Let's hear it for the Transatlantic Economic Council

by Philip Whyte

Some institutions get less attention than they deserve. Arguably, one of these is the Transatlantic Economic Council (TEC). On May 13th it met for the second time since its launch in 2007. Its existence is still only known to a small group of initiates. Its obscurity is partly a reflection of its youth. But the TEC’s profile is not helped by the perception that its agenda is dull and that transatlantic relations are no longer as important as they used to be. The TEC’s agenda may be unglamorous. But the transatlantic axis remains as important as ever: it is still the world’s pivotal economic relationship. As protectionist sentiment rises on both sides of the Atlantic, the TEC deserves both greater visibility and political support.

The purpose of the TEC, a biannual summit of US government officials and EU Commissioners, is to deepen transatlantic economic integration. Its main focus is on lowering regulatory barriers – a reflection of the fact that the main impediments to transatlantic commerce are no longer instruments such as tariffs, but regulations ‘behind’ national borders. It is important to understand the limits of the TEC’s ambition. The aspiration is not to create a wider version of the EU’s single market. There is no prospect of goods, services, capital and people moving as freely between the EU and the US as they do within the EU. Even so, the OECD estimates that the economic gains from removing some of the more irksome restrictions to commerce across the Atlantic could be substantial.

If the potential economic gains from deepening the transatlantic economy are marked, why is the TEC’s agenda not better known? The (largely justified) perception that it is dull does not help. Let’s face it: the mutual recognition of GAAP and IFRS accountancy standards, or, for that matter, the transatlantic dimension of the EU’s chemicals directive, are not the sorts of subject that most normal people are inclined to discuss when they kick back and relax after work. Nor do those who are paid to take an interest in these matters find it easy to do so: the eyelids of even the most conscientious and determined policy nerds can start to feel just a little heavy as they grapple with putative regulatory obstacles such as certification rules for new aircraft or detailed prior approval procedures for low acid canned foods.
But there is another reason why the TEC is failing to attract as much interest as it deserves. It is the increasingly widespread view that the economic rise of Asia is loosening economic ties between the US and the EU and condemning the transatlantic axis to obsolescence. Superficially at least, this account seems plausible: after all, both the EU and the US now trade more with Asia than they do with each other. Nevertheless, it is misleading. For one thing, it neglects foreign direct investment (FDI). Yet EU and US firms invest far more on each others’ territories than they do in Asia – and FDI is a far deeper form of economic integration than trade. For another, changing patterns of international trade in goods say little about the EU or US, where services represent 70 per cent of GDP.

So next time you read a story about globalisation and the rise of Asia, remind yourself (1) that the EU and the US are the world’s largest economies and will remain so for some time yet; (2) that the US and EU share by far and away the largest two-way investment relationship in the world economy; and (3) that the world is not nearly as ‘globalised’ as is often portrayed – even the world’s most integrated bilateral relationship is riddled with non-tariff barriers that need to be removed. Finally, be thankful that somewhere deep in the entrails of the Brussels and Washington machineries, public-spirited bureaucrats are busy, on all our behalves, trying to sort out US gripes about EU registration fees for bull semen.

Philip Whyte is a senior research fellow at the Centre for European Reform.