03 Jul

The United States and the European Union are readying themselves to celebrate the formation of the biggest single market to date which is expected to ease trade barriers across the Atlantic and increase the volume of bilateral trade between these two economic blocks. However not all the pundits share the euphoria expressed by the proponents of the liberal economics unhindered by any obstacles. Already there are voices that air the concern that such a free trade agreement between the United States and the European Union might turn in to a tool to establish a transatlantic managed market rather than a free trade one.

The critics usually question the extent of the benefits to be reaped from the agreement. Even though there are estimates of reciprocal gains as much as 3.5% of the GDPs, or to put it more precisely as much as USD$ 1.1 trillion, such estimates take the removal of all tariffs for granted. However given the political situation both in the European continent and the United States, this seems to be a difficult target to reach in the near future. Moreover what the experts usually express concern about the prospective free trade agreement between these two economic giants is the diminishing effect of the shapes of the economies that the EU and the United States have. Both economies are already very well globally integrated open economies and hence under such conditions the impact of a free trade agreement might be limited since those two economies have already been well fused with the world markets.

Compliance and Harmonization

Especially problematic seems the harmonization of the distinct laws and regulations of these two economic power blocks which have taken their current shape not only as the result of diverging legal traditions but also as a result of differing economic and social mentalities. For instance, the recent controversial court case of Hobby Lobby illustrates the difficulty on that front. The American Supreme Court had few days ago ruled in the favor of Hobby Lobby Company and granted the company the right to refuse demand for payment by acknowledging the right of an insurance company not to cover abortion related costs due to its religious convictions. Apart from the hole that it creates in Obamacare, the real implication of such a decision would be the acknowledgement of a concept as ambiguous as “religious conviction” as an excuse to impede a commercial transaction. Given European Union’s stringent and often hair splitting insistence of precision of legal norms and regulations, one inevitably asks how these two diverging mentalities can be reconciled with one another to create some sort of a transatlantic compliance and harmonization in law?

Moreover the existing level of tariffs in the EU and the U.S pose another problem for the TTIP. Since the tariffs on the both sides of the Atlantic are low already, a possible free trade agreement between these two economic powers will, most probably, focus on the removal of non tariff barriers like farm subsidies, labor and environmental standards and government contracting regulations. However these are the very practices that have been deliberately created by the European Union to create a harmony within its own Europe wide single market. They are the products of years long hard fought negotiations between the EU member states. Even though it is remain to be seen, but to expect such practices to be sidelined for the sake of a possible free trade agreement with the United States in a relatively disregardful fashion does not seem very plausible.

Conclusion

There are prospective advantages to be obtained through a free trade agreement between the United States and the European Union for the both sides. However, it is important to note that such gains should not be taken for granted. There still remains some problematic areas that can act as pitfalls during the process. Especially the well entrenched nature of the non tariff barriers such as farm subsidies, labor and environmental standards and government contracting regulations on the EU side should be taken in to account. Finally it should also be given due attention to the problem of differing social and political mentalities and diverging legal traditions as the recent Hobby Lobby case in the United States clearly demonstrated.


Herdem Law Firm, Istanbul Turkey

 

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