EU, U.S. fire starting gun for free trade talks

The United States and the European Union agreed on Wednesday to push for the launch by the end of June of talks to create the world's biggest free trade alliance, which could be a benchmark for global competitors to follow.

Such a deal would be most ambitious attempted since the founding of the World Trade Organisation (WTO) in 1995, encompassing half the world's economic output and a third of global trade flows.

"These negotiations will set a standard, not only for our future bilateral trade and investment, including regulatory issues, but also for the development of global trade rules," European Commission President Jose Manuel Barroso told a news conference.

Speaking after the release of a joint U.S./EU report recommending the start of talks, Barroso said the two were expected to launch negotiations in the first half of the year.

The report sees a deal boosting the EU's economy by around 0.5 percent and the U.S. economy by around 0.4 percent by 2027, with 86 billion euros ($115.80 billion) of added annual income for the former and 65 billion euros for the latter.

The report's release comes a day after U.S. President Barack Obama threw his weight behind a potential deal in his state of the union address, saying it would support millions of good-paying American jobs.

Jobs and growth provide the rationale for an alliance, given both economies are struggling to break free from almost five years of downturns and stunted recovery as well as rising competition from China and other emerging economies.

EU Trade Commissioner Karel De Gucht has warned that the talks will be tough, with no "low-hanging fruit". Import tariffs between the two are already low - at an average of 4 percent.

Negotiations will focus on harmonizing standards, from car seat belts to household cleaning products, and regulations governing services.

Ideally, De Gucht said, the negotiations should be wrapped up in two years.

Before talks can start, the U.S. Congress must be notified and the European Commission needs approval from EU member states. It will present draft negotiating directives in March, no doubt prompting debate.

EU trade ministers took four months to overcome resistance from the car industry to start negotiations to create a free-trade pact with Japan.

AGRICULTURAL MUD

One of the key sticking points is likely to be agriculture. When a transatlantic trade deal was suggested in 1998, it was shot down by France, which feared the European Union could be forced into concessions on farm trade.

The United States has long been frustrated with EU restrictions on U.S. farm products such as genetically modified (GMO) crops, poultry treated with chlorine washes and meat from animals fed with growth stimulant ractopamine.

In an early sign of EU reticence, Barroso said the negotiations would not compromise consumer health.

"We will not negotiate changes that we do not want of the basic rules on either side, be it on hormones or GMOs," he said.

The United States does not want a repeat of the Doha round of world trade talks, which began in 2001 and have never come to a conclusion, a point made by U.S. Vice President Joe Biden in a speech earlier this month about EU-U.S. negotiations.

"If we go down that road, we should try to do it on one tank of gas and avoid protracted rounds of negotiations," he said.

British Prime Minister David Cameron said in a statement he would use Britain's chairmanship of the G8 this year to help break down trade barriers and secure a comprehensive deal.

The EU-U.S. negotiation is unlikely to have any direct impact on the biggest and longest-running dispute in the WTO's history, the battle over subsidies for Airbus and Boeing. But it could help improve the mood and could be a prelude to a settlement in the aircraft dispute.

The EU too would like an agreement, but there are widely differing views between the broadly free-trade northern countries and the more hesitant southern countries hit hardest by the euro zone debt crisis.

Brussels is negotiating possible free-trade agreements with more than 80 countries, with some successes, such as a recent deal set to be struck with Singapore, but some talks, such as with India, showing no signs of ending.

Talks that began with Canada in 2009 have also failed to settle differences over agricultural exports, intellectual property and public procurement, despite two high-level efforts to break the deadlock.

(Reporting By Philip Blenkinsop, Robert-Jan Bartunek, Adrian Croft and Ethan Bilby; Additional reporting by Tom Miles in Geneva; Editing by Peter Graff)

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