Obama gives nod to talks with EU Free trade European car makers cast hopeful eye across Atlantic
Prospects for a trade pact have brightened the spirits of car makers along with many other types of Continental companies - and not only because it might smooth the way for their products to compete in America's giant consumer market.
European car companies, particularly German ones, want to make it easier to sell cars they now make in the US in their home markets.
"I am a big advocate of a free-trade agreement with the US," said Norbert Reithofer, chief executive of BMW.
An agreement could add hundreds of billions of euros annually to BMW's revenue, in part by easing restrictions that add tariffs to the cars that his company makes in South Carolina but ships back to sell in Europe.
Mercedes faces similar issues with the vehicles it makes in Alabama. Mercedes sedans made in Alabama carry a 10 per cent EU import tariff not levied on Mercedes cars made in Germany.
Companies decide where to manufacture based on many factors, including labour costs, taxes and currency risk. With a trade pact in place, tariffs and regulations might no longer need to be part of that calculation. Whether their business is cars, coffee or carbon steel, for corporations that work both sides of the Atlantic, the notions of import v export and country of origin may be a thing of the past.
"It will lead to massive redistribution of labour and productivity," said Tyson Barker, director of trans-Atlantic relations in the Washington office of the Bertelsmann Foundation, which supports research and other projects involving the US and Europe.
The full implications of a pact are only beginning to dawn on many companies that trade across the Atlantic. So far there is broad support among business groups, but opposition could emerge as people calculate the effect on their own industries.
European companies such as Siemens, Nestle and ThyssenKrupp have manufactured products in America for decades, but usually those were products destined for US buyers. Once a free-trade pact is in place, it might make more sense for companies to export those products back to Europe.
The US and the EU are each other's biggest trading partners, and a pact is seen as a cheap way for both sides to generate growth.
Momentum towards a pact has been building since Mr Obama endorsed efforts to begin formal negotiations in his State of the Union address in February.
While the negotiations will be complex, officials have already agreed informally on the broad outlines of a treaty in preliminary talks. Trade representatives on both sides of the Atlantic have said they could reach a formal agreement by the end of 2014.
Dieter Zetsche, chief executive of Daimler, said "leadership on both sides have been in favour", but added, "There is a still a long way to go."
Frequently Asked Questions about this Article…
The article describes a proposed free-trade agreement between the US and the EU backed by President Obama that would ease tariffs and regulatory barriers across the Atlantic. For investors, it's important because the US and EU are each other's biggest trading partners and a pact is seen as a relatively low-cost way to boost growth and change how companies manufacture, export and price products.
According to the article, an agreement could significantly boost revenues for European automakers by removing tariffs and easing restrictions. BMW's chief executive said such a pact could add 'hundreds of billions of euros annually' to BMW's revenue in part by reducing tariffs on cars the company makes in the US and ships back to Europe.
Both makers build cars in the US for transatlantic markets. BMW makes vehicles in South Carolina that are shipped back to Europe and its CEO publicly supports the pact. Mercedes builds sedans in Alabama that currently face a 10% EU import tariff when sold in Europe — a tariff not applied to cars made in Germany — so a deal could remove that disadvantage.
The article notes that Mercedes sedans manufactured in Alabama carry a 10% EU import tariff when sold in Europe, which is not applied to cars produced in Germany. It also explains that tariffs add costs to cars like those BMW makes in South Carolina that are shipped back to Europe.
Yes. The article explains companies consider labour costs, taxes and currency risk when choosing manufacturing locations. If tariffs and regulatory barriers are removed by a pact, those factors might carry less weight and could lead to large shifts in where labour and production are located—what one expert in the article called 'massive redistribution of labour and productivity.'
Beyond carmakers, the article names Siemens, Nestle and ThyssenKrupp as European firms that have manufactured in the US for decades. With a free-trade pact, products made in America for US buyers might become economically viable to export back to Europe. The article also mentions sectors like coffee and carbon steel as examples of industries that trade on both sides of the Atlantic.
The article says momentum built after President Obama's endorsement and that trade representatives on both sides had said they could reach a formal agreement by the end of 2014, though officials warned the negotiations would be complex and 'there is still a long way to go.'
Investors should monitor negotiation milestones (formal talks and any agreements), company commentary from affected firms like BMW and Daimler, changes to tariffs or regulatory rules, and the emergence of political or industry opposition. The article notes broad business-group support so far, but opposition could surface as industries assess their own impacts.
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