EU ready to talk trade with the US but roadblocks already set
April 18, 2019
Trade talks could soon begin between the world’s most important trading partners.
The European Union recently announced it’s ready to start negotiations on a trade agreement with the US.
On April 15, EU member states gave the green light to formally begin talks with the US on two sets of negotiations – one to cut tariffs on industrial goods and one to make it easier for companies to show products meet EU or US standards. EU Trade Commissioner Cecilia Malmström said Brussels would strive to conclude negotiations before October 31, which is the last day of the current European Commission’s term.
“If we agree to start, I think it can go quite quickly,” she noted.
While the US’s pending deal with China has dominated the focus of trade lately, negotiations with the EU will have significant implications on both sides of the Atlantic. The two share the largest bilateral trade relationship in the world, worth more than $1.1 trillion annually.
According to estimates from the European Commission, eliminating tariffs on industrial goods would increase EU exports to the US by 8% and American products heading to Europe would rise by 9%.
But even before talks officially get underway, things are already off to a bit of a rocky start.
Here’s a look at the situation and what’s at stake.
The agricultural sticking point
Get ready to hear a lot about agriculture during trade negotiations between the US and EU.
The EU wants a deal “strictly focused on industrial goods” and explicitly excludes agricultural products. Malmström said this stance is a reiteration of a commitment outlined in a joint statement from US President Donald Trump and European Commission President Jean-Claude Juncker after the two met in July 2018. The joint statement made no mention of agricultural products beyond soybeans.
“Agriculture will certainly not be part of these negotiations,” said Malmström, adding that the EU has been clear about this position since the beginning of the process. “This is a red line for Europe, and you will not find any mention of this in our mandate.”
However, the US has stated that agriculture must be part of any trade deal it makes with the EU. A document outlining American negotiating objectives for an agreement with the bloc identifies specific agriculture goals as key priorities.
According to US Trade Representative Robert Lighthizer, the issue already has talks between the two at a “complete stalemate.”
“The United States can’t have a trade agreement with Europe that doesn’t deal with agriculture, and their view is that they can’t have one that does,” Lighthizer told the Senate Finance Committee in March. “We’re working on other areas with the realization that there’s not going to be any [free trade deal] without agriculture.”
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Objection from France
Though the EU agreed to start negotiations, the decision didn’t receive unanimous support among member states. France voted against the launch of trade talks with the US because of Trump’s announcement in 2017 that he would withdraw the country from the Paris Agreement on climate change. Belgium also abstained from voting.
French President Emmanuel Macron has indicated he doesn’t approve of the EU negotiating with a country that isn’t willing to follow the environmental action plan agreed to by international leaders in 2015.
The objection isn’t enough to prevent the trade talks from starting, but France could block a deal from being ratified. All member states must approve any trade deal negotiated by the EU.
In fact, in 2016, the regional government of Wallonia in Belgium used its veto power to temporarily block the ratification of a free-trade agreement between the EU and Canada.
And if you’re wondering about the UK’s involvement in this process in light of the delay to Brexit – so long as the UK is part of the bloc, it will be engaged in the negotiations the same as any other member state.
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Of course, you can’t talk about trade without mention of tariffs. And there has been some tariff-related tension between the US and EU.
Last year, Trump imposed tariffs on European steel and aluminum. The EU responded by placing tariffs on around $3 billion worth of American products, like motorcycles, orange juice, and bourbon.
When Juncker and Trump met at the White House last July, they agreed to a trade truce, saying they would work toward “zero tariffs, zero non-tariff barriers, and zero subsidies.”
“This was an essential step to avoid a potentially damaging trade war and end a self-defeating cycle of measures and countermeasures,” said Malmström.
But a fresh wave of tariffs could be looming. Recently, the US threatened to impose duties on approximately $11 billion worth of European products because of a long-standing dispute over aircraft subsidies that dates back to 2004. The US has accused the EU of providing illegal subsidies to Airbus, while Europe has argued the same against the US and Boeing.
The proposed list of European goods to target features a wide range of items such as aircraft, jam, sweaters, and wall clocks.
In response, the EU released a list proposing tariffs on $20 billion worth of American products, including chocolate, nuts, tomato sauce, and suitcases.
Trump is also debating whether to put duties of up to 25% on European auto imports. That decision is due by the middle of May. If those auto tariffs or any other new duties against the bloc are put into place by the US, the EU stated it would suspend negotiations.
But there’s no word yet on when the talks will actually start. Some suspect it won’t be until after the US has finalized a trade deal with China, which could throw a wrench into the EU’s plan to wrap up negotiations by October 31. As could a trade war between the two if tensions keep escalating.
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