Talks over what could become the world's largest free-trade zone officially began Monday in Washington, with U.S. Trade Representative Michael Froman telling negotiators from the United States and Europe that they were poised "to complement one of the greatest alliances of all time with an equally compelling economic relationship."
The United States and the European Union are the world's largest trading partners. Although goods, services and capital flow with relative ease between the two sides, officials think they can add hundreds of billions of dollars to the bottom line by better coordinating regulations and streamlining the different bureaucracies that regulate matters such as auto safety, pharmaceuticals and food.
As the U.S. and E.U. economies struggle to boost growth, activist groups said Monday that they worry that the compulsion on both sides will be to push toward lower regulation -- with the United States trying to undercut generally more restrictive food and chemical rules in Europe, and the Europeans trying to tear down government procurement restrictions that favor U.S. companies and to weaken U.S. financial rules that impose new restrictions on European banks.
"We caution against unwarranted optimism. There are significant risks" in the negotiations, said Celeste Drake, a trade analyst with the AFL-CIO, including demands by Europe for U.S. states and cities to drop "buy America" or other local purchase provisions.
Her comments represent a gradual change in tone among traditional free-trade skeptics, who initially said that a transatlantic deal could boost U.S. industry and increase labor and safety rules on both sides. Trade deals between the United States and less-developed countries have paved the way for U.S. industries to relocate to lower-wage places such as Mexico. But the United States and Europe are comparable in terms of wages and living standards, and a deal is not expected to lead to a massive relocation of industry in either direction.
As U.S. and European officials laid the groundwork for the talks, some took comfort from the fact that the negotiations did not appear to be attracting the sort of reflexive opposition from labor, environmental and consumer groups that had been directed at recent free-trade agreements with South Korea and at negotiations underway with a collection of Pacific Rim nations.
That appears to be changing here and in Europe. Recent revelations about the surveillance activities of the U.S. National Security Agency have stoked concern in the European Union, where any agreement has to be approved not only by the bloc's 27 member nations, but also by a European Parliament that is likely to take a hard line on privacy, food safety and other issues.
In the United States, the AFL-CIO now notes that E.U. members such as Bulgaria and Slovakia -- the former Eastern Bloc countries that are part of what is known as "emerging Europe" -- could attract companies looking to move production to lower-wage areas, as was the case after some earlier free-trade agreements.
Rather than see the United States become more restrictive in the rules governing genetically modified foods, the regulation of chemicals and other safety issues, they see the nation pressing Europe for a looser standard. Environmental groups said in a conference call Monday that they worried that the terms of an agreement could give Europe unlimited access to U.S. natural gas supplies and thus increase the use of "fracking" to meet the demand for exports.
The Obama administration has put the transatlantic talks at the top of its economic agenda and hopes to complete an agreement by the end of next year. However, Froman acknowledged in opening the negotiations that, despite the similarities between the two economies, reaching a deal will be a challenge.
"We go into this exercise with eyes wide open," he said.