The United States and the European Union have agreed to launch talks on creating a free-trade pact between the world's top two economies.

Speaking after the release of a joint US/EU report recommending the start of discussions on the trade deal, European Commission President Jose Manuel Barroso told a news conference on Wednesday that the US and EU aim to begin negotiations by the end of June this year.

A free-trade deal between the US and EU would be the most ambitious since the World Trade Organisation was established in 1995, encompassing half the world's economic output and a third of global trade flows.

"These negotiations will set a standard, not only for our future bilateral trade and investment, including regulatory

issues, but also for the development of global trade rules," Barroso said.

Michael Froman, the US deputy national security adviser for international economic affairs, said on Wednesday that the agreement to launch negotiations was "potentially a very big deal," a day after President Barack Obama endorsed talks with the 27-nation bloc in his State of the Union address.

The EU/US report, which backs free-trade talks, sees the EU's economy gaining around 0.5 percent and the US economy around 0.4 percent by 2027, with $115.80bn of added annual income for the former and $75bn for the latter.

But after a year of preparatory discussions between Brussels and Washington, major differences remain, such as EU resistance to importing US foodstuffs that are genetically modified.