December 6, 2012 10:55AM

TAFTA We Hafta?

In today’s Washington Post, David Ignatius makes the case for a Trans Atlantic Free Trade Agreement (TAFTA), also referred to as a U.S.-EU Free Trade Agreement. He notes that:

a 50 percent reduction in non‐​tariff barriers (such as unnecessary or duplicative standards) could boost GDP by roughly $160 billion in Europe and $53 billion in the United States. Abolishing all tariffs could produce gains of up to $86 billion for Europe and $82 billion for the United States.

I weighed in on this a few weeks ago. I was skeptical then, and I’m still skeptical now. But that doesn’t mean I’m completely opposed to the idea. Ignatius is right that there would be some large benefits. However, his op‐​ed highlights some of my concerns.

He notes that in talking about this idea, Hillary Clinton referred to the “long‐​standing barriers to trade and market access” that would have to be removed to make the deal possible, such as the European Union’s protectionist agricultural rules. First of all, let’s not forget the United States’ protectionist agricultural rules. Europe is not the only offender in this area. Second, let me quote a recent Reuters article on this point: “… both sides appear likely to leave much of the highly sensitive agricultural sector out of the agreement altogether, diplomats say.” So, yes, there would be great benefits to removing protectionist agricultural barriers, but it’s not clear that will be part of this proposal!

Ignatius also says:

Combined with the North American Free Trade Agreement in Latin America and the ­Trans‐​Pacific Partnership in Asia, [the TAFTA] could create a global trading system that might be an enduring part of Obama’s legacy.

Well, sort of. A real “global” system would be done globally. Lots of bilateral and regional agreements create a bit of a mess. If you have different rules for some countries than for others, you end up with absurd litigation about where a product “officially” comes from. Here’s a recent example, from a well‐​known trade lawyer:

this is a case about whether plasma televisions and video monitors made in Mexico are entitled to be treated as originating under the North American Free Trade Agreement. If so, they may enter the United States free of duty and merchandise processing fee. The problem for Samsung is that the imported units include an assembly from Korea that consists of a plasma flat panel and various support electronics. Under the relevant NAFTA rules of origin, if that non‐​originating Korean assembly is classifiable as a “flat panel screen assembly” of 8529.90.53 in the HTSUS, then it fails to satisfy the tariff shift requirement of the NAFTA rule of origin.

So, the question is whether two specific configurations of subassemblies are FPSA’s. It turns out that is a complicated question because FPSA is not defined in the tariff nor in the relevant Explanatory Notes. …

… Looking at the two modules at issue, the Court found that each satisfies its requirements to be classified as an FSPA. Consequently, the non‐​originating components failed to satisfy the NAFTA tariff shift requirement and the imported products were not entitled to duty‐​free entry under the NAFTA.

There are more details at the link, if you really want them. The basic gist is that the product at issue had enough Korean content that it did not qualify for duty‐​free treatment under the NAFTA. This kind of thing is great for trade lawyers, but not so good for free trade!

So, there are some real problems with a bilateral trade agreement with Europe. That’s not to say I would oppose it. It may be the best we can do right now. Some day, though, I hope we can do better.