotechnology products are part of the agenda because all issues are on the table.  EU Commissioner for Trade Karel De Gucht also said in a previous press gathering that nothing was being excluded, but sensitive issues exist and need to be addressed.  Kirk said that issues like biotechnology and hormones have slowed down previous attempts to go for a big agreement.  The Administration wants to deal with as many issues as possible.  The issues are well known and need to be resolved, not just talked about.

The HLWG had two recommendations that will address key issues for agriculture.  One is a “SPS-plus” chapter, including establishing an on-going mechanism for improved dialogue and cooperation on addressing bilateral sanitary and phytosanitary (SPS) issues.  The chapter would build on principles in the WTO SPS Agreement, including measures based on science, international standards and scientific risk assessment and developed in a transparent manner.  The measures would only be applied to the extent necessary to protect human, animal and plant life or health.  Since the standards would be higher and broader than those of the WTO, an enforcement mechanism would need to be included in the agreement.

The other recommendation is to create a similar “TBT-plus” chapter building on the WTO Agreement on Technical Barriers to Trade (TBT), including a mechanism for improved dialogue and cooperation for addressing TBT issues.  The goal would be to have greater openness, transparency and convergence in regulatory requirements and standards-development processes.  These should reduce redundant and burdensome testing and certification requirements and promote confidence in respective regulatory bodies.

A notice will be published in the Federal Register to give all U.S. stakeholders an opportunity to express what should be covered in the agreement and raise issues of concern.  USTR Kirk said the Administration has used the last year to talk to U.S. businesses about key issues and work out some differences with EU officials.

Few people thought these talks were possible 5 or 10 years ago.  The EU has now recognized they must become competitive in the U.S. market, their biggest market, and compete effectively in third country markets.  The U.S. government is striving for the same type of high standards trade agreement with the EU as it is pursuing in the Trans-Pacific Partnership Free Trade Agreement (TPP-FTA).

Agricultural issues are a key part of the process.  In talks leading up to the HLWG report release, the EU agreed to accept the use of lactic acid in beef processing and the exports of live hogs from the U.S.  Some issues will be resolved during the negotiations on the trade agreement, while other issues will be resolved under a framework put in place in the agreement.  The ambition of the Administration is to have a comprehensive agreement covering all matters related to trade and investment.

Regardless of the issues to be resolved and how they are resolved, the U.S. should not lose this opportunity to reach an agreement with the EU.  With the Doha Round of WTO negotiations dead, this is the only opportunity for the U.S. and the EU to resolve outstanding issues and agree on a general framework that can be applied to other trade agreements.  If the TPP-FTA could be completed during the next year, the rest of the world could have a general framework to apply to new trade agreements that would reduce uncertainty in trade policy for everyone.

No one should under estimate the difficulties of working through the differences in agricultural trade policy between the U.S. and the EU.  The EU and Canada have negotiated over a year on a trade agreement and have not completed a deal.  Many of their stumbling blocks like beef exports and imports of cheese will be difficult to reconcile for the U.S. and EU.  Some of the difficult issues in the TPP-FTA are also issues in the U.S.-EU talks.  One positive point is that if a solution can be found in one of the talks, it can likely be applied to the other two.

Both sides need to succeed in the talks to position themselves to compete in the rest of world.  Failure is not an option.

Ross Korves is an Economic Policy Analyst with Truth About Trade & Technology (www.truthabouttrade.org).  Follow us: @TruthAboutTrade on Twitter | Truth About Trade & Technology on Facebook.