The Case for TAFTA - By Kati Suominen

As U.S. President Barack Obama opens his second term, America's trade policy is showing signs of life. The United States is negotiating the Trans-Pacific Partnership (TPP) agreement with 11 countries in Asia, and at Tuesday's State of the Union, Obama announced the launch of negotiations with the European Union for a transatlantic free trade agreement -- call it TAFTA -- to connect the world's largest markets. European leaders greenlighted the talks last Friday, hoping a deal could jumpstart export-led growth -- German Chancellor Angela Merkel says she wishes "nothing more." But the forthcoming battles with protectionist agricultural lobbies and entrenched regulatory differences from autos to pharmaceuticals risk giving the two sides cold feet and diluting the deal to a TAFTA-lite negotiated "on one tank." A deal without substance would be an epic lost opportunity: Much like the North American Free Trade Agreement (NAFTA) launched in 1994, TAFTA represents a game-changer in the global trading system that is in a deep crisis after 12 years of fruitless Doha Round talks.

In 1994, the world trading system looked very different. The United States, Canada and Mexico launched NAFTA in January, pressuring Europeans to ink the 123-country Uruguay Round, which made extensive cuts to tariffs and non-tariff barriers and established the crown jewel of the global trading system, the World Trade Organization (WTO). The mantra of free trade was spreading on the back of the so-called Washington Consensus across the emerging world and post-communist bloc. America's export wars of the 1980s with Japan had drawn to a close, and Eastern European countries were joining the EU, forming a giant single market for trade, investment, and production. The world economy blossomed, with trade and investment growth rivaling 20-year highs. America's Internet-fueled growth would eliminate unemployment and help balance the budget in 1998 for the first time in three decades.

As the world's first serious free trade agreement, NAFTA consolidated U.S. export lobbies that would press for further deals in the Americas and Asia, inspired a wave of FTAs around the world, and created a template for a comprehensive, gold-standard deal that would be copied in subsequent U.S. FTAs and in countless of FTAs signed by Latin American countries.

Today, the setting is different. The multilateral trading system is flailing, as the United States, EU, India, and Brazil remain at loggerheads over liberalization in agriculture and manufactures, and developing countries fear opening their markets would only cause a surge in imports from China, WTO member since 2001. With Doha on a deathbed, trade negotiators focus on smaller free trade deals. Since NAFTA, well over 200 FTAs have been struck, connecting such couples as Chile and China, Japan and Mexico, Korea and the EU, and the United States and Singapore. The result of the FTA frenzy is more liberalization, but also more complexity. The labyrinth of distinct rules and regulations in the FTA "spaghetti bowl" is a daily headache to multinationals, small exporters, and customs the world over.