Czechs cheerlead talks on EU-US free trade zone

Photo: European Commission

A trade agreement embracing around half of the world’s gross domestic product – that it the goal of ongoing negotiations over an almost seamless free trade zone that could be created between Europe and the United States. And the Czech Republic is enthusiastic about the vaunted gains that could result.

Photo: European Commission
For some the triumph of free trade and a move that will give a significant impetus to the world economy, for others a nightmare that will undercut environmental, consumer, safety, and labour standards and rights; the Transatlantic Trade and Investment Partnership (TTIP) is the biggest trade agreement now being negotiated. If successful, it would result in a virtually free trade zone between the United States and Europe.

While customs duties have largely been tackled during previous trade deals, the main target of the current talks between Brussels and Washington are the thousands of different norms and standards which present formidable and often very expensive obstacles to shipping goods across the Atlantic.

The negotiations were launched in July 2013 against a backdrop of stalled trade liberalization moves through the World Trade Organisation and amid pledges that it would be a win, win scenario for both the US and Europe.

Petr Ježek is a Member of the European Parliament for the ANO party and a former Czech diplomat closely involved in Czech-European policy making. He takes a keen interest in trade policy developments and is chairman of the European Parliament delegation for relations with Japan. I put it to him that the Czech Republic has generally been a cheerleader for the deal in spite of the frequently voiced reservations from non-profit organisations.

''Well, yes it is. Generally the Czech Republic is favourable. And of course we cannot judge the agreement before the final shape is on the table, but according to all of the analyses it would be beneficial for the Czech economy, for the creation of jobs, and for consumers obviously.''

Can you put that in figures, for example, how much GDP growth might result and which sectors of the economy might benefit the most?

Petr Ježek, photo: European Parliament
''Well, it depends to what extent trade will be further liberalized, but analysis speaks about GDP growth of around 1.0 percentage point or even more, it could be up to two, it really depends. But the link between free trade and the increase in GDP is obvious there.''

And are there any particular sectors that might benefit the most you think?

''I think it could be the automotive industry, perhaps machinery, and the food sector if negotiations are successful in that area.''

The general trend of the whole negotiations is to deal with non-tariff barriers but in what way do you think that these barriers can be removed without affecting some core European such as over the environment, maybe over food standards, welfare of animals, farm animals….There is a whole raft of legislation that has come through in Europe over 30 years which has set European norms and standards and there is simply not the equivalent in the United States.

''Yes, but I think that Europe does not want at all to compromise its standards which are related to the safety of consumers and in the areas you mentioned, but there are a wide range of issues and areas where you can move on when it comes to technical norms or other non-tariff barriers so I think that I think it can be done and progress can be made.''

And this sort of agreement will set the standard for other types of trade agreement that are being talked about at the moment?

''Yes, I think so. It’s also the benefit that Europe and the US can become a standard setter on the world scene. And of course there are some other trade treaties being negotiated like EU-Japan, Japan-US, and the idea is to revive the world economy through a network of such treaties.''

And the timing of all this, how quickly do you think this agreement with the US might be in place? I get the impression that the US is keener to push ahead quicker than perhaps the European side...

''I would say that the timing is not as important as the result. So we here in the Czech Republic would be in favour of a robust agreement which would deal with all of the possible issues and to us it is more important than whether it would be concluded one year earlier or several months earlier.''

The overall view from the Czech government is that a small, export oriented country such as the Czech Republic has everything to gain from what would amount to almost open access to the US market. Consider for example the massive market for public contracts which are now almost virtually closed to European companies because of the inbuilt preference for US contractors built into the ‘Buy America Act.

Two-way trade

Photo: Hafiz343, CC BY-SA 3.0
Still, the US is not one of the Czech Republic’s main trade partners. Czech-US two way trade in goods is worth just under 7 billion US dollars a year. The Czechs run a substantial trade surplus with the US amounting to around 2 billion dollars a year.

The Ministry of Industry and Trade highlights other sectors where Czechs could prosper such as biotechnology, power plants and energy infrastructure, transport infrastructure such as trams and aerospace, and defense sectors. But to put US trade relations in context, the US is still only the Czech Republic’s 13th most important trade partner, way behind China and Russia and most European large countries.

The trade deal is also regarded as a strategic anchor that would help maintain US interest in Europe which is generally perceived to be waning as Asia and other parts of the world take precedence.

For those taking a more skeptical view of the trade deal there are other worries as well. One of the biggest is that many energy intensive European sectors, such as steelmaking, chemicals, and even car making, will be hard pressed just now to hold their own against US competitors. According to some figures electricity prices for industrial users in some parts of Europe are at their best around twice as high as in the states and sometimes around five times higher.

Let’s look at the car industry for instance, the Czech Republic’s most significant export earner and also one of Europe’s biggest export successes with on average one in every five European cars exported. The US counts for just under a quarter of those European car exports in terms of the overall value of exports with many higher priced models selling well in the states. Cars alone account for 10 percent of total EU exports to the US.

Driving the deal

Photo: Miloš Turek
In terms of conventional customs duties, the current market is tilted in favour of European car exports to the states rather than the other way around. Customs duties on imports of US cars into Europe stand at 10 percent while US duties on European cars are just 2.5 percent. Even so, Europe’s car industry lobby ACEA expects that it could increase exports of cars and car parts to the US by just under 150 percent in the 10 years from 2017 if all existing customs duties and a quarter of the non-tariff barriers come down.

Another controversial facet of the proposed trade deal would be the ability of foreign companies to sue national states of they feel that their investment prospects have been damaged or they have been discriminated against in some way. Many in Europe are worried that this could provide a platform for more litigious US corporations to launch a raft of legal challenges and court proceedings against national governments. In the past, the Czech Republic has often, and expensively, been on the wrong end of such international arbitration proceedings. More of the same would not be a happy scenario.