The EU-U.S. Transatlantic Free-Trade-Area Could be a ‘Game-Changer’

Written by | Tuesday, November 19th, 2013

Exclusive Interview with Prof. Jan Svejnar (Director of the Center on Global Economic Governance, Columbia University, United States)

EUBULLETIN: We read about declining competitiveness of European companies in newspapers every day. Experts claim this has something to do with the relatively low efficiency and rigidity of the European labor market. Do you share the widespread pessimism when it comes to Europe’s ability to compete in the global markets?
Prof. Svejnar: I think it is a big issue for Europe. I think Europe has an enormous potential so I think it could do very well and it may do very well depending on how it handles the situation. There are lots of research institutions, all Europe-based multinationals are competitive, if they want to be, they can be, so it is more a question if the investors will want to invest in Europe. They will always want to invest some because it is a big market, so it is a question how much and whether they see Europe as a place where to invest and export from Europe to other countries. So, I think this is going to be the crucial thing and it will also depend on some of the structural measures that Europe will undertake. A number of southern European countries have already undertaken the restructuring of various types, extending the retirement age, reducing wages significantly, in case of Greece for instance, so important steps have been taken.
EUBULLETIN: If you look at Germany, the Germans realized this a decade ago and the series of painful reforms they thoroughly implemented have now yielded positive results. What about the rest of Europe – how can we become more competitive, not just in terms of the cost of labor, but also in terms of not falling behind the rest of the world in innovations?
Prof. Svejnar: Well, the question now is whether Europe will continue with it and change some of the laws, increase the labor market’s flexibility and so on and so forth. The Germans have done it through the hard reforms, so I think there are European remedies that worked well for some countries and it is a question of coordinating and extending it continent-wide. There is no reason why Europe could not be very successful – I think so it is more a question of leadership and policies where leaders are willing and able to carry out policies and coordinate and complete the opening up and creation of a unified EU market. Europe is the largest free trade area of the world, so if it eliminates the remaining barriers, it will have an incredible potential.
EUBULLETIN: Regarding the Transatlantic Free Trade Area that is currently being negotiated, do you think that both sides of the Atlantic will benefit equally?
Prof. Svejnar: Obviously, another world-wide Doha negotiation would be better, even though this will probably not happen. But then having a large free-trade area between the U.S. and EU will bring in lots of benefits to the two. They are very big markets, each of them is about a quarter, 22-25 percent, of the world’s GDP, about half of the economy of the world. So if these two created a free trade area, it is going to be, of course, tremendous. At the same time, the U.S. is also negotiating a free trade area with many countries of the Asia-Pacific, so if these two free trade areas eventually materialize, it could be a game changer. In fact, at the Center on Global Economic Governance that I direct at Colombia University, we are now carrying out a research project looking into that and what the implications will be because how these free trade agreements are negotiated will have an effect on third countries as well, Africa, Latin America, those who are out. Suppose they want to bring a case to the World Trade Organization, will that be discussed in and decided by this body still or will the Europeans and Americans say ‘all disputes will be handled by arbitrations that we will determine as part of this agreement’? So, there are actually big issues with respect to global governance that are to be determined.
EUBULLETIN: Do you think that the U.S. companies are more competitive and flexible than the European companies and this is why they will probably benefit more from the Transatlantic FTA?
Prof. Svejnar: I think both sides will benefit. By definition, both parties who agree to create a FTA will benefit – otherwise, one of them would not have signed the deal. In terms of benefiting equally from the Transatlantic FTA, it is very difficult to estimate beforehand because there will be all sorts of reallocations that will take place that we now cannot even figure out. I think that in the end both sides will benefit because the workers on both sides of the Atlantic will have more jobs. There may be restructurings also as some workers may have to move from one sector to another sector, from one region to another region – that is always painful but there are now trade adjustments that both continents are undergoing now so this can be done. So, I would still go for Doha if I had my choice, go for multilateral negotiations for the whole world. However, if this cannot be done, having these large regional FTAs may ultimately turn out to be a good alternative pathway leading to global trade liberalization.

Professor Jan Svejnar is Director of the Center on Global Economic Governance and Professor of International and Public Affairs at Columbia University. Prior to this he was the Director of the International Policy Center at the University of Michigan, where he was also a Professor of Business, Economics and Public Policy. He has a PhD from Princeton University.

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