NAFTA is Template for US-EU Trade Agreement

With talks underway between the United States and the European Union, US-EU Trade Agreement (TTIP) seems poised for an improvement. Canada and the EU are preparing to enter into the Canada-EU Free Trade Agreement (CETA) which appears to contain the same elements of NAFTA.  While many in the US fear trade deals with Mexico and others might be renegotiated and tariffs raised to 35%, there is a level of consistency in the terms found in NAFTA and the developing Transatlantic Trade and Investment Partnership (TTIP).  This raises a question of if TTIP enjoys 0% tariffs and NAFTA is set at 35% tariffs will there be a review of this imbalance?

What is the TTIP?

The Transatlantic Trade and Investment Partnership, TTIP,  (US-EU Trade Agreement) is a Free Trade Agreement currently under negotiation between the United States and the European Union. TTIP is intended to promote trade between the two economic giants and multilateral economic growth by further reducing or eliminating import/export duties between the two economies. Much like the agreement already in place with US neighbors, Canada and Mexico, NAFTA.  Under the US-EU Trade Agreement, goods exchanged between the US and the EU would enjoy virtually 0% tariffs and further minimized regulatory obstacles. The European Commission estimates the deal will benefit the EU by approximately €120 billion and the US by approximately €90 billion. They further estimate the free trade deal will benefit the overall world economy by at least €100 billion.

US-EU Free Trade

Trade between the US and EU is already preferential. Free trade agreements currently in place ensure very low tariff rates of typically less than 3%. The two economies have long shown one another preferential treatment and relied upon one another at various points along the value chain of manufacturing for global markets.

  • The US currently invests in the EU at a rate three times that of US investment in Asia.
  • The EU reciprocates with total investment eight times higher than their investment in both China and India combined.
  • US-EU Trade Agreement has resulted in a highly integrated economic unit with a combined GDP equal to half of the total world GDP.
  • Nearly a third of all world trade flows come from US-EU trade.

Equal Treatment for NAFTA Partners?

The US-EU free trade relationship of highly integrated cooperation and reduced or eliminated tariffs is mirrored in the North American Free Trade Agreement (NAFTA) with Canada and Mexico. With all the speculation about a new US administration endangering the stability of this North American agreement and the possibility of a 35% tariff on goods imported from Mexico, it is helpful to observe other similar trade arrangements the US has in place with similar trade partners. The integrated partnership between the US and the EU greatly resembles the integrated partnership the US also has with Mexico and Canada. The scenario in which the US sparks a trade war by charging its NAFTA partners 35% while charging its TTIP partners 0% seems quite unlikely. The United States is currently strengthening its strategic advantage in the global marketplace, which involves strong trade agreements and respect for all trade partners.

The reader is invited to our blog where subjects such as the above are discussed; https://www.tecma.com.