In the week the EU and US announced plans to push on with a free trade agreement (FTA), economists have said that all non-tariff barriers must be removed if it’s to have any significant benefit.

At the G-8 summit in Enniskillen, Northern Ireland, the leaders of the US, EU and the UK said they hoped to conclude the “biggest bilateral trade deal in history” by the end of 2014. Transatlantic trade flows are the world’s largest, worth an estimated US$1tn a year. The leaders hope an agreement will “deepen those ties”, creating growth, welfare and employment on both sides without spending huge amounts of additional capital.

The parties have decided to move on the bilateral agreement after being frustrated at the lack of progress over the Doha round of WTO discussions aimed at establishing a multilateral FTA. The Doha discussions took place 12 years ago.

But given the fact that tariffs between the regions are still low (a weighted average of 2.9%), an agreement that doesn’t see all non-tariff barriers fall is likely to be underwhelming.

“The bigger bilateral deals become more difficult to do because the easy things have already been agreed,” Andrew Kenningham, senior global economist at research company Capital Economics tells GTR. “The early agreements are always on tariffs. You can quite easily trade off one country’s tariff against another. But once they start getting into the non-tariff barriers it’s harder and the tariffs between the US and the EU are already very low.”

Non-tariff barriers to trade include export subsidies, country of origin legislation, labour law and intellectual property law. Given the extent to which export credits are used on both sides of the Atlantic, it’s unclear how any move towards homogenising the playing field would affect the trade finance industry.

Few details have emerged about the mooted agreement, dubbed Transatlantic Trade and Investment Partnership (TTIP), but it already seems to face challenges in getting off the ground. A week before its announcement, France had insisted that opening of its cultural sectors to the markets is not up for discussion. “The announcement by France last Friday shows it will be difficult to reach an agreement and in my opinion there will be more sectors like agriculture in which it will be difficult to come up with one,” Sibylle Lehwad, an economist at the Centre for Economic Studies (IFO) in Munich, Germany tells GTR.

A report authored by the IFO found that full liberalisation would see Germany’s trade with the US increase by 93.54%, whereas a removal of the remaining tariffs would see just 1.13% added to the countries’ bilateral trade.

Britain, however, stands to be Europe’s biggest beneficiary of a comprehensive FTA. While its trade with the US would increase by 60.56% (0.98% with just tariff removal), that figure is starting from a much higher base than the German equivalent. It’s estimated that the FTA could add £10bn to the UK’s annual output, with a 10% boost to economic output per head and the creation of 400,000 jobs.

Kenningham warns that the 18-month target set for reaching the agreement is wildly optimistic, given the history of such deals dragging their heels. He also says it shouldn’t, and probably won’t, come at the expense of agreements with emerging economies, but that it could create a trading super-bloc, which could set the agenda for future world trade.

“In the long run it would be more beneficial to reach an agreement with China and other emerging markets,” he explains. “There might be a bigger prize. The really long-term implications are hard to touch on. You might find that if, for example, the US and EU reached an agreement within five to 10 years, China and other emerging markets might have to accept a lot of the terms of the agreement; both in terms of selling products into the regions. Also if there are future agreements on recognising health and safety standards, for instance, they’d largely have been set by the US and EU.”

Obviously, non-members of TTIP stand to be the biggest losers. The IFO’s figures estimate that Germany’s trade with Japan and China will decline by 13%. Intra-European trade will also be affected. The biggest casualty would be Britain’s trade with Ireland, which would potentially drop by 46%. On balance, though, most economists are in agreement that the intra-regional decline would be offset by the boost given by increased trade with the US.