How Would a Free Trade Agreement Benefit the Car Industry?
During his State of the Union speech in February, U.S. President Barack Obama said, “Tonight, I’m announcing that we will launch talks on a comprehensive trans-Atlantic trade and investment partnership with the European Union.” One month later, the European Commission agreed on a draft mandate for the partnership and sent it to the Council for the Member States for approval in order to begin the next round of negotiations. At the speed of international politics, so far this one is breaking the sound barrier. What would a free trade agreement mean for the auto industries of the U.S. and the European Union?
Currently, the European auto industry is experiencing a slump. EU car sales came in at the lowest recorded for a month of February since record keeping began in 1990 even bearing in mind that the EU only had 15 Members States at that time. Ian Fletcher, an analyst at IHS Automotive in London, predicts that the EU automotive market will contract another 2.6% in 2013. Clearly, the car market is struggling.
The Centre for Economic Policy Research in London was appointed by the European Commission to perform an in-depth study on the potential effects of a free trade agreement between the EU and the U.S. Their study details the potential impact of various policy scenarios not only on the two main players but also on the global economy. Under what is termed an “ambitious and comprehensive” scenario, the sector set to gain the largest boost is motor vehicles where EU exports (worldwide) could increase by almost 42% and imports would be up 43%. Motor vehicle exports specifically to the US are expected to increase by 149%.
One of the most important considerations for a potential trans-Atlantic trade liberalization is to reduce “non-tariff” barriers such as customs procedures and behind-the-border regulatory restrictions. It is certainly in the auto industry’s best interest to have better harmonized standards in order to reduce testing and development costs for individual markets.
The main barriers to a comprehensive agreement lie with industries such as agriculture where Europeans are wary of GMO goods which are more common in the U.S. There are also concerns over privacy restrictions that differ across the two trade blocs. At Automotive IQ, we’ll be paying close attention to any new developments with this potential trans-Atlantic partnership.
“European Commission Fires Starting Gun for EU-US Trade Talks,” IP/13/224, European Commission Press Release (March 12, 2013).
“Independent study outlines benefits of EU-US trade agreement,” MEMO/13/211, European Commission Memo (March 12, 2013).
James Kanter, “U.S. and Europe Seek Support for Trade Pact,” New York Times, March 12, 2013.
Will Hornick is the Managing Editor of Automotive IQ