Obama gives nod to talks with EU Free trade European car makers cast hopeful eye across Atlantic

As the car industry convenes for the International Geneva Motor Show amid the European car market's worst slump in decades, there is at least one ray of hope: the approval US President Barack Obama recently gave to negotiations for a free-trade pact with the European Union.

As the car industry convenes for the International Geneva Motor Show amid the European car market's worst slump in decades, there is at least one ray of hope: the approval US President Barack Obama recently gave to negotiations for a free-trade pact with the European Union.

Prospects for a trade pact have brightened the spirits of car makers along with many other types of Continental companies - and not only because it might smooth the way for their products to compete in America's giant consumer market.

European car companies, particularly German ones, want to make it easier to sell cars they now make in the US in their home markets.

"I am a big advocate of a free-trade agreement with the US," said Norbert Reithofer, chief executive of BMW.

An agreement could add hundreds of billions of euros annually to BMW's revenue, in part by easing restrictions that add tariffs to the cars that his company makes in South Carolina but ships back to sell in Europe.

Mercedes faces similar issues with the vehicles it makes in Alabama. Mercedes sedans made in Alabama carry a 10 per cent EU import tariff not levied on Mercedes cars made in Germany.

Companies decide where to manufacture based on many factors, including labour costs, taxes and currency risk. With a trade pact in place, tariffs and regulations might no longer need to be part of that calculation. Whether their business is cars, coffee or carbon steel, for corporations that work both sides of the Atlantic, the notions of import v export and country of origin may be a thing of the past.

"It will lead to massive redistribution of labour and productivity," said Tyson Barker, director of trans-Atlantic relations in the Washington office of the Bertelsmann Foundation, which supports research and other projects involving the US and Europe.

The full implications of a pact are only beginning to dawn on many companies that trade across the Atlantic. So far there is broad support among business groups, but opposition could emerge as people calculate the effect on their own industries.

European companies such as Siemens, Nestle and ThyssenKrupp have manufactured products in America for decades, but usually those were products destined for US buyers. Once a free-trade pact is in place, it might make more sense for companies to export those products back to Europe.

The US and the EU are each other's biggest trading partners, and a pact is seen as a cheap way for both sides to generate growth.

Momentum towards a pact has been building since Mr Obama endorsed efforts to begin formal negotiations in his State of the Union address in February.

While the negotiations will be complex, officials have already agreed informally on the broad outlines of a treaty in preliminary talks. Trade representatives on both sides of the Atlantic have said they could reach a formal agreement by the end of 2014.

Dieter Zetsche, chief executive of Daimler, said "leadership on both sides have been in favour", but added, "There is a still a long way to go."

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