A New Transatlantic Trade Agreement with the United States?

Three Questions to Elvire Fabry

Senior Research Fellow at the Jacques Delors Institute

On April 15th, the European Council approved the reopening of negotiations with the United States on a transatlantic trade agreement. Only France voted against it, considering that it cannot negotiate with a State that does not respect the Paris Agreement on climate change. How can this vote shed light on the European Union's trade policy? What are the differences between this new agreement and the Transatlantic Trade and Investment Partnership (TTIP) discussed since 2013? Elvire Fabry, Senior Research Fellow, in charge of the trade policy section at the Jacques Delors Institute, answers our questions.

Negotiations for a transatlantic trade agreement have resumed. How did this come about and how will the possible final agreement differ from what was intended in the negotiations for TTIP?

By agreeing with Donald Trump, on July 25, 2018, to initiate discussions to facilitate transatlantic trade, Jean-Claude Juncker obtained a truce in the escalation of trade retaliation measures between the American and European partners.

As we know, one of the American President's obsessions since his arrival at the White House has been to reduce the American trade deficit in the goods sector, which reached $736 billion at the end of 2016. While the largest part of this deficit concerns mainly China, it reaches $147 billion with the European Union (EU), which remains the United States' largest trading partner for goods.

The application, as from March 8, 2018, of customs duties of 25% on steel imports and 10% on aluminum imports, without exemption for Europeans [...] requires a proportionate response from Europeans.

Trump's approach is unilateral and protectionist, based on the renegotiation of bilateral agreements and punitive tariffs that target certain products. The application, as from March 8, 2018, of customs duties of 25% on steel imports and 10% on aluminum imports, without exemption for Europeans, unlike for other strategic partners such as Canada and Mexico, requires a proportionate response from Europeans: the EU in turn imposes customs duties on targeted US imports amounting to €2.8 billion.

The decision to relaunch transatlantic trade negotiations is therefore intended to prevent Trump from carrying out his threat of a 20% increase in customs duties on imports of cars and spare parts, given that the United States accounts for 30% of European car exports (in value).

The Europeans have now agreed on two negotiating mandates aimed at eliminating residual tariffs throughout the industrial sector, as well as on an agreement on conformity assessment, intended to eliminate non-tariff barriers and to make it easier for companies to prove that their products meet the technical requirements of both the EU and the United States, while maintaining the high level of European precautionary standards.

Europeans have categorically refused to include the agricultural sector, in contradiction with Washington’s desire. The scope of the agreement is therefore not at all comparable to the TTIP project, which also covered public procurement, services and a range of regulatory issues, including intellectual property and investment. This is only a piecemeal negotiation, the terms of which had already been well explored, as part of the easiest phase of the process, in the early stages of the TTIP negotiations.

This opening of new negotiations between the United States and the EU gives the impression that Europe is yielding to threat. Do you share this analysis?

I would rather characterize it as a strategy to set up a firewall for protecting European interests and to redirect Washington's pressure on a reform of multilateral rules that would address Chinese trade distortions.

The EU has attached two very restrictive conditions to the negotiating mandates: the application of additional customs duties on the automotive sector would suspend the negotiations and the final agreement could not be voted on without the cancellation of customs duties on steel and aluminum. The objective is thus made very clear.

In addition, the benefits for the European industrial sector are significant, estimated at €27 billion by 2033, and €26 billion for the United States.

Finally, this decision must be evaluated in the broader context of international trade pressured under the new American trade policy and the risk of escalating reciprocal measures of retaliation. Following the announcement of a new €9.7 billion tax on European imports to offset European subsidies to Airbus, the Europeans have just announced that they will in turn apply a €20 billion tax on American imports to offset American subsidies to Boeing. Europe is actively defending itself from unilateral attacks by Washington, while at the same time trying to bring the United States back to a positive trade agenda governed by multilateral rules.

The Europeans have just announced that they will in turn apply a €20 billion tax on American imports to offset American subsidies to Boeing.

A structural problem with the US deficit comes in particular from Chinese trade distortions, starting with the opacity of Chinese subsidies to state-owned enterprises. Europeans are thus actively pursuing trilateral discussions with the United States and Japan in order to obtain better notification of subsidies from WTO members, strengthen multilateral rules governing subsidies and force China to abandon its policy of forced technology transfer. The pressure exerted by Brussels at the EU-China Summit on April 9 is also in line with this: Brussels demanded that Beijing reverse these distortions and support a reform of WTO rules. Indeed, otherwise defensive EU measures would restrict access to the single market for Chinese imports, at a time when access to the US market is already limited for them. In my opinion, we must welcome this firm and balanced approach by Brussels, which attempts to bring both Washington and Beijing back to the WTO negotiating table. But in order for Beijing's commitment - to supporting these reforms - to be translated into specific concrete actions on a short-time basis, it is necessary to strengthen the European cohesion against China. This yet fragile cohesion, towards which the adoption of the European mechanism for controlling foreign investment was a significant first step, would be usefully reinforced by implementing the Commission's proposals made on March 12 in its communication "EU-China: a strategic outlook".

France was the only member to vote against opening negotiations, arguing that the EU should not negotiate with a country that has withdrawn from agreements on climate change. What does this say about the French position within the EU, especially given the EU’s obligation to align all its policies with the objectives established in the Paris Agreement?

France's position could not give rise to a veto since the opening of negotiations was decided through a qualified majority vote. It surprised the European partners all the more because this is the first time that a negotiating mandate has not been voted unanimously, at a time when, as we have just seen, the cohesion of Europeans is more than ever required. Germany is particularly reactive on this issue since it is more specifically targeted by the threat of customs duties on cars and has supported France in excluding agriculture from the negotiations.

In addition, it is important to keep in mind the short-term deadline of December 2019, by which the WTO Appellate Body of the dispute settlement mechanism will be deadlocked, if the United States persists in blocking the appointment of new judges. The risk of an even more heated trade war compels to emphasize that the transatlantic negotiation would only lead to a sectorial agreement, without the scope of the new generation trade agreements that require now to be signed exclusively with signatory states to the Paris Agreement.

Finally, Washington's persistence in wanting to include agriculture before starting negotiations still raises doubts about the possibility of an agreement and may lead in fine to ask the question of a French veto in the Council.

Nevertheless, France's position is also a reminder of the priority that must be given to multilateralism and of the need to find more coherence between European trade policy and the fight against climate change. In the short term, and in the run-up to the European elections, this allows Emmanuel Macron to give visibility to the coherence of the LREM programme. EU-wide efforts to reduce greenhouse gas emissions will still have an only limited impact in the fight against climate change, which is by definition a global issue. Rather than opposing trade and the fight against climate change, it is now a question of promoting European standards of sustainable development through the EU's trade negotiations so that the production methods of its trading partners can also change. This is the line defended by his government since 2017 and reflected in the report on the implementation of CETA. It is therefore also a signal that France would like to see this issue included among the priorities of the next Commission.

Copyright : SAUL LOEB / AFP