The Juncker-Trump Trade Initiative - a preliminary Assessment
In a joint statement issued on 25 July, EU Commission President Juncker and US President Trump agreed on a number of points that are meant to diffuse transatlantic trade tensions, which have developed since the Trump administration had announced punitive tariffs on EU aluminium and steel tariffs. According to the statement, the EU and the US will work towards completely removing bilateral tariffs, non-tariff barriers to trade and subsidies for trade in industrial goods, with the exception of the car industry. The two leaders also announced that barriers to trade in services and the chemical, pharmaceutical, medical product and soya bean sectors will be reduced. Mr Juncker gave an assurance that the EU was prepared to increase imports of soya beans and liquefied natural gas (LNG) from the US. There would also be a close dialogue on standards, with the aim of reducing administrative barriers to trade. The two sides would enhance cooperation to combat unfair trading practices; cooperate with like-minded WTO members with a view to reforming the WTO; and take action to prevent intellectual property theft, forced technology transfer, subsidies to industry, and market distortions caused by state enterprises and overcapacity. President Juncker and President Trump also agreed to form an Executive Working Group to move this agenda forward and a desire to resolve the situation with regard to US tariffs on steel products and the EU counter-measures introduced in early July. The threatened US tariffs on cars and car parts would be postponed for the time being.
I would like briefly to offer my opinion on this outcome:
1) Preventing further escalation
The declared willingness to re-launch negotiations on trade should be welcomed. The Presidents´agreement on doing so will, for the time being, prevent a further escalation of the tense simmering dispute. This is a first positive signal following the US President’s efforts over recent weeks and months to undermine key elements of the good transatlantic relations, which had taken decades to develop. The European Parliament is working on Proposals for a more constructive structure for transatlantic relations and is setting out clear requirements in this regard.
2) The US tariff threat remains - and must be removed
The joint statement does not specifically address or announce the revocation of illegal protectionist tariffs imposed by the US on steel and aluminium or a decision not to impose them on cars and car parts. Only a postponement of the decision on car tariffs emerged. The US threat remains. However, there should and indeed can be no formal negotiations under these circumstances. The removal of illegal US steel tariffs remains a condition for the start of formal negotiations.
3) The ball is in the US court
The elimination of tariffs on industrial products outside the automotive industry remains an option, of course. After all, we discussed the possibility of abolishing tariffs on all industrial goods (including cars) during the TTIP negotiations. It made for one of the key objectives that the European Parliament has formulated in its 2015 TTIP resolution. So this is nothing new, and it had already been broadly accepted. Ultimately, however, the negotiations failed because of the intransigence of the US in other areas, which were of great importance to the EU, such as access for European companies to the US services market, public procurement and safeguarding workers’ rights. Against this background, scepticism as to the US commitment to this ´new´ initiative is highly warranted.
4) EU standards will not be lowered
It seems unlikely that non-tariff trade barriers and subsidies for industrial products outside the automotive sector will be relinquished, owing to the sometimes strong divergences in the statutory provisions on, for example, consumer protection. There are, of course, sectors in which the approximation or mutual recognition of rules is possible and makes every sense. But there can be no doubt whatsoever that we have no intention of lowering our health, safety or environmental standards. What is in doubt, rather, is whether the US really is willing to remove its subsidies.
5) Strong rules in EU trade agreements
A close dialogue on standards aimed at facilitating trade, removing bureaucratic barriers and lowering costs already exists. Some agreements have already been concluded: on monitoring measures for insurance / reinsurance and on mutual recognition of inspections for pharmaceutical companies, for example. These items also featured in the TTIP negotiations, and the European Parliament has clear expectations in this regard. In this context, neither the precautionary principle nor food safety are negotiable. Moreover, every EU trade agreement should contain legally binding, enforceable rules on labour rights, environmental standards, and gender equality. In any case, CETA sets the minimum standard for what we want to achieve in future agreements, including with the United States. Finally, the European Parliament has, in a recent resolution, strongly urged the Commission to include enforceable anti-corruption clauses in all trade agreements. The Commission has now proposed specific provisions aiming at combatting corruption of public officials and in the private sector that affects trade and investment in context of the modernisation of the EU - Mexico Association Agreement. Similar provisions should be part of any EU-US trade agreement.
6) The Paris Agreement - a prerequisite!
It is clear in the eyes of the Members of the European Parliament that any EU trade agreement must contribute to implementing the Paris Climate Agreement. We can therefore conclude such agreements only with countries, which have ratified and implemented the Paris Agreement. We have passed a resolution to this end very recently.
7) Increase in soy imports expected anyways
An increase in imports of soya from the US is already under way. Less US soya is being exported to China as a result of Chinese counter-measures to combat unilateral US protective tariffs. Excess capacity in the US is expected to be absorbed by the European market. This ´concession´ does not require any action on behalf of the EU to achieve implementation.
8) LNG imports - no support for fracking-gas!
The EU is the second largest importer of liquefied natural gas (LNG), although there is still only a small number of LNG terminals in Europe. The EU institutions have been actively engaged in developing a comprehensive strategy on LNG and storage that includes facilitating sustainable LNG imports from the US in order to promote energy diversification and reduce dependency on imported energy from too few suppliers. Particularly, the European Parliament has welcomed “the Commission´s work towards removing export restrictions on US gas to the EU” in the context of trade negotiations. The vastly growing US LNG capacity through various projects present a significant opportunity for the EU to diversify its energy supply and enhance energy security. Yet, it is clear that there will be no special EU support for imports of gas obtained by fracking. To the contrary, we have emphasized, in our 2016 resolution, the need to “ensure the highest environmental protection in the planning, construction and use of LNG (...) and to respect the international labour standards on occupational health and safety.”
9) WTO rules must be respected
Trade agreements must comply with WTO rules. It is very doubtful whether an agreement which excludes entire sectors such as agriculture and cars and car parts can be in line with WTO rules. Bilateral agreements must cover `substantially all trade´ flows, in accordance with applicable trade law. We will maintain this principle. At the same time, it is clear that agricultural tariffs can only be subject to negotiations if the same applies to EU access to the US government procurement market.
10) The European Parliament will safeguard the democratic process
The path towards the conclusion of a trade agreement in the European Union is clear. The Commission carries out a scoping exercise to fix the parameters of the agreement and, on this basis, makes a proposal for a negotiating mandate. The proposal is then carefully examined by the European Parliament and the Council. The Commission can act only on the basis of a formal mandate. Negotiations and a potential future agreement between the EU and the US will be carefully scrutinized by the European Parliament and the European Council. Of course, the European Parliament will not give its consent to any agreement, which does not take into account our clearly-defined objectives.
11) EU will defend rules-based trading system
The EU stands by the rules-based multilateral trading system and will work actively to achieve effective reforms of the WTO. The Union will put forward specific formal proposals to this end in September. A willingness on the part of the US to cooperate in earnest on this would of course be welcome. There have been, however, no indications of a change of attitude in recent months. First and foremost, the start of formal trade negotiations with the US depends on the US willingness to end the blockage of the appointment of new WTO Appellate Body members.
12) US lip service to international trade cooperation must now become concrete
President Trump´s closest advisors will now discuss the scope of a potential future agreement with the EU in a high-level Executive Working Group. US commitments to tariff elimination as well as market openings for services and public procurement must now become concrete and tangible. There will be no unilateral concessions on the part of the EU. The TTIP negotiations failed because of the intransigence of the US; the approach under which a delegation is sent in the wake of big words to hammer out the details was not exactly a success in the case of US negotiations with China and North Korea.
13) US commitment to negotiations: doubts about Trump´s reliability remain
In the end it is difficult to predict the life-span of President Trump’s trade promises. His international orientation is strongly influenced by – and subordinate to – his domestic political interests. We ought to keep in mind that it was domestic political interests which prompted him to paint himself as the saviour of transatlantic relations at the Juncker-Trump Summit. This ‘agreement’ gives him some breathing space, particularly as his tariff policy is a very controversial within his party. A trade war with China and the EU would be politically difficult and would have wide-ranging consequences for the US economy. President Trump managed – temporarily – to defuse a conflict within his party just a short time before the mid-term elections in November. If, however, he reverts to a confrontational stance in the short term, we Europeans must respond with unity and decisiveness.
Bernd Lange, 29.8.2018