The book,edited by Dan Hamilton and Joseph Quinlan, also a fellows at the Center for Transatlantic Relations at SAIS, highlights the potential gains of further integration of the transatlantic services economy.  Given that the services economies of the United States and Europe have never been as intertwined as they are today, a more liberalized services sector could offer unprecedented benefits for the economies on both sides of the Atlantic.  Yet the full potential of the transatlantic services economy remains hampered. The book addresses issues such as internal barriers and different regulatory frameworks to highlight the many obstacles that accompany further integration in this important sector.

The discussion began with general comments from Dr. Hamilton, who explained that trade alone is a misleading benchmark to measure the importance of transatlantic economic relations.  Instead, much more attention should be given to investment flows, which are in fact driving the success of the EU-U.S. relationship:  75 percent of American foreign direct investment goes to the EU, while 80 percent of European investment is directed to the United States.  Among the European economies, the United Kingdom leads in terms of investment in the American market, totaling $64 billion of sales in services in 2004.  By the same token, American sales of services in the UK were a whopping $105 billion. 

Touching upon the main topic of the event, Hamilton then described the services economy as sleeping giant whose economic potential still remains untapped due to internal barriers and different regulatory frameworks. A recent study commissioned by the European Commission stresses the potential benefits from further liberalization. If the European services sector were to be liberalized, one could see an increase of 34 percent in FDI, with as much as 75 percent potentially coming from the U.S.  He stressed, a more liberalized services market would not only lead to higher levels of FDI but would also help to increase wages and create new jobs in the European economies.

Dr. Hamilton paid special attention to the open skies agreement; a recently negotiated treaty between the United States and the European Union that allows U.S. and EU airlines to operate to and from any airport on both sides of the Atlantic. A complete opening of the transatlantic aviation market, including fewer control and ownership restrictions, would bring net benefits of approximately $6 billion to both the U.S. and Europe, which is almost the equivalent of the gains to be had for these two economies from a successful conclusion of the current WTO negotiations.

Building upon Dr. Hamilton's remarks and his own background as a Treasury official, Randal Quarles focused his comments on the integration of the transatlantic financial services sector.  By pointing to some general statistics, he stressed that this sector has seen a remarkable evolution throughout the years.  Whereas in 1990 gross transactions in U.S. equities by investors from the EU amounted to mere $144 billion, this figure surpassed the $3 trillion mark last year. Similarly, transactions in EU equities by investors based in the United States were well over $2 trillion, up from $141 billion in 1990.

Despite this continuous growth, Quarles pointed out that there are still some significant obstacles to cross-border financial transactions between the United States and Europe. According to him, these barriers are the result of different licensing frameworks, different rules governing access market infrastructure as well as different supervision and tax regimes.  Although it is hard to quantify the benefits of complete integration, various estimates put them as high as a 60 percent reduction in the costs of transactions and a 60 percent increase in trading volume.  Quarles then stressed that even if regulators were to aim for complete integration, it would be fairly difficult to achieve this goal given that there are legitimate regulatory concerns surrounding the idea of a transatlantic market in financial services, such as restricted investor protection given that fraud and deception could be made easier by a larger number of activities; a systemic risk caused by the potential emergence of just a few, but extremely large, financial institutions; and issues related to different regulatory choices made on either side of the Atlantic to achieve certain regulatory goals.

According to Quarles, the two methods available to reconcile regulatory differences are harmonization and mutual recognition.  Quarles saw mutual recognition as a more fruitful approach given the amount of resources needed to achieve real harmonization.  However, complicating any initiative promoting further market integration, whether it involves mutual recognition or harmonization efforts, is the extremely fragmented regulatory structure on both sides of the Atlantic.

After the presentations, the audience asked a number of questions related to the issue of declining U.S. competitiveness in financial markets and the regulatory fragmentation of the U.S. insurance market. A representative from the European Commission pointed out that the existence of 56 different insurance regulators in the U.S., representing both the federal states and U.S. territories, makes it difficult to cooperate transatlantically on issues related to insurance regulation. Quarles agreed and stressed that it would indeed be beneficial to have a single federal regulator who could streamline the process as well as clarify rules and enforce them.  Another question that was raised related to the benefits of formalizing regulatory dialogues as it has recently happened through the establishment of the Transatlantic Economic Council (TEC).  It was noted that sometimes regulators become wary and hesitant to cooperate when compelled to do so and rather prefer informal exchanges. However, for some sectors it is important to create political will and have buy-in from both the White House and the Commission in order to make real progress towards further integration. Everyone at the event agreed that within the next six months real progress has to be made in order to guarantee that the TEC and the overall Framework for Advancing Transatlantic Economic Integration become a sustainable initiative that can outlive both a new administration in the U.S. and a new Commission in Europe.