The two biggest players in the global economy, that is the European Union (EU) and the United States (US) are about to launch negotiations on a free trade agreement (FTA). According to Joao Cravinho, ambassador of the European Union in India, EU-US FTA will promote growth around the world.
He believes that this trade agreement can add as much as USD 100 billion to world gross domestic product (GDP), excluding what it will add to the US and the EU side. He told CNBC-TV18 that the talks could last for two years.
Talking about the long-running negotiations between India and the European Union on a FTA, he said it is nearing completion.
Also read: India-EU FTA in jeopardy? Here's why
Below is the verbatim transcript of his interview to CNBC-TV18
Q: Can you give us a sense of the proposed timeline for this US-EU free trade agreement (FTA)?
A: We are ready to start talks as of now. We are waiting for the United States approval to come from the US Congress. Hopefully that will come in the manner that will allow us to start negotiations before the summer.
So, in the very near future we will be beginning a negotiation process. We think it could last for around two years and that could have a major impact on world trade. A major impact ofcourse for the European Union (EU) and for the United States (US), but more widely on world trade flows as well.
Q: Both the US and the EU have been facing serious economic challenges. Is the US-EU FTA being seen in a sense as a panacea for its economic woes?
A: Certainly boosting trade is good for the economy. Whether the economy is growing well or whether the economy is having a difficult time. As you rightly point out matters have not been easy on either side of the Atlantic and we expect that this is part of the solution. It will promote growth on both sides of the Atlantic.
One important thing though, it will promote growth around the world because world trade or the world economy is now so integrated. So many goods imply an integrated global value chain that the knock-on effect for other countries can also be quite significant. We expect that this trade agreement can add as much as USD 100 billion to world gross domestic product (GDP) excluding what it will add to the US and the EU side. So, it will be good for the world as well.
Q: US and the EU are the biggest players in the global market and the global economy. Won't this FTA impact trade with its partners like India? There are concerns on trade diversion for instance.
A: I don’t think so. You are quite right, we are talking about the two biggest players in the world. EU is slightly bigger than the US economy. Together they are almost 50 percent of global GDP. So, this will have a major knock-on effect around the world.
However if EU and US increase the trade between them, they are also going to increase demand for raw materials. They are going to increase the need to source products all around the world or source raw materials around the world. This is why we believe that this kind of agreement will not be trade diversionary on the contrary it will be a stimulus to international trade and the available studies that have been made indicate this quite substantially.
Q: The EU will also have to deploy a majority of its resources in terms of negotiators for the US and Japan FTAs, will that not impact the India-EU FTA talks which have already been going back and forth, seen years of delays?
A: I think that the pace of talks is dictated by other factors. We are now very close to finalizing the talks. We haven’t reached that moment yet but we are very close. We believe that we have a very fortunate time horizon ahead of us because the trade talks with the US, which we believe can be launched now will really intensify the end of the year – 2014 will be a very intense year.
We hope that we can finish the talks with India before that happens – sometime in the next two or three months. So, in terms of our calendar we believe that we have got things just right and we are looking forward to an enormous amount of hard work.
Q: For months now we have been hearing about how both sides are close to finalizing the agreement. In the light of the fact that negotiations with the US and Japan are going to start, are you really still hopeful about the India-EU FTA going through?
A: There is more than hope, there is optimism. Both sides understand that in this process of evolving world trade patterns it is fundamental that EU and India story be central part of the global story. That means finalizing this deal now. In any negotiation it is in the last moments that we find the most difficult and intractable problems.
However looking at the big picture, I think that both sides realize that they have much more to gain than to lose. Those difficult decisions which have to be taken at the end of negotiations are now very close to being taken.