By Mark David Witte
Despite some hard fighting Belgians, Canada has inked a new free trade agreement with the European Union. Specifically, a group of Belgians from the Wallonia region was attempting to derail any new trade deal for the 28-member common market. Ultimately, this small group was convinced that a free trade agreement with Canada would not create many problems because both countries have membership in the World Trade Organization, with low tariff rates already guaranteed. The free trade agreement is instead built to solve a variety of regulatory issues that can complicate international trade.
How did Canada get to a free trade agreement before the United States? The United States started negotiating a free trade agreement with the European Union during the Obama administration. The United States has an economy roughly 15 times larger than Canada’s. Surely, European Union leaders would want to work with a larger economic block like the United States.
However, negotiations chilled when news leaked out that the very same Obama administration had been listening into the phone calls of a variety of European Union leaders. Instantly, the free trade agreement with the U.S. was sent to the back of the line and Canada, our partner in the North American Free Trade Agreement, moved to the front.
Why does this matter to South Carolina? Because many of our state’s exports and imports are with European trade partners. While much of the country buys and sells goods with Canadian, Chinese and Mexican firms, the state of South Carolina exports mostly to China, Canada and Germany.
The importance of South Carolina’s trade is not simply a function of the Port of Charleston. Michelin (a French firm), BMW (a German firm), Boeing (a U.S. firm) and soon, Volvo (a Chinese/Swedish hybrid) build their products in South Carolina for global export. Employees of these firms and the communities around them reap huge benefits from this trade.
The only economy larger than that of the United States is the current bloc of countries known as the European Union. Taken together, the size of the European Union economies is greater than that of the United States. Access to the EU market is of paramount importance to firms in South Carolina. In 2016, South Carolina exported $9.2 billion of goods to the EU, increasing annually by more than the state’s GDP growth rate. In fact, roughly 30 percent of South Carolina exports during this time were to the EU.
One of the more important elements of a free trade agreement between the U.S. and the EU is the standardization of regulations between trading partners. Cars sold in the U.S. must meet certain safety and performance standards. Similarly, cars sold in the EU have their own set of regulatory hurdles to meet. These standards differ sufficiently between the two markets to make it very difficult to build cars in one country to sell in both markets.
For example, cars sold here must meet certain crash safety standards for passengers wearing a seatbelt and for passengers not wearing their seatbelt. In the EU, the crash safety standards always assume that people will wear their seatbelt. Why wouldn’t passengers wear their seatbelt as mandated by the law? Likewise, in the EU cars are tested to ensure the safety of pedestrians who may get hit by a car. Here, pedestrian safety is irrelevant. Try walking faster!
Why is this so important to South Carolina? Cars make up roughly 60 percent of South Carolina exports. And Volvo will increase this number. A free trade agreement between the U.S. and the EU could smooth out the various automotive regulation regimes between these two largest markets and provide an important boost to the large automotive manufacturers that have made their home in South Carolina. For these firms, the regulatory environment is as important a burden to trade as tariffs or volatile exchange rates.
The climate for negotiating new free trade agreements has changed. Given the rhetoric from the Trump administration, it’s unlikely that we’ll see a new free trade agreement between the two largest economic powers in the world. That’s particularly bad for attracting investment from businesses to the state of South Carolina and for the workers who will not find those well-paying jobs we could potentially have.
And we won’t have any Belgians to blame for this missed opportunity.