EU, U.S. on verge of "difficult" free-trade negotiations

SANTIAGO (Reuters) - The United States and the European Union are wrapping up final preparations for talks on a free-trade agreement that would encompass half the world's economic output, Europe's trade chief said on Saturday, while warning of "difficult negotiations."

EU Trade Commissioner Karel De Gucht will travel to Washington on February 5 to put the finishing touches on a joint EU-U.S. report. He gave his clearest signal yet that Brussels and Washington are ready to embark on the accord.

"Essentially the report is ready. I will go to Washington to discuss a couple of small items and for a final reading. But essentially we're on the same page," De Gucht told Reuters in an interview in the Chilean capital Santiago.

"These will be difficult negotiations."

A trade deal between the world's two largest economies encompassing 800 million people would unleash billions of dollars in transatlantic business, advocates say.

It could also allow Europe and the United States to define the rules of global trade before China and India do.

The 27-nation European Union and the United States already account for nearly a third of world trade, but a banking and debt crisis in Europe and meager American growth are pushing both sides to consider removing the final barriers to trade.

U.S. companies have invested some $1.9 trillion in production, distribution and other operations in the EU, far more than in China. EU companies have invested about $1.6 trillion in the United States.

'NO LOW-HANGING FRUITS'

Given concerns about getting caught up in endless negotiations, U.S. President Barack Obama and EU leaders called on an expert group co-chaired by EU Trade Commissioner Karel De Gucht and U.S. Trade Representative Ron Kirk to decide whether it was worth going ahead.

De Gucht said there was momentum for an agreement.

"We will have a common recommendation. If we were of the opinion that it was not worth trying, we wouldn't have put in this much time," he said.

A deal could increase Europe's economic output by 65 billion euros ($87.59 billion) a year, equivalent to a 0.52 percent rise into the EU's gross domestic product, according to the European Commission, benefiting industries from chemicals to automakers.

Both sides know negotiations will require compromises.

The United States and the European Union already have low tariffs on their goods, but what businesses really want is access to each others markets through common regulations.

They would like to see a pact, for example, in which a car tested for safety in the United States would not have to be tested again in Europe, and a drug deemed safe by Brussels would not have to be approved by the U.S. government as well.

"It's not about low-hanging fruits or an early harvest," De Gucht said. "I have no illusions that this will be easy."

($1=0.7421 euros)

(Editing by Eric Walsh)