European Commissioner for Trade Cecilia Malmström was in Washington, D.C. last week for exploratory trade talks with U.S. officials. Although Malmström does not yet have a mandate to move ahead on EU-U.S. trade negotiations, which requires authorization by the European Council, both sides surely had plenty to discuss at this stage.
Two months ago, both the EU and the United States released their respective negotiating directives that highlight a disagreement over whether to include agriculture within the scope of any trade talks. While the European Commission intends to limit negotiations to industrial goods and conformity assessment, the United States is pushing for a more far-reaching trade deal that also covers agricultural goods. The EU also wants to include discussions regarding automotive products within the scope of any trade negotiations on industrial goods, which it argues is required under World Trade Organization (WTO) rules on preferential trade agreements (i.e., these must cover “substantially all trade” between members). Malmström is likely to also seek clarification on whether the Trump Administration intends to impose tariffs on certain EU automotive products. If it does, the EU has indicated the possibility that it will suspend any trade talks and retaliate. If the two sides can find common ground on these issues, however, the European Commission has stated that it hopes to conclude trade talks with the U.S. by November 2019.
The EU proposal for trade talks with the United States on industrial goods (excluding agricultural products) specifies as goal to eliminate “all duties for industrial goods on a reciprocal basis,” as well as taxes, fees, charges on exports, quantitative restrictions, or authorization requirements on exports, and the reconciliation of EU and U.S. approaches to rules of origin. The EU’s objective on reciprocal EU-U.S. conformity assessment commitments involves streamlined processes that ensure compliance of products with both EU and U.S. technical regulations. Because mutual recognition of conformity assessment results typically is negotiated on a sectoral basis, separate talks for each industry sector (for example machinery, electrical and electronic sectors) are likely.
Transatlantic trade in industrial goods are already subject to generally low tariffs, the simple average applied MFN tariff rates on non-agricultural products are 4.2 percent for goods entering the EU and at 3.1 percent for the United States. EU-U.S. trade in industrial goods has steadily increased over the past ten years. Currently, the United States is the primary export destination of EU exports and the second largest exporter of industrial goods to the EU, after China. According to the European Commission’s analysis, the elimination of tariffs on industrial goods would lead to a 10 percent increase of EU exports to the United States and a 13 percent increase of U.S. exports to the EU.
EU and U.S. companies also stand to benefit from reciprocal commitments on conformity assessment because the mutual recognition of inspection, testing, and certification requirements reduces costs and facilitates market access on both sides of the Atlantic. The possibility of reciprocal EU-U.S. recognition of conformity assessment results currently exists under a mutual recognition agreement (“MRA”) concluded between the EU and the United States in 1998, but the MRA covers only six product sectors: telecommunications; electromagnetic compatibility; electrical safety; recreational craft; medical devices; and pharmaceutical good manufacturing practices. Moreover, the MRA is only operational in a few of the sectors covered (namely, telecommunications, electromagnetic compatibility and marine equipment), with recent efforts to implement its sectoral annex on pharmaceutical good manufacturing practices.
The European Commission desire to proceeding quickly with EU-U.S. trade talks will certainly depend on the impact of last week’s talks in Washington. The European Parliament also is expected to vote in plenary regarding its position on future EU-U.S. trade talks. Notably, last month the European Parliament’s Trade Committee endorsed the European Commission’s mandate to start limited EU-U.S. trade talks subject to certain conditions. This includes, most notably, the lifting of U.S. tariffs on EU aluminium and steel, the suspension of trade talks if the United States levies additional tariffs on EU goods, the exclusion of agriculture from the scope of trade negotiations, and added clarity on how rules of origin will be handled during the trade negotiations.