US-EU trade talks to open Monday amid spying rancor

(WASHINGTON) - Ambitious talks to create the world's largest free-trade zone between the US and Europe open Monday amid friction over America spying on its allies.

The negotiations will have to bridge deep differences over protected industries on both sides of the Atlantic if the goal to reach a deal by late 2014 is to be achieved.

Top negotiators from the two sides begin meeting Monday in Washington under the shadow of European furor over snooping by the US National Security Agency on its allies, unveiled in recent weeks by a computer expert who was working there.

On Wednesday France called for the Transatlantic Trade and Investment Partnership negotiations (TTIP) to be put off while talks on the spying, also to begin Monday in the US capital, take place.

But ultimately the 28 countries of the European Union agreed to go ahead with the trade discussions, saying the two issues could be dealt with in parallel.

US-EU free trade talks remain the "highest priority", German chancellor Angela Merkel's spokesman said Thursday after Merkel spoke on the telephone with US President Barack Obama about the spying furor.

Theoretically everything is on the table in the negotiations, which aim to remove barriers to trade and investment.

While direct tariffs are already low, non-tariff barriers (NTBs), such as regulatory and safety standards, inspection procedures, and preferences for domestic business, can significantly raise the costs of exporters trying to sell to the opposite side of the Atlantic.

The push for a deal comes amid frustration with the stalled Doha round of negotiations on revising global trade rules under the World Trade Organization.

But the US-EU talks face significant hurdles, and pre-opening salvos have already laid down some red lines.

In June France demanded that its strong protection of its film and television industry be excluded from the talks.

Only after it was agreed that the negotiating team from the European Commission would not be mandated to discuss audio-visual issues did Paris give its okay.

If the United States pushes the issue -- and it possibly will not -- the European negotiators will be forced to bring it back for consideration by EU member states.

Europe will raise the widespread preferences that US states, cities and federal government departments officially give to local contractors and suppliers, including in the lucrative defense sector.

And Washington will push Europe to open up to US biotechnology products like genetically modified foods, which many European consumers consider dangerous.

In Washington, analysts diverged on the potential for success. Joshua Meltzer of the Brookings Institution downplayed the pre-talks spying drama.

EU governments "have to be seen to be pushing back against the US a little bit," he said. "But I don't think it's going to have any long-term effect on the agreement."

But Gary Hufbauer of the Peterson Institute for International Economics said it could lead to European efforts against big US technology companies that shared data with the NSA.

"Instead of reducing barriers in that area, new barriers may come up because of this."

The two sides have set an 18-month timeframe for an initial deal, before a new European Commission is seated late in 2014.

"These negotiations will not always be easy but I am sure they will be worth it," the head of the European Commission, the EU executive arm, Jose Manuel Barroso, said at the Group of Eight conference on June 17, when the two sides officially agreed to open negotiations.

"The current economic climate requires us to join forces and to do more with less," he said.

If an agreement can be reached, it would create the world's largest free-trade area, involving 820 million people.

Trade in goods between the United States and the EU last year was worth some 500 billion euros ($650 billion), with another 280 billion euros in services and trillions in investment flows.

Both sides have advertised a trade deal as the way to enhance economic growth and job creation. A study for the EU by the Centre for Economic Policy Research in London said TTIP could add about 119 billion euros annually to the EU economy, and 95 billion euros for the United States.

As much as 80 percent of the gains would come from cutting costs that stem from bureaucracy and regulations and from freeing up trade in services and public procurement, the study said.

"Focusing efforts on reducing NTBs is critical to the logic of transatlantic trade liberalization," it said.