EU, U.S. to start free trade talks

BRUSSELS (AP) ― The European Union and the United States announced Wednesday that they have agreed to pursue talks aimed at achieving an overarching trans-Atlantic free trade deal.

The 27-country EU said such an agreement, first announced in Tuesday’s State of the Union address by President Barack Obama, would be the biggest bilateral trade deal ever negotiated. Any agreement could boost the EU’s economic output by 0.5 percent and the U.S.’s by 0.7 percent, according to some estimates. That would be a highly desirable outcome when the EU and the U.S. are both struggling with slow growth, high unemployment and high levels of debt.

“Both of us need growth,’’ said Jose Manuel Barroso, president of the European Commission, the EU’s executive arm on Wednesday. “And both of us have budgetary problems.”

In a joint statement issued released simultaneously in Washington and Brussels, President Obama, European Council President Herman Van Rompuy and Barroso said they were “committed to making this relationship an even stronger driver of our prosperity.”

“Through this negotiation, the United States and the European Union will have the opportunity not only to expand trade and investment across the Atlantic, but also to contribute to the development of global rules that can strengthen the multilateral trading system,” they said.

Trade between the U.S. and the EU is already huge, reaching 2 billion euro ($2.69 billion) a day, EU Trade Commissioner Karel De Gucht said.

Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington, D.C., estimates that a comprehensive agreement could boost U.S. output by about 0.7 percentage points.

A high-level U.S.-EU working group on jobs and growth said the goals of the agreement would include removing import tariffs, which average 4 percent, and getting rid of other barriers to trade such as the approval processes that businesses have to go through in order to sell products on both sides of the Atlantic.

Beyond that, De Gucht said, “There seems to be a consensus that the cost of a product contains about 10 percent of red tape. If you can largely make away with that, you will have the same product for a lower price without anybody paying for it.”

“So it would certainly affect people’s lives on both sides of the Atlantic,’’ he told the Associated Press.

And that, he said, is one way in which such the trade deal would stimulate growth. If tariffs are removed and the red tape is reduced, the product would be cheaper. This in turn would increase demand ― and more jobs as the manufacturer would need to hire more people to fill the orders.

“So it’s giving a boost to trade, but also to industry and to services,” he said.

In addition, he said, consumers would benefit from lower, and more uniform, prices. If tariffs are removed, he said, the price of a bottle of French wine would be roughly the same in the U.S. as it is in Paris.

De Gucht said that initial talks should start by summer.

The negotiations will cover a huge array of commercial and agricultural areas. Officials hope to complete them within two years.

“For these negotiations to succeed, we need above all political will,” Barroso said. “These negotiations will not be easy.”

But he added that a successful negotiation would result in a “win-win’’ situation, and be “a game-changer.’’

One example of where the two economies could benefit from the talks is car making: If each side recognized the other’s car safety standards ― or if the standards were harmonized ― an auto manufacturer would not have to satisfy two different sets of requirements.

But there are other areas ― such as agriculture ― that will prove to be more difficult to negotiate.

U.S. Trade Representative Ron Kirk said Wednesday that the U.S. plans to push the EU to relax its ban on genetically-modified crops. That’s also a top goal of U.S. Senators Charles Grassley and Max Baucus, two leading members of Congress on trade issues.

“For us ... everything is on the table across all sectors, including all across the agricultural sector,’’ Kirk said. “We want to deal with many of these nontariff barriers that frustrate our trade.’’

Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington, D.C., said harmonizing regulations would lead to a much bigger payoff from the talks than simply eliminating tariffs.

“That’s going to be a long, hard road to achieve that,” he said.

Immediate reaction to the announcement was highly favorable.

“The German government is convinced that such an agreement would be a valuable contribution toward more growth and jobs on both sides of the Atlantic,” said Steffen Seibert, a government spokesman.

France, too, welcomed the announcement, saying the stakes were huge. “I want a helpful agreement, a source of opportunities for our companies in the U.S. market and a creator of jobs on French soil,” said Nicole Bricq, the French minister for external trade.

BusinessEurope, a federation of European business organizations, also welcomed the announcement. Juergen R. Thumann, the organization’s president, said an agreement would “significantly boost economic growth on both sides of the Atlantic, strengthen the competitiveness of our main industries and restore trans-Atlantic leadership in trade.’’

Claude Barfield, a trade scholar at the American Enterprise Institute, supported the idea of a U.S.-EU trade pact but said the Obama administration should finish ongoing talks on a Trans-Pacific trade agreement with several Asian nations first. Otherwise, China will push an alternative trade pact that excludes the United States.