EU, US Leaders Pledge to Negotiate "Zero Industrial Tariffs," Set Up Working Group on WTO Reform

26 July 2018

European Commission President Jean-Claude Juncker and US President Donald Trump announced on Wednesday 25 July that they had agreed to take a series of steps in the short and medium-term to ratchet down trade tensions between them, and plan to avoid introducing new unilateral tariffs as they advance subsequent negotiations on certain issues. 

These agreed steps will include working towards zero tariffs between the EU and US in industrial goods, with the exception of automotive; setting up a working group to address WTO reform issues; facilitating EU purchases of US liquefied natural gas (LNG); and increasing EU purchases of US soybeans.

Speaking in the White House Rose Garden after their meeting, the two leaders welcomed the results of their discussions, with Juncker referring to the meetings as “constructive.” The deal was presented in front of reporters as well as US senators and congressional representatives.

Trump, for his part, suggested that the decisions reached on Wednesday would put the trans-Atlantic economies on a path that would improve their long-standing partnership, along with allowing them to address concerns over US steel and aluminium tariffs, as well as the tariffs that the EU has imposed on various US goods in response.

“So we had a big day.  Very big.  We met right here at the White House to launch a new phase in the relationship between the United States and the European Union — a phase of close friendship; of strong trade relations in which both of us will win; of working better together for global security and prosperity; and of fighting jointly against terrorism,” said Trump.

European Commission President Jean-Claude Juncker had travelled to Washington with European Trade Commissioner Cecilia Malmström to meet with Trump, as well as various economic officials and lawmakers. Along with lowering bilateral tensions, EU officials were looking to avert the potential imposition of US tariffs on imported automobiles, given an ongoing Commerce Department investigation into whether automotive imports are putting US national security in jeopardy. 

Action points 

According to Trump, the two sides will now set the sights on negotiating towards “zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods.” They will also set up meetings between the relevant officials on standards, and aim to boost services trade, along with trade in chemicals, medicines, and medical products.

The EU will also work to import more LNG and soybeans from its American partners. Soybeans are a key US agricultural export, with the EU one of its main destinations. According to EU statistics cited by Juncker in a separate speech this week, the 28-nation bloc already imports over one-third of its overall soybeans for domestic consumption from its American partners.

American soybean farmers have lately taken a hit when it comes to exporting their products to one of its key destination markets, namely China, according to a brief report from the US Department of Agriculture (USDA) earlier this month. China has included soybeans in the goods that it is targeting with tariffs, in response to the US’ own duties on various Chinese goods. (See Bridges Weekly, 12 July 2018)

The same report found that US soybean exports are gaining a better foothold in other markets, particularly relative to key competitors such as Brazil and Argentina. The EU is one of the destination markets that was already showing signs of growing demand for some US soybean products, due partly to domestic production issues. The USDA predicted in a separate July report, however, that overall US soybean exports for 2018/2019 are still slated to see a drop.

On the WTO, the US and EU will set up an “Executive Working Group” with a mandate to tackle various issues of shared concern. The working group would be open to other, “like-minded” partners. Trump said these topics would include “unfair trading practices, including intellectual property theft, forced technology transfer, industrial subsidies, distortions created by state-owned enterprises, and overcapacity.”

Separately, the EU and China have also set up their own working group on WTO reform, which leaders announced after a high-profile summit earlier this month. (See Bridges Weekly, 19 July 2018

How these different working group efforts would feed into negotiations at the WTO remains unclear at this stage. Officials are beginning to lay the groundwork for their Twelfth Ministerial Conference (MC12), their highest level meeting, and are due to agree on a date and venue during a formal gathering of the General Council that begins on Thursday 26 July. Kazakhstan is the only bidder as a potential MC12 host. 

Juncker noted that these WTO reform discussions would be contingent on putting any new US or EU duties on hold, saying that “as long as we are negotiating, unless one party would stop the negotiations, we will hold off further tariffs, and we will reassess existing tariffs on steel and aluminium.” 

What these discussions could also mean for related issues – such as the WTO disputes that each side has filed recently, with the US targeting the EU’s duties in response to the steel and aluminium tariffs, and the EU targeting those same metal tariffs in a separate case – remains to be seen. (See Bridges Weekly, 19 July 2018

Juncker: “Responsible global leadership” essential

Later that day at the Center for Strategic and International Studies (CSIS), Juncker highlighted the value of the EU-US trading relationship, while also pledging that the upcoming talks on standards would not lead to key labour, environmental, and other protections being lowered. He also reiterated past arguments that tariffs are not a solution to national security concerns, including when it comes to cars. 

“Our economies are more intertwined than at any point in history. The challenges we face are global in nature, from the pressures of climate change to migration, to peace and security across the world. Now is the time for a responsible global leadership. Time to renew our partnership by falling back on what unites us: trust, values, shared interests. The transatlantic partnership must remain the anchor of global stability and the driver of our common prosperity,” he said. 

He highlighted trade as an essential component of this, given the millions of jobs it creates on both sides of the Atlantic, and noted that while the EU has a surplus in goods trade with the US, the reverse holds true for services. 

“This is not a reflection of a lack of openness or reciprocity. In fact the opposite is true. It actually shows that the trade between us is working because our economies best cater to each other's needs,” he said. 

Ultimately, he said that after Wednesday’s talks “everything is more or less okay,” while adding that he was “happy” to have reached an accord with his US counterpart and that they would always “keep dialogue open.” 

Preparing for the meeting

Leading up to the meeting, both sides had made clear that the event would be a high-stakes one for the bilateral relationship, which had grown fraught largely due to their disagreements on tariffs and differing interpretations over the nature of their existing trade ties. 

US President Donald Trump said this week that his use of tariffs on trading partners overall to gain leverage in rectifying “unfair” treatment was beginning to bear fruit, while praising his administration’s use of the strategy so far. He did not refer specifically to the EU in this comment, however. 

“Tariffs are the greatest! Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs. It’s as simple as that – and everybody’s talking! Remember, we are the ‘piggy bank’ that’s being robbed. All will be Great!” said Trump on Twitter on Tuesday 24 July. 

That same day, administration officials confirmed that the US Department of Agriculture (USDA) would be looking to mobilise approximately US$12 billion through different government mechanisms in support for American farmers whose goods have been targeted by duties from US trading partners, which were imposed in response to US steel and aluminium tariffs. 

“President Trump is taking strong action, as he promised, to make sure America’s farmers and ranchers are not left to bear the brunt of illegal retaliation by China and other countries. The Trump Administration will continue to defend our economy from unfair trading practices and work to advance free, fair, and reciprocal trade relationships,” said US Trade Representative Robert Lighthizer in response to the news. 

Prior to the meeting with Juncker, Trump suggested that he and the EU Commission chief should clinch a deal that eliminates “tariffs, barriers, and subsidies,” though he expressed some scepticism that this would be the outcome of Wednesday’s talks. 

“That would finally be called Free Market and Fair Trade! Hope they do it, we are ready – but they won’t!” he said on Twitter. 

ICTSD reporting.

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