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The United States and Europe have engaged in multiple free trade agreements (FTAs), which are essential instruments of their foreign policies. The multilateral trade system has incrementally moved away from a hegemonic regime under de facto co-leadership of Washington and Brussels. Due to the sheer economic weight of the EU and US, FTAs involving both players can still be characterized as hegemonic, the more so when they are of the hub-and-spoke type: bilateral trade agreements of a dominant integrator with several other countries. So the hegemonic power can use FTAs to promote positive integration on its own terms, thus expanding its own regulatory system beyond its borders. This is because states, which are not engaging in American or European trade agreements, are excluded from the liberalization progress within the free trade area. As a result there is a return of power and hierarchy in economic relations. Therefore, it is essential for small and medium powers to enter free trade areas dominated by Europe or the United States.

In particular the Bush-administration engaged in numerous free trade agreements. Although such regional spheres of positive integration are not primarily measures to compete with the European Union, rather with China, there is a growing danger of emerging rival regionalism between Washington and Brussels – especially since the EU is also using FTAs to gain political influence over third countries. This can be seen as harmless when Brussels engages pre-accession countries to negotiate free trade agreements, because in this case bilateral FTAs are short-lived. However, with regards to countries like Mexico, South Korea or Mediterranean neighboring states, growing transatlantic competition is the impetus behind establishing bilateral trade agreements.

For instance, when engaging in a FTA with Mercosur, the EU was intended to strengthen multi-polarity. Indeed Brussels considered a Pan-American free trade agreement as unfavorable because a US sphere of influence would emerge in South America. In this case, FTAs with Chile, Mexico and Mercosur also served as measures to gain access to important South American markets. Thus, the EU tried to prevent a FTA between Mercosur and Washington, as well as the resulting discrimination against European companies and products in Latin-America.

Without a doubt, on both sides of the Atlantic, two competing trading blocs have emerged. Washington and Brussels have engaged in several trade agreements. The idea of a common transatlantic integration project, a Transatlantic Free Trade Association (TAFTA), no longer appears to be on the political agenda, which is surprising considering that both actors share a large set of economic ideals. An Atlantic free trade area could appear as a European-American signal, inviting all important WTO players to participate in further market liberalization measures. The assumption that there is no need for the institutionalization of transatlantic trade relations is misleading, due to deep European-American economic interdependence.

Without integrative steps, economic relations will lose their political relevance. Rivalry between the European Union and the United States could lead to an offensive regionalism by both actors, resulting in a multi-polar world based on mutual rivalry and strategic transatlantic competition. Such a development would not be in the best interest of Brussels or Washington, nor would it be conducive to global free trade.

We can only hope that both the United States and Europe will realize the undeniable advantages of deeper economic integration, since only established economic powers are able to stop the progression towards rival regionalism. The Framework for advancing transatlantic economic integration between the EU and US, negotiated in 2007, is one first step in the right direction.

In the long-term, both actors should create a common transatlantic trade area to use the advantages of deep institutional market integration. Thereby, the world's largest and most powerful market would be established, with the European Union and United States increasing their weight within the WTO. Washington and Brussels should promote a reduction in trade and investment barriers, thus creating incentives for important trading powers to support enhanced liberalization.

Tobias Fella studies international relations at Ludwig-Maximillians University in Munich.

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• Matthais Stephan Fifka: The European Union on the "Way to Hell?"