The European Union (EU) and the US are to begin formal talks towards a free trade agreement between the world’s two biggest economies. EU-US trade is currently estimated to be worth €455bn (US$613bn) a year.
European Commission (EC) president, Jose Manuel Barroso, confirmed that talks would be held following President Barack Obama’s State of the Union address. “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,” Barroso told a news conference in Brussels, shortly after a joint EU-US report recommending that negotiations be started.
“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.”
Barroso added that tariffs must be cut wherever it makes sense and is possible. “For these negotiations to succeed, we need – above all – political will: a desire to make our rules and regulations compatible,” he commented, indicating that they were likely to begin before the end of H113.
The EU, which established a working group with the US in 2011 to work towards an agreement, believes that its annual gross domestic product (GDP) growth would receive a 0.5% boost by 2027 from such a deal, while the US would benefit by 0.4%, translating to additional annual income of €86bn and €65bn respectively.
However, trade deals typically take several years of negotiations and a BBC report said that the most optimistic timeframe offered by European officials for reaching agreement was two years. The two trading blocs have previously ended up at the World Trade Organisation (WTO) over trade disputes, so there is certainly no guarantee of an easy progression.
Tariffs imposed on goods traded between the US and EU are already relatively low, but analysts suggest that barriers are often in place to prevent European companies competing in the US and vice versa. Agriculture is regarded as one of the main obstacles. A transatlantic trade deal proposed back in 1998 was vetoed by France, on fears that the EU could be forced into concessions on farm trade.
For its part, the US is keen to avoid a repeat of the Doha round of world trade talks, which commenced in 2001 but proved fruitless. They were alluded to by US vice president Joe Biden in a recent speech about EU-US discussions. “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.
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