Oscar Guinea and Vanika Sharma / Mar 2024
Photo: Wikimedia Commons
The EU and the US confront two shared challenges: economic security and climate change. Both countries have developed their own policies to identify and mitigate their reliance on Chinese imports and reduce their carbon footprint. However, by operating in isolation, the EU and the US are overlooking their most significant advantage: the transatlantic market.
Economic security and climate change are interrelated. Critical raw materials are one of the sectors where the EU and the US have identified economic dependencies on China. These materials are essential for renewable energy technologies such as wind turbines or photovoltaics panels. Moreover, China has become the largest supplier of green goods to the EU and the US. From 2002 and 2022, China’s market share in EU’s imports of green goods jumped from 11 to 41 percent. For the US, China’s share increased from 13 to 19 percent over the same period.
Implementing policies to address these two challenges can be costly. The US Inflation Reduction Act (IRA), aimed at decarbonising the US economy and reshoring supply chains to diminish reliance on Chinese imports, is projected to cost between $US 780 billion and $1.2 trillion. However, relying on public subsidies for economic security and climate change is not the best solution when trade opportunities exist.
This is yesterday’s news to policymakers on both sides of the Atlantic. The goal of the EU-US Trade and Technology Council (TTC) Transatlantic Initiative on Sustainable Trade is to “create a resilient and integrated transatlantic market that accelerates the transition to a climate-neutral and circular economy”. However, the EU-US TTC’s ability to translate these words into action has been mixed at best.
In our latest ECIPE Policy Brief, we propose a simple but powerful idea to boost transatlantic trade in green goods and clean technologies: an agreement on conformity assessment for machinery and electrical equipment. This agreement would allow European and US conformity assessments bodies to test and certify products for export to each other’s market. The advantage of this agreement is that it does not require changes in product requirements, regulations or standards on either side. Forget about never ending discussions on the safety and regulation of chlorite chickens, GMOs and health services. Our proposal would facilitate compliance with existing US and EU regulations for machinery and electrical equipment, without requiring changes in these regulations themselves.
The economic effects of this agreement are significant. First, it would reduce transatlantic trade costs, encouraging increased trade between the EU and the US. Secondly, the agreement would shift trade patterns away from third countries. Because China is the largest exporter of machinery and electrical equipment to the EU and the US, this could lead to the EU and the US becoming less reliant on China.
In numbers, EU and US exports to each other could increase between US$ 25 and US$ 75 billion, while Chinese exports to the EU and the US could fall between US$ 6 and US$ 19 billion. To put these figures into context, EU and Canada’s bilateral exports of goods grew by US$ 26 billion between 2016 (pre-CETA) and 2022 (post-CETA).
Among the surge in trade of machinery and electrical equipment are many that can be classified as green goods or which are essential inputs into clean technologies. From the list of green goods used in our study, 75 percent of the trade between the EU and the US in these products comprised machinery and electrical equipment. Therefore, streamlining conformity assessment in these sectors would directly support the adoption of green technologies.
The next meeting of the EU-US TTC in Leuven presents a golden opportunity for policymakers to deliver policies that work for the economy and the planet. Transatlantic integration solves two problems with one solution: it reduces economic dependency on China and lowers the cost of the energy transition. An agreement on conformity assessment for machinery and electrical equipment would be a perfect way to kickstart a transatlantic market in green goods and technologies. Let’s seize this opportunity, let’s do it!
