Transatlantic Free Trade Will be a Boon . . . if it Happens
After literally decades of debate, counter debates and delays (thanks to France for the most part), the European Union and the United States will begin negotiations on a possible free trade agreement. Beginning July 7th, discussions will start on eliminating the comparatively low trade tariffs and customs duties between the two largest markets in the Western Hemisphere.
If things go smoothly, it will be a huge boon to American stockholders. The economies of both groups are estimated to reap nearly $100 billion each per year, on top of a $3.7 trillion direct investment relationship. But, before you start rearranging your portfolio, keep in mind a few things which could very possibly derail this golden opportunity.
STAYING IN FRAME
The film industry may seem like a pretty trivial thing to block a multi-billion dollar trade agreement, but it’s more or less the reason that France has been a holdout for as long as it has. France is the only member of the EU that has “origin quotas” when it comes to their entertainment and cultural events. American movies make up less than 50% of French ticket sales, by far its smallest foreign market.
In contrast, France is Europe’s biggest and most self-sustaining moviemaker, recouping an unheard of 80-90% of their production costs just from domestic ticket sales. A country this (deservedly) proud of its cultural achievements will go out of its way to protect the “cultural” aspect of any trade agreements.
The French government has gone so far as to say they won’t participate in negotiations if this topic isn’t taken off the table up front. This likely won’t cause any serious negotiation halts, but it could result in France vetoing any finalized deal. This would be purely symbolic, but even symbols can hurt markets on both sides of the Atlantic.
TILLERS OF THE EARTH
Agriculture has always been a sticky issue when it comes to free trade discussions. The North American Free Trade Agreement set the precedent for this when it was passed in 1994. Canada made a killing about a decade later with its agricultural exports to the US and Mexico, bringing in about $381 billion in revenue. But, it caused a lot of trouble for US subsidized corn being exported to Mexico, which flooded the market and made life difficult for many Mexican corn farmers.
Now, a major concern could be the US and Europe beef exchange, which still hasn’t fully recovered from the mad cow scare. Additionally, hormones that are used in American mass production happen to be illegal in Europe. If the US concedes, it could do a lot of damage to the domestic agricultural economy, which has sadly grown accustomed to massive factory farmed output. Conversely, the US will likely object to Europe’s proposal of “geographical” trademarks, which relates to the idea that products originating in a certain region should only come from said region. For example, champagne can only come from Champagne. Even though foreign countries might think American versions of European food are inferior, the US will almost certainly halt negotiations if they need to in order to keep producing it.
FEEL LIKE FLYING
The EU has been spearheading a program to cut down on airplane-emitted CO2, including fining airlines that produce too much while traveling through European airspace. To put it mildly, this has not gone over well, and not just in the US. Numerous other countries are protesting that these measures are illegal and unfair to the point where the EU has pushed back its implementation to 2016.
This is a difficult enough trade relationship, but add to it the fact that the US and Europe own Boeing and Airbus, respectively. These are the two single largest aircraft manufacturers in the world, and their capitalistic rivalry can only help complicate the environmental one. Negotiations on environmental topics have always been rather contentious between the US and the EU, and with the massive increases in transportation that a free trade zone would produce, talks could very easily break down early.
Although time will tell whether or not an agreement can be reached, there’s no question that free trade will be beneficial to American stockholders.