EU/US : NEW MOMENTUM ON FREE TRADE AGREEMENT PLAN.

The feasibility of the EU and US forging ahead with a free trade agreement (FTA) more comprehensive than anything contemplated in recent years will be explored by top-level officials in the coming months. A high-level working group on jobs and growth was set up at the 30 November EU-US summit in Washington, which will issue an interim report in June and make final recommendations at the end of 2012. All options are on the table, both sides are making clear, including an FTA that eliminates conventional trade barriers, such as tariffs. This marks a new tone given that since 2007 they had limited ambitions to reducing non-tariff barriers through the Transatlantic Economic Council (TEC), which was set up that year.

Why the shift? With both economies struggling to generate growth anything like the levels seen in the emerging markets in Asia, they seem to be finally coming to the conclusion that something more ambitious is needed to jolt the transatlantic economy into action.

It is remarkable that at a time when the EU is negotiating FTAs with countries and trading blocs all around the world, an FTA with the US, its closest economic partner, is only now being considered. Tariffs between the two are generally low and business community voices have been making the case that a zero tariff on goods accord is low-hanging fruit.

The failure to act until now is partly because the first years of the Obama administration were a time-out' on negotiating new FTAs. This policy was reflective of the wider public sentiment in the US, which has grown doubtful about the benefits that free trade brings to the US economy, especially since the rise of China. But looking forward, one should not anticipate an Obama administration regressing into protectionism.

In part, that is because in the 2012 presidential elections, President Obama will almost certainly face no challenger from inside the Democrats, the party with the strongest protectionist faction. He can therefore move immediately onto the centre ground. As for his Republican opponents, the two frontrunners in this very volatile race at present are former Massachusetts Governor Mitt Romney and former House Speaker Newt Gingrich, neither of whom are protectionist on trade issues.

There is one non-trade issue, however, that has the potential to become a trade dispute: the EU-US spat over the EU extending its Emissions Trading Scheme (ETS) to fight climate change to cover international aviation. President Obama...