The Great Transatlantic Market’s objective:
To contain China’s power
By Thierry Pouch Permanent, Assembly of Chambers of Agriculture (APCA)
The fall of 2014 is not short on particularly complex issues in the fields of agriculture and food security: The Russian food embargo from the EU in particular, and the ongoing negotiations on the Transatlantic Partnership between the European Union and the United States.
In the case of the latter, the tensions are not new. The transatlantic partnership currently mobilizes as many supporters as denigrators, especially on the agricultural segment. In an article, parts of which we are publishing below1, Thierry Pouch explains that it is indicative of a shift in the economic center of gravity towards Asia, and of the loss of impetus of multilateralism as envisioned by the WTO.
For Thierry Pouch, “Should the American-European negotiations succeed, the two economic entities would represent 12 percent of the world population, a vast market of 800 million consumers, about 45 percent of the world GDP, 17 percent of direct investment flows and over 30 percent of world trade.” A major challenge opposite China’s growing momentum. Thierry Pouch also focuses on the motivations leading to the signature of this treaty, and presents the risks that such a partnership could entail for certain activities, such as European beef.
momagri Editorial Board
The negotiations on the Transatlantic Treaty are currently making big headlines. Everyone is providing his/her expertise to outline the gains––or highlighting the eventual threats in opening up trade––which are inherent to the conclusion of a free trade agreement between two major world powers such as the United States and the 28-member European Union. Which are the genuine intentions of the two contractual partners?
The goal of the United States and the European Union is a triple one: Lowering customs tariffs, especially regarding agricultural products for which they remain high, working towards a significant dismantling of non-tariff barriers (such as quantitative trade limitations and various norms) and improving the harmonization of legal systems, especially regarding intellectual property rights.
The development of regional agreements in Asia denotes a compelling indicator of the influence this continent will have by 2050 in the world GDP and trade flows, thus corroborating the ongoing process of shifting the economic center of gravity towards Asia. If the Americano-European negotiations were to succeed, the two economic entities would represent 12 percent of the world population, a vast market of over 800 million consumers, approximately 45 percent of world GDP, 17 percent of direct investment flows, and over 30 percent of world trade, a prospect that might provide a counterbalance to China’s growing momentum. The American economy posts a global trade deficit of $650 billion (or €560 billion), and the EU trade deficit approximates €45 billion.
An additional motive for this negotiation can be found in the current crisis and its impact on economic and trade policies.
The scope of the economic crisis and its international dissemination have led some countries in adopting protectionist measures, whose assessment was not simple due to their non-tariff nature. Achieving a trade agreement would provide the Americans and Europeans with a way to get around this protectionist trend, and without going through the WTO.
Lastly, regarding the existing serious differences in issues of regulation that not only concern agriculture (audiovisual media copyrights, environmental regulations and defense of personal privacy rights), a third factor has been instrumental in launching negotiations between the two regions.
It relates to the will to standardize these regulations, which have been hampering transactions in goods and services on both sides of the Atlantic, and by the same token to impose them to the rest of the world.
Risks of turmoil in the talks on agriculture
The EU-28 generated an averaged surplus of €5.5 billion in its agro-food trade flows with the United States between 2007-2012 (with slightly over €6 billion in 2012), and France’s surplus reached close to €2 billion, or 12.5 percent of the global agro-food surplus. When we consider that, for numerous decades, the United States has posted a positive agro-food trade balance with most countries, and that its occasional deficits arise from trade with the EU, we can fairly well understand the motivation of the Americans in launching this negotiation, with the view to regain the market shares that were lost on the European market as the result of the CAP.
To measure the effects of a trade agreement on agricultural output, we must on one hand outline the state of current customs tariffs, and on the other define the sectors in which lowering them will be the most detrimental to farmers.
Taken as a whole, the customs tariffs levied and measured in ad valorem equivalent are higher in the EU (12.3 percent) than in the United States (6.6 percent). If we consider more detailed levels of the product classification, we quickly note that the applied customs tariffs are higher in the EU compared to the US, with the exception of refined sugar. In the EU, they can reach 45.1 percent on meat (for boned beef, the rate can climb up to 97 percent, and even 146 percent on edible offal, 42 percent on dairy products [against 21.8 percent in the US], 24.3 percent on sugar and sweets [18.7 percent in the US] and 18.4 percent on prepared vegetables [7.6 percent in the US]).
A risk for cattle farmers
As far as beef is concerned, signing an agreement for a GTM thus involves risks for French cattle farmers. First, it must be remembered that the United States, Brazil, India and Australia rank among the major beef exporters.Morevover, over 10 percent of European beef imports come from North America––the US and Canada––and they have been multiplied by six since 2007. In 2012, the United States exported over 20,000 tons in carcass weight equivalent to the EU-27. Beyond lowering customs tariffs, the non-tariff issue is bound to complicate the negotiations (hormones, lactic acids in the treatment of carcasses and the issue of antibiotics are some of the European Commission’s red flags.)
How far can the EU go in eliminating customs tariffs and non-tariff barriers? This is a decisive issue, since American beef has a substantial competitiveness edge, due both to the price difference––the US per kilogram price of carcass remains lower that that applied to adult bovine animals in the EU––and to the gaps in production costs (traceability, veterinary expenditures and equipment costs).
By contrast, the EU could gain from lower customs tariffs and the elimination of non-tariff barriers for dairy products, especially cheese. Yet, the American dairy production has increased, and the US now ranks third in world production, with a strong output of cheese, cream and ultra-fresh products.
To successfully cope with such competition, the EU will have no other option than maintaining and promoting its assets in the field of high added value products––such as those with protected geographical indications that are closely monitored on the other side of the Atlantic, since they are considered as generic products. In fact, one of the key issues for the EU and for France in the ongoing negotiation is preserving the comparative advantages based on territorial and heritage rationales. Since we know that a territory cannot be the subject to trade, it is through foods produced through distinct criteria and know-hows that these assets can be emphasized, and provide non only an economic income but a relationship of trust between consumers and producers. In the Great Transatlantic Market negotiations, lowering tariff barriers can lead to the reconsideration of these rationales, on which we base our lifestyles and collective preferences.
Still in the agricultural and agro-food sector, although it is not specific to these activities, we note that the ongoing negotiation––once again we might say––is marked by the lack of dealing with the “exchange rate” issue. There again, the United States have a degree of added freedom, which has been missing in the Euro Zone nations since the creation of the single currency. American exports generally react very well to the depreciation of the dollar.
It is easy to understand why the Great Transatlantic Market provokes reactions and uncertainties from economic stakeholders, who must adapt to new trade rules. By contrast, sending a clear message that signing such an agreement would have a beneficial economic impact for all––which remains to be proven––should have first gone hand in hand with the following information: The view of the Europeans and the Americans is indeed to contain China’s power, which is a genuine threat for the Western World. The issue therefore goes beyond the sole economic scope.
Based on this view, the issue is a crucial one. The political calendar remains uncertain, and thus an eventual agreement could be postponed to 2015 or even 2016 (due to the mid-term elections in the US and the installation of the Parliament and the Commission on the EU side).
But the negotiation with the United States is only one element of the European will to promote free trade. The talks with the MERCOSUR nations are about to start again. An additional cause for concern for French cattle farmers, due to the difference in production costs.
1 Thierry Pouch’s entire article is available from: