EU and US free-trade talks launched

Jose Manuel Barroso European Commission President Jose Manuel Barroso said a free-trade deal would be 'ground-breaking'

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The European Union and the US will begin formal talks on a free-trade agreement, paving the way for the biggest trade deal in history.

European Commission President Jose Manuel Barroso made the announcement following President Barack Obama's State of the Union address.

The US said that "everything is on the table" in the talks.

A deal would bring down trading barriers between the two biggest economies in the world.

EU-US trade is worth around 455bn euros (£393bn; $613bn) a year.

"A future deal between the world's two most important economic powers will be a game-changer, giving a strong boost to our economies on both sides of the Atlantic," said Mr Barroso, speaking in Brussels.

The EU estimates that a "comprehensive and ambitious agreement" will boost annual GDP growth by 0.5%.

Mr Obama announced US support for talks as part of his annual address to the US Congress on Tuesday, saying a free-trade deal would "boost American exports, support American jobs and level the playing field in the growing markets of Asia".

It is not clear how long the talks will take, but similar trade deals have involved years of negotiations, and the BBC's Gavin Hewitt in Brussels says the most optimistic timeframe given by European officials is two years.

One aim of the free-trade agreement would be to eliminate or reduce tariffs - taxes that apply to imported goods.

For both the EU and US average tariffs are already low, below 3% on one measure. But further reductions could nonetheless stimulate additional trade and there are some areas where tariffs are much higher, notably food.

Beyond that, the negotiations would try to reduce regulatory barriers to trade. That is more complex, but the experience of Europe's internal market shows it is sometimes possible.

The desire for bilateral trade liberalisation on both sides of the Atlantic reflects the failure of negotiations for a global deal in the World Trade Organization.

Those talks were launched 11 years ago and are nowhere near concluding. The big powers are anxious to use any opportunity to boost their economic performance.

A US-EU working group was established in 2011 to discuss the prospect of a free-trade agreement.

The US trade representative, Ron Kirk, said that even sensitive issues such as agricultural subsidies will be up for discussion.

"For us, everything is on the table, across all sectors, including across the agricultural sector, whether it is GMOs [genetically modified organisms] or other issues," Mr Kirk said. "We should be ambitious and we should deal with all of these issues."

Low tariffs

EU Trade Commissioner Karel De Gucht told the BBC that free trade between the US and the EU had been under discussion for several years, and said he hoped talks would begin in the summer.

But he admitted that the negotiations would be "difficult" and "complex", but he warned: "As the two biggest economies in the world, failure is not an option."

The EU says the deal will focus on bringing down remaining tariffs and other barriers to trade, and standardise technical regulations and certifications.

Currently the US and EU impose relatively low tariffs on goods traded between them, but analysts say other barriers are often in place to prevent European companies competing in the US and vice versa.

One example is found in the car industry, where the EU and the US employ equally strict - but differing - safety standards, meaning that European car makers must meet both before they can sell cars in the US market, putting them at a disadvantage.

Mr De Gucht estimates that such barriers are equivalent to a traditional imports tariff of 10-20%.

Rise of China
combine harvester The agriculture industry is likely to be a focus of negotiations

Agriculture is also likely to be a significant bone of contention. The European farming industry is already heavily subsidised through the Common Agricultural Policy, and the European agriculture minister has already expressed reservations about the impact a free-trade deal might have.

The US government is also likely to come under pressure from domestic businesses who have in the past called for protectionist measures to prevent the market from being swamped by cheaper Chinese imports.

The EU has already said that certain "sensitive" sectors will require more negotiation but said no sectors would be excluded from the deal completely.

The chief European economist at Barclays, Philippe Gudin, suggested that the emergence of China as an economic power along with other emerging markets has encouraged the US and Europe to unify in order to remain economic leaders.

Mr De Gucht denied that they were seeking to combat Chinese growth, saying: "We are the leading economies and it's important that we remain the leaders, but in a way that allows others to develop."

Steve Davies from the Institute of Economic Affairs, a think tank, said he believed the economic crisis in Europe was a far more important factor.

"It's happening now because there has been seriously depressed growth in the EU, and this will be good news for economic growth," he said.

"On the American side, the critical factor is that Obama is now in his second term, so he doesn't have the protectionist pressures from US businesses to worry about."


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  • rate this

    Comment number 84.

    So will this mean which ever county has the lowest import duties will get the HQ of every company importing to EU/US from China?

  • rate this

    Comment number 83.

    Now I begin to understand President Obama's negative reaction to Cameron's efforts to appease his Eurosceptics with his 'jam tomorrow' referendum offer.
    How will the US feel having to negotiate a different free-trade agreement with the post EU minnow economy of the UK?
    If the financial big hitters leave the City for Europe the Tories will have effectively completed the destruction of UK PLC.

  • rate this

    Comment number 82.


    the EU should also start talks about adopting the US$


    Really the same currency backed by overpriced, soon to run out middle-eastern oil and gas, whilst you have been living in cloud cuckoo land aka the US, where people have been spending, whilst not paying taxes, meaning the countries in $16.9 trillion of debt, thats over $60,000 per citizen, compared to $24,500 in the EU.

  • rate this

    Comment number 81.

    @70. Mutley

    Well I'm pretty sure its doing a hell of a lot better than ours. If only our economy was as impressive!!

  • rate this

    Comment number 80.

    Just look at our almost-non-existant aerospace industry, amongst others."

    Oh really? Heard of Rolls Royce Aero engines? BAe? The thriving satellite manufacturing businesses?

  • rate this

    Comment number 79.

    With that,it can't protect the benefits of small conutaries!

  • rate this

    Comment number 78.

    This is yet another reason for Britain to stay in the EU. If we're going to have a free trade area with America, we can't afford to surrender our say in how the free trade area operates.

    Even if we stay part of EFTA we would have to give up our seats in the European Parliament if we pull out of the EU. I wonder how many UKIP supporters actually realise that?

  • rate this

    Comment number 77.

    So importation tax revenues will go down,so Austerity mark3 to take place,any gains need to be passed on the the general populous,otherwise,their will be no demand created that will boost the economies of either Europe or the USA

  • rate this

    Comment number 76.

    So much for the argument that we need to be in Europe to be able to trade with the continent.

    The only and I mean ONLY barrier to trade is if you have nothing to trade.

    Everything else is negotiable

    Perhaps as a nation we should start making things perople want as opposed to shuffling bits of paper about for a living

  • rate this

    Comment number 75.

    Any "deal" involving the USA is usually to their benefit, as opposed to ours. Successive British governments have allowed the USA to walk all over them commercially. Just look at our almost-non-existant aerospace industry, amongst others. If the USA removed all of it's restrictive trade barriers, then we might have a chance. Otherwise, it's another stitch-up.

  • rate this

    Comment number 74.

    For the US and almost every country in the EU, the deal would be good news. Some sectors will lose and others will gain, but overall it is estimated that a deal would give quite a healthy boost to the economies of both parties.

    But a deal that will abolish agricultural tariffs and limit the CAP? France will block this in the end.

    If we weren't in the EU, I'm sure we would already have a FTA.

  • rate this

    Comment number 73.

    One thing they should do is to make sure that Peter Mandelson is on the negotiating team. He did brilliantly in the WTO Airbus- Boeing stand-off. So much so that even the French praised him

  • rate this

    Comment number 72.

    All parties involved are too deeply entrenched in their protectionist views for this to ever work. They'll probably create a trade treaty and call it "free trade", but it's unlikely the EU will ever allow agricultural products which can be grown domestically to enter tariff-free or that the US allows luxury autos to be imported without tariffs.

  • rate this

    Comment number 71.

    So Tory MPs think that this would be a good time to exit the EU! Classic!

  • rate this

    Comment number 70.

    The US economy is doing quite well actually.
    - - - - -
    If by "well" you mean artificially floating the US economy by increasing the national debt from 9 trillion to 20 trillion dollars, then you are quite right.
    Man the lifeboats when the creditors start calling...

  • rate this

    Comment number 69.

    I am a fan of staying in the EU and I think that if this goes through that the general public will see that we will benefit from this as long as we stay our course and remain in the EU.

    If we do exit think of the 0.5% GDP it will add to Europe and we would loose out on all of it.

  • rate this

    Comment number 68.

    The US needs this deal, it would help as leverage against the growing Chinese economy and the US bond debt they hold. I assume they hope they can use this agreement to influence chinese imports in the EU as well as the US - this would be a pretty handy card to play in the China vs US currency war...

  • rate this

    Comment number 67.

    Let's get out of the EU, forget about the EEA and negotiate an FTA."

    And what makes you think such an FTA would be more preferable to the current situation? An FTA requires negotiating, which will take years, with no clear benefit at the start of the process and would still not meet the needs of manufacturers wanting the current unfettered access to the single market.

  • Comment number 66.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 65.

    Let's not forget it would automatically include us, Candians, and also Mexicans. I, personally, have no problem with that. Let's invite Japanese, Koreans (those without the bomb), Chileans, N-Z, and Australians. Than, we can close the door for a while.

    Question, in long term, where the capital will be. My suggestion Bermudas. At least gov't will have an excuse re. disappering our tax Eurodollars.


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