German Chancellor Angela Merkel casts her shadow on an European Union (EU) flag. Credit: Reuters German Chancellor Angela Merkel casts her shadow on an European Union (EU) flag.
Credit: Reuters

The European Union and the United States have announced plans to complete a historic free trade agreement worth over 450 billion euros that could drag both from economic slumps.

Professor Stephen Davies of the London-based free-market think-tank Institute of Economic Affairs explains the impact.

Metro: Where did this come from?

 

Davies: The EU and US have been talking about this for years but things have suddenly accelerated for two reasons. On the European side there’s a desperate need to find anything that will stimulate growth in the Eurozone and this is estimated to grow GDP by 0.5%. On the US side, President Obama has been re-elected and is less worried about a backlash from protectionists.

How will this affect consumers?

Free trade reduces cost to consumers. It leads to a more efficient allocation of production and resources that’s why you get estimates of growth. Another benefit will be easier and simpler access to products from the other side of the Atlantic.

What will be the points of difficulty?

Agriculture will see the most discussion and argument but is also the area with potential for biggest gains. Both EU and US have highly protectionist agriculture regulations and there will be push-back from European farmers against US competition. Another point that could cause trouble is intellectual property rights, which have tax implications and a lot of money riding on them.

Is EU the weaker power?

It's in worse shape but no one has the upper hand. The point of erasing trade barriers is that everybody benefits by getting rid of special interest blocs.

Is this a statement against rising Asian powers?

I really hope not. If the motives is to create a North Atlantic bloc to protect against challenges from China, India, Brazil that would be bad because their rise means more people to sell goods to. But I think this is about the domestic need for something to stimulate the economy.

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