US and Europe establish transatlantic talks

That’s the optimistic point of view. The pessimistic one: given the stark differences between the two regions on issues ranging from movie subsidies to financial regulation, meeting the self-imposed November 2014 deadline will surely prove difficult, if not impossible. “This is not the first such initiative to free up trans-Atlantic trade and investment, and all previous initiatives have resulted in failure,” Philip Whyte, chief economist at the Centre for European Reform, a London think tank, said. “History suggests that if it had been easy to remove all the obstacles that impede commerce across the Atlantic, it would have been done a long time ago.”

There is a long list of potential stumbling blocks that could derail the negotiations, which began in early July in Washington. Financial regulation is a major point of contention. The Obama administration is lobbying to exclude financial services regulation from the trade talks, concerned that harmonizing financial services rules would dilute some of the safeguards outlined in the 2010 Dodd-Frank Act, including stricter capital requirements for banks. Moreover, the Federal Deposit Insurance Corporation and the Federal Reserve have proposed raising the capital requirement for U.S. banks, requiring them to hold regulatory capital equivalent to 5 per cent of their assets under the new rules. That is 2 percentage points higher than the minimum leverage ratio set by the Basel III rules – a level that banks in Europe are already struggling to achieve.

European officials have disagreed in very public fashion. Last month, in a speech to the Brookings Institution, a Washington, D.C.-based think tank, EU Internal Markets Commissioner Michel Barnier argued that it did not make sense to exclude financial services from any trade deal given that 70% of global financial transactions are between Europe and the US. “How can you promote a free and fair relationship between us on both sides of the Atlantic, with all the synergy that it implies, if we don’t have an agenda for common regulations between us?” he asked. US officials have not rejected harmonizing financial regulations altogether, but have argued that co-operation should use existing regulations enacted by bodies such as the G-20 Financial Stability Board or the Bank for International Settlements in Basel, Switzerland.

But while the US fights to keep its strict financial regulations off the bargaining table, France is trying equally hard to keep culture excluded from the talks, and is insisting on protecting its film and television industry from American competition. France’s commitment to a “cultural exception” reflects a belief that culture should be treated differently than other commercial products. The fear is that American companies stand to benefit from a comprehensive trade agreement that would remove subsidies and quotas that Europeans have built over the years to protect their own film and TV markets from the Hollywood production juggernaut. The French cinema – arguably one of the most vital film production markets in Europe – owes its strength to a law requiring local television networks to invest at least 3.2 percent of their budgets in film production.

The French government argues that without subsidies, its home-grown cinema could not compete with Hollywood productions. But existing quotas for the number of French films shown in the country have not dampened the domestic appetite for Hollywood flicks. According to Box Office Mojo, a website that tracks box office revenue, there is only one French movie, the comedy Les Profs, among the country’s Top 10 highest-grossing films this year. The list is dominated instead by Iron Man 3, Django Unchained and Despicable Me.

Ahead of the start of the free-trade negotiations, France successfully lobbied EU members to have subsidies supporting Europe’s audio-visual industry left out of the discussion. But there’s a loophole: EU trade negotiators also gave themselves the right to raise and discuss “any issues” with their US counterparts during the negotiations, including TV and movie distribution.

Though differences threaten to slow down negotiations, the benefits of a comprehensive trade deal may compel negotiators to find common ground. As globalization has spread, the benefits of free-trade agreements are now thought to be larger than ever. The TTIP stands to boost annual GDP by more than $100 billion in both the EU and U.S., according to a study by the Center for Economic Policy Research, a London-based economics research organization.

The potential benefits of TTIP are not just economic. At a time when the Obama administration is turning its military attention away from the Middle East to deepen engagement in the Asia-Pacific region, the agreement is also seen as a chance for Europe to reaffirm its historic relationship with the U.S. Some European diplomats and politicians have worried that the so-called U.S. “pivot to Asia” has come at the expense of Europe. “Both sides see the TTIP as a signaling device to China,” said Whyte, of the Center for European Reform. “It shows that the U.S. and the EU can still act together, notably by setting common standards to which China will have to adhere.”

There is also the reality that when it comes to opening up trade, regional deals like the TTIP might just be the only game in town. The Doha round of World Trade Organization negotiations, which aimed to lower trade barriers not just between the U.S. and Europe, but also across the world, has essentially failed. A proposed Trans-Pacific Partnership free-trade agreement (TPP) that has been in negotiations since 2010 and which now encompasses 12 countries, including the U.S., Australia, Canada and Mexico, looks more promising. Hopes for the trade deal rose recently when Japan joined the negotiations in late July, as the addition of the world’s third-largest economy adds the kind of heft that could make the TPP a worthy competitor to the US-EU pact.

The transatlantic deal, of course, would be an agreement of unprecedented size. “The U.S.-EU relationship is the largest in the world. This potentially ground-breaking partnership would deepen those ties,” American President Barack Obama said in June at the G8 summit in Northern Ireland. British Prime Minister David Cameron was even more resolute, saying, “This is a once-in-a-generation prize, and we are determined to seize it.”

A recent survey of policymakers and key influencers in Washington and Brussels revealed significant support for an agreement. The survey, released in July by APCO Insight, a global research consultancy, and EurActiv, an independent news website, gauged the opinion of some 700 policy leaders and private-sector executives in both the U.S. and Europe. It found that three-fourths of respondents support the passage of a trans-Atlantic trade agreement. That apparent political resolve is a reason for optimism, Whyte said. “The political stars are aligned as never before,” he explained. “Leaders on both sides of the Atlantic, but particularly in Europe, need to show that they are serious about boosting growth.”

Good intentions and enthusiasm are one thing, but getting to the point of signing a deal is quite another. Officials hinted at the long path ahead after their first meeting in Washington in July. “The negotiations have just started, and it is difficult to predict when they could end,” EU trade policy spokesman Helene Banner said. “What is clear is that substance prevails over speed.”