18 January 2019

PIIE: US-EU trade negotiations: A daunting mission

The administration’s recently released ambitious objectives for the United States–European Union negotiations indicate that the goal of a transatlantic trade deal will now be even harder to achieve than five years ago.

The United States Trade Representative (USTR) has issued objectives parallel to those announced for the United States–Japan Trade Agreement (USJTA) in December. Indeed, if anything, they are more lopsided. Reasons negotiations will be tougher than five years ago lie with the US Section 232 tariffs on steel and aluminum imports—and threatened on auto imports—from the European Union, new US restrictions on inward foreign direct investment, and a US president who favors managed trade with one-sided concessions. Moreover, since Ambassador Robert Lighthizer (backed up by Senate Finance Chairman Chuck Grassley) insists on including agriculture in the current negotiations, which the European Union rejects outright, and since the United States is demanding EU concessions on related agricultural issues—sanitary and phytosanitary measures and geographical indications—the road ahead looks rough. Speaking for the European Union, Commissioner Cecilia Malmstrom demands that the new agreement be confined to industrial products, suggesting a zero-for-zero tariff deal, a proposal not to the liking of President Trump.

Most chapters in the US-EU negotiating objectives are identical to those for the USJTA. Features of one-way managed trade are sprinkled throughout the US-EU objectives. These include a reduction in the US bilateral trade deficit with the European Union, duty-free market access for US industrial goods but no mention of US tariff liberalization, and removal of EU barriers on US direct investment. At the same time, the Committee on Foreign Investment in the United States would more closely scrutinize inward direct investment, and the objectives would ensure that US firms could sell their products to EU government agencies yet maintain “Buy America” programs, which exclude EU firms. The European Union will not willingly accept one-way concessions, making it unlikely that any transatlantic deal will resemble the USTR’s negotiating objectives.

Compared to US negotiating objectives for the USJTA, the US-EU objectives give more attention to EU sanitary and phytosanitary (SPS) measures. This comes as no surprise: EU practices on agricultural SPS measures have long been a major irritant to the United States. The United States has launched several agricultural complaints against the European Union in the World Trade Organization (WTO), including the case on beef hormones over 1996–2009 where the United States objected to the Union’s prohibition on the use of certain hormones in meat products. A separate dispute over genetically modified organisms (GMOs) in 2003–08 centered on the US challenge to the European Union’s import approval process on specific biotech products. There is also an ongoing dispute on poultry, brought to the WTO in 2009. Going forward, the United States wants the European Union to address US concerns before issuing new regulations that might inhibit US agricultural exports. Furthermore, the USTR wants the European Union to desist from foreclosing US export opportunities to third-country markets through the forced adoption of European SPS measures. [...]

US pursuit of one-way managed trade with the European Union, coupled with insistent demands on sensitive agricultural issues, holds little promise for a transatlantic deal. Better than another failed negotiation would be a bargain built around zero-for-zero industrial tariffs, mutual concessions on business services and digital trade, and modest progress on thorny agricultural questions that have eluded resolution for more than 50 years.

Full analysis on PIIE

Press release: EU-U.S. Trade Talks: European Commission presents draft negotiating mandates

Time is not ripe for EU-US trade talks, say S&Ds

© Peter G Peterson Institute for International Economics