US and EU free trade alliance closer to reality

Jose Manuel Barroso said talks would begin some time this year. Picture: AP
Jose Manuel Barroso said talks would begin some time this year. Picture: AP
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The United States and the European Union have agreed 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 said yesterday. “Both of us need growth, and both of us have budgetary problems.”

Speaking after the release of a joint US/EU report recommending the start of talks, Mr 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 per cent and the US economy by around 0.4 per cent by 2027, with €86 billion (£74bn) of added annual income for the EU and €65bn (£56bn) for the US.

The report’s release comes after US president Barack Obama threw his weight behind a potential deal on Tuesday night in his state of the union address, saying that 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 the talks will be tough, with no “low-hanging fruit”. Import tariffs between the two are already low, at an average of 4 per cent.

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

Mr De Gucht said that, ideally, the negotiations should be wrapped up in two years.

Trade between the US and the EU is already huge, reaching €2bn a day, Mr De Gucht added.

Before talks can start, the US 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.

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 EU could be forced into concessions on farm trade.

The US has long been frustrated with EU restrictions on American farm products such as genetically modified (GMO) crops, poultry treated with chlorine washes and meat from animals given ractopamine, a growth stimulant banned in the EU, China and Russia.

In an early sign of EU reticence, Mr Barroso said the negotiations would not compromise consumer health. He said: “We will not negotiate changes that we do not want of the basic rules on either side, be it on hormones or GMOs.”

The US 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 US vice-president Joe Biden in a speech earlier this month.

“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.

Reaction to the announcement was favourable, with the French and German governments and business organisations welcoming the chance to boost economic growth.