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The Transatlantic Economic Partnership: Current Trends & Prospects

The EU and the US are one another's main trading partners and account for the largest bilateral trade relationship in the world. They are also the largest players in global trade.

The EU and the US both account for around one fifth of each other's bilateral trade, a matter of €1 billion ($1.2 bn - Ed.) a day. In 2003, exports of EU goods to the US amounted to € 226 billion (25.8% of total EU exports), while imports from the US amounted to € 157.2 billion (16.8 % of total EU im­ ports).

The investment links are even more substantial. The EU and the US are each other's largest trade and investment partner. The total amount of two-way investment amounts to over € 1.5 trillion ($1.8 trillion - Ed.), with each partner employing directly and indirectly about 6 million people in the other.

The share of EU investment in the US amounted to more than 52% of EU Foreign Direct Investment over the period 1998-2001 (€ 162,663 million a year in average), while US investment in the EU amounted to more than 61% of EU FDI inflows over 1998-2001 (€72,041 million a year in average).

Our two economies are interdependent to a high degree. Close to a quarter of all US-EU trade con­sists of transactions within firms based on their in­vestments on either side of the Atlantic.

Potential and benefits of additional transatlantic integration
Nevertheless, as Daniel Hamilton and David Quinlan argue in Deep Integration: How Transatlantic Markets Are Leading Globalization, transatlantic economic inte­ gration still has enormous additional poten­tial. They point out that greater benefits could be achieved, reporting the OECD as saying that "further transatlantic liberalization could lead to permanent gains in GDP per capita on both sides of the Atlantic of 3 to V/t."

Trade in service is actually at its start. Liberalization of services is associated with a number of legal and political problems. Services are heavily regu­ lated, especially in the EU. Barriers to trade in serv­ ices remain high in the legal and accounting sector and include both foreign providers' discrimination and intra-union barriers. Important constitutional norms dealing with education and health care serv­ ices also tend to prevent a more accentuated integration.

By the same token, trade in services is the sleep­ ing giant of US-EU economic relations. The service sector accounts for the bulk of job creation in both sides of the Atlantic. A further liberalization of trade in services could result in a sharp increase of em­ ployment levels and economic growth. Hamilton and Quinlan remark the rise and the change of trans­atlantic trade in service: "Following in the footsteps of manufacturers, US and European service compa­ nies now deliver their services more through foreign affiliate sales than through trade. In the 1970s and 1980s, firms delivered services primarily via trade. In the 1990s, foreign affiliate sales became the chief mode of delivery. Sales of services by US foreign affiliates in Europe soared from $85 billion in 1994 to roughly $212 billion in 2002 - a 150% increase, well ahead of the roughly 65% rise in US service exports to Europe over the same period. US foreign affiliate sales of services in Europe - after being roughly equal to US service exports to Europe in 1992 - were nearly double the value of US service exports in 2002."

On March 2004 the European Commission elabo­ rated a Directive proposal, the so-called Services-directive. It is an ambitious project, as rather than providing for sector-by-sector liberalization, the Di­rective provides a legal framework for a general lib­eralization of services within the EU. According to a study of the Copenhagen Economics, the application of the Services Directive could result in up to new 600,000 jobs and in a rise of foreign direct investment up to 34%. Read More

The Impact of US international debt on transatlantic economic integration

The US external deficit is the subject of an increasingly heated academic debate. It sounds odds to many that the US , the first economy of the world, is by the same token the largest world debtor. At the end of 2004, it had net external liabilities of $2.5 trillion, or 22 percent of GDP. The current account (goods and services, transfers, and capital income) is massively in deficit—about $670 billion in 2004, or about 6 percent of GDP.

Whether US foreign liabilities actually stand for a serious problem or not is the object of the debate. Economists, quite unsurprisingly, hold most opposite views on the topic. It is not quite controversial that some form of adjustment of the US deficit, particularly in terms of exchange rate, will have to take place. What is questioned is whether such a “landing” will be painful and costly or gradual and smooth. Whatever opinion we side by, implications for US-Europe alliance may be significant. Read More