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US trade deal may be a lot for Europeans to swallow

Doug Palmer and Robin Emmott Washington and Brussels

Can Europeans, who have balked for years at many US food imports, accept a free trade agreement with the US that opens the door for imports of genetically modified crops and chickens cleaned with chlorine?

Monsanto's bilboard at a Roundup Ready ( RR ) soybean with treatment against bugs at a research field near Pirassununga , 200 km from Sao Paulo, Brazil on Tuesday , February 15th, 2011d. Credit: Bloomberg

That is one of the big questions facing policymakers as the transatlantic trading partners, both hoping to boost exports to help their struggling economies, consider launching talks in 2013 on a free trade pact.

The US and the 27 member states of the EU already have the largest economic relationship in the world – and one of the most complicated.

Two-way goods trade totals more than $600 billion (R5.2bn) annually. Services trade, including sales by majority-owned US or EU companies in each other’s market, adds about $1.2 trillion.

US companies have invested about $1.9 trillion in production, distribution and other operations in the EU, far more than in China or anywhere else in the world. EU companies have invested about $1.6 trillion in the US. Still, with each side desperate to spur job creation, President Barack Obama and European leaders formed a high-level working group last year to consider launching a free-trade pact.

A final report has been expected this month, but with the Christmas holidays fast approaching it could slip to January.

“What is still under discussion is whether we can figure out a way to do it,” EU trade commissioner Karel de Gucht said last week. “I believe it will not be easy but that we have good prospects.”

The idea has been kicked around for decades but never pursued, both because of the thorny agricultural issues and concern bilateral talks would sap energy from global trade negotiations, but those are now all but officially dead.

The tariffs that the US and EU have on each other’s goods are relatively low and should cause few problems for negotiators aiming to eliminate them. But differences in regulation could be much harder to tackle. Nowhere is that clearer than in the agricultural sector, where the US has been frustrated for years by what it considers the EU’s “non-scientific” approach to food safety.

The EU has blocked imports of US genetically modified maize and soya beans, poultry treated with chlorine dioxide, beef treated with lactic acid to kill pathogens and pork produced from hogs fed ractopamine, which promotes lean meat growth.

In other words, many US farm products exported to other markets are not welcome in Europe, even though the US says there is ample evidence that they are safe.

“Food safety as exemplified by genetically modified organisms (GMOs) has been probably one of the most problematic, controversial areas of the EU-US economic relationship,” said Peter Chase of the US Chamber of Commerce. But “there is a perception that slowly, things are changing in Europe, as their farmers actually need the benefits of science more, and as we have well over a decade now of experience with the vast majority of GMO crops.”

The regulatory hurdles infuriate US farmers, who see them as nothing other than veiled protectionism for European farmers.

Nick Giordano, the vice-president of the National Pork Producers Council, said he was optimistic the two sides would launch free trade talks and tackle the regulatory barriers. He warned that farm groups would go on the war path if their concerns were left out. “We want this agreement to be a 21st century agreement, not a 19th century one. On all these issues, the US has the moral high ground.”

Chase said a US-EU pact could help build confidence in each other’s regulatory systems, which over time should help change attitudes in Europe.

The EU recently made progress on one US food concern when the European Parliament declined to block a proposal allowing the use of lactic acid to clean bovine carcasses, a practice which the European Food Safety Authority has ruled is safe.

That clears the way for the European Commission, the EU’s executive body, to authorise its use, which is expected early in 2013. In turn, that should allow the US to make full use of an import quota allowing it to ship 45 000 tons of non-hormone-treated beef to Europe each year.

The quota was the result of a deal struck in 2009 that ended a long-running dispute over the EU’s ban on beef from cattle injected with artificial growth hormone, a practice the US says is safe.

US trade officials say they are looking for other “confidence-building measures” from the EU before launching talks, although the US Trade Representative’s office declined to provide examples.

“Given the substantial commitment of resources and time necessary for a US-EU negotiation, we are seeking to maximise our confidence that the opportunity of a trade negotiation will help us resolve issues that have long defied solution,” US Trade Representative spokeswoman Andrea Mead said.

US officials expressed disappointment in September when the EU delayed a decision to allow US wine exports to Europe to use the word “chateau”, after complaints from French wine growing regions, including Bordeaux. European consumers associate the word chateau with wines from a specific vineyard attached to a stately home, while in the US the term can be used to describe wines made from grapes from multiple sources

Meanwhile, US and EU business groups are gearing up for what they hope will be a quick negotiation that reaches a deal before European Commission President José Manuel Barroso finishes his second term in 2014.

European companies have their own concerns, including US security rules that require them to give two days’ notice before flying to the US and complex visa and customs declarations that they see as non-tariff barriers that slow down and complicate transatlantic business. In other sectors, such as pharmaceuticals, reducing regulatory barriers across the Atlantic could cut costs.

“We could save a lot of money by harmonising packaging for both the US and the EU,” a senior German pharmaceuticals executive said.

US ambassador to the EU William Kennard told business leaders last week: “I think the stars may be aligned now in way that they have not been aligned in the past. If we’re smart we can seize this opportunity.” – Reuters

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