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EU, U.S. to start free trade talks

By Philip Blenkinsop and Ethan Bilby

BRUSSELS (Reuters) - The United States and European Union aim to start negotiating a vast Transatlantic free trade pact by June, though the plan confirmed on Wednesday faces many hurdles before it might help revive the world's top two economies.

A deal would be the most ambitious since the founding of the World Trade Organization (WTO) in 1995, embracing half of world output and a third of all trade. It reflects impatience with the lack of a new global agreement to cut tariffs and ease commerce.

But after a year of preparatory discussions between Brussels and Washington, major differences remain, such as EU resistance to importing U.S. foodstuffs that are genetically modified.

"This is potentially a very big deal," said Michael Froman, White House deputy national security adviser for international economic affairs, a day after President Barack Obama endorsed talks with the 27-nation bloc in his State of the Union address.

In Brussels, EU Commission President Jose Manuel Barroso said: "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."

Once the U.S. Congress is notified and all 27 EU states assent to the talks going ahead, the sides hope for a deal by the end of 2014 - a tight deadline in international trade talks. A decade of argument among all world governments in the Doha round of trade negotiations has so far resulted in deadlock.

"If we want to go down this road, we want to get there on one tank of gas and we don't want to spend 10 years negotiating what are well known issues and not reach a result," Froman said in a conference call with journalists.

RISKS

The collapse of Doha disappointed hopes that a worldwide cut in tariffs and other barriers to trade could boost the global economy. Creating preferential trade agreements (PTAs) between states, such as an EU-U.S. deal, may achieve some of the same ends, but many experts are concerned that breaking the world into blocs could end up creating new obstacles to global trade.

"The more problematic side of myriad different PTAs is that they create a hodgepodge of different regulations, standards and norms that can evolve into serious non-tariff barriers," said Keith Rockwell, chief spokesman at the Geneva-based WTO.

He said it was too early to say what the impact of an EU-U.S. deal would be. U.S. and EU officials countered the criticism by saying their deal would set global standards for the world to follow in lowering a wider range of trade barriers.

However, creating jobs and economic growth on either side of the North Atlantic provide the main rationale for their alliance, given both economies are struggling to break free from almost five years of downturns and stunted recovery as well as increasing competition from China and other emerging economies.

The deal has support at the highest level, give an name check by Obama in his speech to Congress on Tuesday and cast as a central pillar of Britain's presidency of the G8 this year.

Under an agreed outline for the deal, the two sides expect it to add 0.5 percent to the EU economy and 0.4 percent to the U.S. economy by 2027, or 86 billion euros ($116 billion) a year for the Europeans and 65 billion euros for the Americans.

But 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 not high - an average of 4 percent.

Negotiations will focus on harmonizing standards, from car seat belts to household cleaning products, and regulations governing services. These help ensure exporters can compete.

But fleshing out the negotiating plans could cause friction - last year it took EU trade ministers four months to persuade the European car industry to let Brussels officials talk to Japan about creating a similar free-trade pact.

AGRICULTURAL MUD

One of the key sticking points is likely to be agriculture, even though the deal will not tackle the politically poisonous issue of farm subsidies. When a Transatlantic trade deal was mooted in 1998, it was shot down by France, which feared Europe could be forced into too many concessions on farm trade.

"There is a reason we have not launched an effort of this nature in the past, because of some of these historic difficult issues that have frustrated our ambition," said U.S. Trade Representative Ron Kirk.

Leaders' fears of prolonged slump, however, may help a deal.

Froman at the White House said the United States now believed "the stars could well be aligned, given developments on both sides of the Atlantic for us to resolve issues that we've never been able to resolve before".

Washington has long been frustrated by EU restrictions on U.S. farm produce, such as foodstuffs made with genetically modified organisms (GMOs), poultry treated with chlorine washes and meat from animals fed with the 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.

French Trade Minister Nicole Bricq said she would back a deal if it benefited France, long a vocal defender of its agricultural interests: "I will ensure that French interests are heard," she said.

Kirk said everything was on the table, "including all across the agricultural sector, whether it's GMOs or other issues". Froman said agricultural issues were not being put off but would be resolved before and during the main negotiation.

Another thorny issue that is unlikely to be resolved directly by the EU-U.S. negotiation is the battle over subsidies for Europe's Airbus and Boeing of the United States, the biggest and longest-running dispute in the WTO's history. But it could improve the mood and help usher in a settlement in the aircraft dispute.

Brussels has been negotiating possible free-trade agreements with more than 80 other countries, with some successes, such as a recent deal set to be struck with Singapore. But some talks, such as those with India, show no signs of ending. Talks with Canada since 2009 have also failed to settle differences over agriculture, intellectual property and public procurement.

($1 = 0.7427 euros)

(Additional reporting by Robert-Jan Bartunek and Adrian Croft in Brussels and Tom Miles in Geneva; Editing by Peter Graff and Alastair Macdonald)

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