Business, Economics and Jobs

Will cheese derail the plan to save the Western economy?


A worker checking a wheel of seasoned Parmigiano Reggiano cheese in a factory in Valestra.


Filippo Monteforte

BRUSSELS, Belgium — Obama wants it. So do Hollande, Cameron and Merkel.

Supporters of plans for a free-trade agreement between the United States and the European Union say it could inject an additional $200 billion a year into economies on both sides of the Atlantic.

That could strengthen the world's largest economic partnership, boost global growth and set the standard for international trade agreements, providing a strong incentive for China and other emerging economies to fall in line.

"This has been out there as the Holy Grail of trade deals for decades, but no one has been willing to really go for it — until now," says John Clancy, the European Commission's trade spokesman.

"What's changed?” he said in an interview. “Basically the stars have aligned."

"Europe and the United States need to firm up the recovery and this is one way of doing it that doesn't cost a cent of taxpayers' money. It's stimulus without having to put your hand into the government till."

Talks to form the world's biggest free trade zone are expected to begin within the first half of this year with the goal of wrapping up a deal within two years.

Despite bold words from US and European leaders when the news was announced last week, however, the reality may be far less splendid. Such deals depend less on grand visions and more on haggling over the minutiae of product standards, veterinary safety or hidden subsidies.

Those apparently minor issues may appear arcane set against the headline-grabbing potential benefits, but once in the hands of entrenched lobby groups, they can be inflated into vital national interests. To prevent them derailing a deal, both sides will require skilled negotiations and a hither-to-unseen level of compromise that, according to one German study, would raise living standards by 5 percent in the United States and 6 percent in Europe over the next two decades.

Agriculture is a traditional stumbling bloc for trans-Atlantic trade. European officials say recent reforms to the EU's $80 billion farm support program should make it easier for the Americans to swallow, but there are plenty of other problems — from European distrust of health standards in the US food industry to American wariness of Europe's cherished protection of traditional food labeling.

Will Wisconsin dairy farmers accept that only cheese produced in five provinces of northern Italy can carry the name parmesan? Will the French agree to tuck into hormone-infused American beef with a side of genetically modified fries?

The EU's first free-trade agreement in 1999 — governing $19 billion worth of annual trade with South Africa — was almost scuppered by a dispute over port wine and sherry, until the South Africans backed down and agreed that only tipples from Portugal and Spain could carry those labels. Napa Valley port producers may face a fight.

There are plenty of other sensitive areas, from US qualms about foreign airlines operating in domestic airspace to European demands for "cultural exceptions" to protect movie, TV and music industries.

European negotiators must be given an "extremely clear and unambiguous mandate, expressly excluding from the negotiations all cultural and audiovisual goods and services, whatever their means of distribution, on the Internet, or not," said a statement Tuesday from the French Coalition for Cultural Diversity, which represents filmmakers and other cultural industries.

Despite such ominous opening shots, several business leaders on both sides have welcomed the trade deal decision and its ambitious timetable.

"Change is always a challenge,” says Michelle Gibbons, chair of the EU-US Task Force at American Chamber of Commerce to the European Union. “We are used to doing things our own way on both sides of the Atlantic."

However, she sees a new commitment to overcome the differences. "There is a political willingness on both sides to put everything on the table,” she said. “It’s a question of the devil is in the detail, but there is such opportunity for the jobs and growth agenda."

Officials on both sides are focusing on the positive, emphasizing that the Transatlantic Trade and Investment Partnership — as the proposed agreement is called — will go beyond traditional tariff cutting to set up common business rules and recognition of each others' standards.

Officials say that could save companies billions in red tape. For instance, automakers selling in Europe and the United States would need to comply with only one set of safety standards instead of having to adapt vehicles to meet European and American regulations.

"Our main focus has to be to tackle those barriers which are behind the customs border — such as differences in technical regulations, standards and certifications," EU Trade Commissioner Karel De Gucht said last week. "Such barriers are estimated to be equivalent to slapping a traditional tariff on a product of between 10 and 20 percent — so the current cost to business and consumers is high."

The United States and the 27-member EU already make up the world's largest commercial relationship, worth $2.7 billion in everyday goods and services, almost a third of global trade. Tariffs are already low by world standards, averaging around 4 percent.

Americans and Europeans also have $3.7 trillion invested in each others' economies.

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Both sides deny the decision to aim for a bilateral mega-deal recognizes the failure of the long stalled efforts to strike a global trade liberalization package under the so-called Doha Round of talks launched by the World Trade Organization in 2001.

"It's a recognition that multilateralism is somewhat stuck," says Clancy, the EU spokesman. "Of course this is a bilateral deal, but it's a bilateral deal that supports setting standards in global trade rules, enshrining those within the WTO church. That's ultimately the goal."

The EU-US deal also has a geopolitical dimension. Stronger economic bonds between the Western powers could counter the rise of China and other emerging powers.

They hope the trans-Atlantic agreement will set international benchmarks on issues such as public procurement, environment and labor standards and intellectual property rights that will be hard for the Chinese not to follow.