The US and European Union have started talks aimed at creating the world's largest free-trade agreement, amid diplomatic tensions over spying revelations.

The long-delayed negotiations come at a sensitive moment for the two trading superpowers following the publication of documents leaked by whistleblower Edward Snowden, which show that America's National Security Agency spied on European nations. EU officials are in Washington to start broad negotiations aimed at easing transatlantic trade by eliminating remaining tariffs on exports and imports, and recognising each other's industry standards.

Economists believe the transatlantic trade and investment partnership pact could be a big boost to both sides. Britain's prime minister, David Cameron, has called it "the biggest bilateral trade deal in history" and said a deal could be worth as much as $149bn (£100bn) to the EU economy and $119bn (£80bn) to the US.

Revelations of widespread spying by the NSA on Europeans has further complicated already complex and fraught negotiations. Last week, France suggested a further delay in the start of talks while the US clarified the extent of its spying activities on its allies. In the same week, Le Monde newspaper revealed that France runs a vast surveillance operation that, like the NSA, is also intercepting and storing citizens' phone data and internet activity.

Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics, said the spying revelations would become a sideshow. "I think we will find that everybody has been doing this," he said. He said negotiations were more likely to founder on other long-simmering disputes between the two trading powers.

Among the most sensitive topics under discussion are genetically modified organisms (GMOs) and data privacy. Strong opposition to genetically modified crops is seen as a major hurdle to US agricultural exports. Last month, the German chancellor, Angela Merkel, reiterated that Europe will defend its restrictions on GM food.

US firms including Facebook, Google and Microsoft want European data privacy rules relaxed as they look to build their businesses in Europe. But those talks will be complicated by revelations about the extent of their working relationship with the NSA.

European companies also want to be able to bid on public works projects currently by "Buy American" requirements. Other hot issues include France's cultural exception, which protects the country's arts industries and helps to maintain a homegrown film sector.

"These are fundamental, philosophical differences. Squaring those circles is going to be very difficult and getting any resolution is going to take compromise at the very top," said Kirkegaard.

If successful, Kirkegaard said the proposed pact would transform international trade. The deal would cover about 50% of global economic output and 30% of global trade and because of its size would create de facto global standards, he said.

This week's talks will be largely organisational and led by the assistant US trade representative, Dan Mullaney, and his EU counterpart, Ignacio Garcîa Bercero. Fifteen different groups will be set up to deal with issues ranging from agriculture to competition policy.