UPDATE 1-U.S. trade pact offers UK's Cameron a way to sell Europe

Thu Jan 17, 2013 5:18pm EST

* Washington, Brussels expected to launch trade talks in 2013

* Trade deal would bring together half the world economy

* British EU exit could deprive London of big economic benefits (Updates with Cameron postponing speech due to hostage crisis)

By Robin Emmott and Peter Griffiths

BRUSSELS/LONDON, Jan 17 (Reuters) - Momentum for a trade deal between the United States and European Union is a challenge to Britons who say London is better off without Brussels and hands Prime Minister David Cameron a strong argument to resist their pressure.

Cameron planned to outline plans to dilute Britain's EU membership on Friday in Amsterdam in one of the most anticipated speeches on Europe by a British leader since World War Two.

Later on Thursday, the Conservative prime minister postponed the address because of the hostage crisis at an Algerian natural gas plant where Britons were believed to be among those held. A new date and venue for the speech is to be announced soon.

In any case, diplomats in Brussels and business leaders in the Britain fear Cameron could set off a process that ends with Britain quitting the Union.

Eurosceptics in Britain say the country's future lies in trade with the dynamic economies of Latin America and Asia, at a time when the euro zone is in recession and British companies are exporting more goods outside the European Union than inside the bloc for the first time since the 1970s.

But expectations are high that Washington and Brussels will announce plans to go ahead with negotiations for an EU-U.S. trade deal later this month, encompassing half the world's economic output. This means that if Britain were to leave the Union, it would be shut out of a powerful framework for trade, underlining the EU's leading role in forging such deals on behalf of its members.

"This is a game-changer," said James Elles, a British member of the European Parliament who is among a growing number of Conservative party members warning of the economic dangers of a British exit from the 27-nation bloc.

"The Americans and Europe are considering not only ways to generate a new wave of transatlantic growth but to set the rules of global trade before China and India do," he said.

Martin Horwood, a Liberal Democrat lawmaker in a coalition government led by Cameron's Conservatives, said leaving the EU and missing out on a free-trade deal with the United States was "an insane risk".

Cameron, leading a party and a country where anti-European feelings are rising, says he wants Britain to remain in the bloc but to have looser links to EU institutions that many in Britain see as pernicious and overbearing.

With some EU officials warning Cameron that the EU is not an "a la carte menu" where he can choose the policies he wants, the prime minister may instead find his options are limited to pushing for a more competitive bloc.

An EU-U.S. trade deal, which the European Commission estimates could increase EU economic output by 65 billion euros ($86 billion) a year - a 0.52 percent annual addition to the economy, would give him a clear chance to argue for that.

TRADE "MYTH"

A powerful clique inside Cameron's party that is pressing him to call an "in or out" referendum says Britain does not need to remain in the bloc, which it joined in 1973, to sign a trade deal with the United States.

The UK Independence Party (UKIP), an increasingly popular political party lobbying for a British exit, also rejects the idea that London needs Brussels to deepen its "special relationship" with Washington.

"The very thought that we need to be part of the EU to have trade deals with other countries is ridiculous," said Nigel Farage, the leader of UKIP and a member of the European Parliament. "We are the country who championed global trade, and it's about time we did so again outside of this bloc that makes our decisions for us," he said.

Douglas Carswell, a eurosceptic Conservative lawmaker, has said the idea that Britain would lose its ability to trade by being outside the European Union is "a myth".

But a senior U.S. official made an unusually forceful diplomatic intervention into what is an emotive domestic debate last week, saying Washington wanted Britain to stay inside the EU and remain a "strong voice".

Britain's former EU trade commissioner, Peter Mandelson, has also said international companies in Britain could move across the Channel to take advantage of an EU-U.S. trade deal.

"Why should investors who want to take advantage of the prospective EU-U.S. free-trade agreement consider doing so by investing in Britain if they think we will not be fully part of the pact?" Mandelson wrote in the Guardian newspaper on Jan. 7.

While a separate trade deal between the United States and Britain is not impossible, Washington is anxious to avoid years of negotiations, and its aim is to integrate the EU and U.S. economies, not set up a web of overlapping trade pacts.

Agreeing a deal by the end of 2014 is as much about breaking open markets on both sides of the Atlantic as it is about bringing down import tariffs that are already low.

About a fifth of the combined EU-U.S. economic output is generated in services that are protected from outside competition, while differing regulation and technical standards on both sides of the Atlantic make it too costly for many companies to sell their products beyond their borders. ($1 = 0.7521 euros) (Additional reporting by Tim Castle and John O'Donnell; Editing by Will Waterman)