French pique risks US-EU trade bid

As talks begin today in Washington aimed at implementing a new agreement that would generate hundreds of billions of euros in benefits for both economies, France's stand on cultural protectionism threatens progress.

Renault cars at the factory in Flins, near Paris. The EU-US trade deal could help to increase exports of cars from Europe to the rest of the world. Antoine Antoniol / Bloomberg News

A bitter row over France's "cultural exception" clouds today's start of talks to turn the world's biggest trading partnership into a free trade deal delivering huge boosts to the economies of the United States and Europe.

The first round of negotiations begin in Washington against a background of high optimism that officials can clinch what the British prime minister, David Cameron, calls a "once in a generation prize".

The European Commission (EC), executive arm of the European Union, describes that prize as "the biggest bilateral trade deal ever negotiated".

France was branded the villain of the last failure to strike a transatlantic trade agreement, in the 1990s.

This year, Paris again cast uncertainty over the start of talks, holding out for other European governments to meet its demands on maintaining cultural protectionism for cinema and online.

The exception was granted but only amid a furious row in which Jose Manuel Barroso, the president of the EC, labelled opposition to a fully comprehensive trade deal "reactionary" and part of an anti-globalisation agenda.

There is no guarantee that the issue will not return to complicate the discussions as the compromise struck by EU trade ministers has been called a "not in, not out" formula. This means the audiovisual sector does not appear in the mandate for initial talks but could be discussed later since the EC retains the right to raise "any issue" it considers necessary.

It remains to be seen whether long-held Hollywood and Silicon Valley grudges over determined French defence of its culture, especially the film industry, will present future obstacles to a pact being reached.

The negotiators already face a tough task. So complex are the details of the latest attempt to remove tariffs, unnecessary regulations and other trade barriers that the talks are expected to continue for 18 months. Both sides have set a target of the end of 2014 for agreement on the establishment of the EU-US transatlantic trade and investment partnership.

But minds will be concentrated by a series of upbeat forecasts. One estimate, from the Centre for Economic Policy Research (CEPR) in London, suggests the EU economy, extended this month to 28 members by the addition of Croatia, would receive benefits of €119 billion (Dh570 billion) a year, with the US economy enjoying a €95bn boost.

Another study put the benefits to the US economy as greater. The Bertelsmann Foundation, based in Germany, said a deal could trigger a 13 per cent long-term rise in GDP per capita in the United States against 5 per cent for the EU.

But whatever divergence there is in predictions about the dividends likely to be generated by successful negotiations, there is broad agreement it should easier to buy and sell goods and services from and to customers on each side of the Atlantic. Companies in the EU and US would also find it simpler to invest in each other's economy.

The European Commission, charged with negotiating with Washington on the EU's behalf, points out the existing trading relationship is already the biggest in the world. Each day, goods and services worth €2bn are traded.

"Now we can build on this success story by going the extra mile together," the EC says, heralding the potential advantages of thousands of new jobs and savings worth millions to businesses.

The EC says the expectation is that once a deal is fully implemented, the average European household, a family of four, would gain an extra €545 in annual disposable income. The EU economy as a whole would benefit from an increase of about 0.5 per cent of GDP each year.

Summarising the possible benefits to the European economy and people, the EC says European companies could sell additional goods and services worth €187bn a year to the US.

"On top of cutting tariffs, our main focus in these negotiations will be to tackle those barriers that lie behind the customs border, such as differences in technical regulations, standards and certification," the EC says. "These often cost time and money for companies."

As one example, a car approved as roadworthy in the EU must still pass safety checks applying in the US.

"This is where we could make real savings for our businesses and ultimately for consumers," the commission adds. "Eighty per cent of the benefits of an agreement would result from reducing this regulatory burden and bureaucracy, as well as from opening up services and public procurement markets."

EU member states gave approval to the launch of negotiations last month after considering recommendations from a joint US-EU "working group" on jobs and growth. The group said boosting transatlantic trade and investment depended on both sides showing creativity, flexibility and open-mindedness in thrashing out solutions.

The CEPR study insists the benefits for the two trading blocs would not come at the expense of the rest of the world.

"On the contrary, liberalising trade between the EU and the US would have a positive impact on worldwide trade and income, increasing GDP in the rest of the world by almost €100bn," it says.

"To the extent that the EU and the US can work together towards better trade rules and less regulatory divergence in the future, some of the reductions achieved in the cost of doing trade will also benefit other partners."

Because of the economic importance of the EU and US, CEPR states, other trading partners would gain incentives to move towards the new transatlantic standards. "This has the potential to spread gains across the global economy, which is increasingly interdependent especially given the ever greater complexity of global value chains."

The report suggests exports would increase in almost all sectors, but most notably in motor manufacturing. Europe's currently beleaguered car makers could sell 42 per cent more vehicles to the rest of the world, with a similar increase in imports from the US.

Other industries that would be expected to prosper are metal products (exports up by 12 per cent), processed foods (9 per cent), chemicals (9 per cent), other manufactured goods (6 per cent) and other transport equipment (6 per cent).

* Additional reporting by Reuters and AFP