Free Trade Agreement between EU and USA will create prosperity

What would be the impact of a far-reaching free trade agreement between the USA and the EU on growth, prosperity and employment? On behalf of the German Federal Ministry of Economics and Technology, the Ifo Institute has conducted a study on the dimensions and impact of a free trade agreement that would lift customs duties on goods and remove non-tariff trade barriers. The study finds that such an agreement would not only promote trade, but would also lead to greater prosperity and higher levels of employment in both the USA and the EU.

The EU member states and the USA are showing a growing interest in intensifying transatlantic trade relations, especially as emerging economies like China and India gain competitiveness compared to the older industrialised states. Although the Europe-an Union and the USA have already concluded a series of free trade agreements with various countries, these agreements would be dwarfed by a Transatlantic Free Trade Agreement (TAFTA). “Such a set of rules and regulations would create a free trade area representing nearly 50% of global economic output” notes Prof. Gabriel Felber-mayr, head of the International Trade Department at the Ifo Institute.

To determine the effects of a far-reaching liberalisation of trade, the Ifo experts working with Felbermayr compared the trade creation, trade diversion and added prosperity effects of an internal market scenario featuring the removal of non-tariff trade barriers with the effects that would arise from merely abolishing customs duty. With the help of existing free trade agreements, researchers were able to draw conclusions regarding the potential effects of a comparable transatlantic trade agreement.
 
Munich, 02/28/2013 |Journal of economics| (Fragment)