The EU Draft Motion That Could Lead to Car Tariffs
As US-China trade tensions calm down, they could escalate quickly on the transatlantic front
While a US delegation led by Trade Representative Robert Lighthizer and Commerce Secretary Steven Mnuchin is in Beijing to try to de-escalate the current tariff tensions ahead of a March 1 deadline, clouds are gathering on the transatlantic trade front. A draft motion tabled by the European Parliament (EP) last week could end trade negotiations before they even officially start—and pave the way for US tariffs on European cars and car parts. With the US Commerce Department’s investigative report into whether foreign automobiles are a security threat to the United States due by February 18, European hesitation about the negotiating mandate could prove fatal.
How did we get here?
In July of 2018, EU Commission President Jean-Claude Juncker and US President Donald J. Trump agreed to work toward a new trade relationship. This would include zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods; strengthened energy cooperation; a closer dialogue on standards; and joint efforts against unfair global trade practices. As part of the July agreement, the United States pledged not to impose further tariffs on the European Union (EU) as long as bilateral trade negotiations are progressing.
Since then, the Office of the United States Trade Representative (USTR) published its negotiating objectives in January. The European Commission, speaking on behalf of its twenty-eight member states in trade policy, followed suit with negotiating directives on conformity assessment (i.e. elimination of duplication of testing, inspection, and certification requirements), and on the removal of tariffs for industrial goods. As part of the EU’s checks-and-balances system, the draft mandates have been sent to the EP for review. The EP adopts a recommendation for the European Council (consisting of the member states’ heads of government), which then decides if they approve the European Commission’s mandate for the negotiations with the United States. While the EP does not have the power to veto the negotiating directives, its recommendation does carry weight: any agreement negotiated by the European Commission will ultimately have to get approved by both the EP and the European Council before it can be signed by the Commission.
On January 30, the EP’s Committee on International Trade released a Draft Motion for a Resolution which “calls on the Council not to endorse the recommendations for authorising the opening of negotiations of an agreement with the US on the elimination of tariffs for industrial goods and on conformity assessment in their current form.”
The sticking points
While the EP’s document acknowledges that the partnership between the EU and the United States is the largest economic relationship in the world and is hence essential for the global economy, it names the Trump presidency as an “extraordinary challenge” to this relationship.
Here are the main sticking points that are stirring opposition to trade talks in the EP:
- Tariffs: Both the tariffs currently imposed on the EU (on imports of Spanish olives and steel and aluminum) as well as potential ones (car tariffs). The motion emphasizes an unwillingness for Europe to negotiate under threat.
- Procedural concerns: The EP was not consulted on content and objectives of the joint US-EU statement prior to the Juncker-Trump meeting on July 25.
- Political/security concerns and standards: The motion cites the re-imposition of US sanctions on Iran due to its withdrawal from the Joint Comprehensive Plan of Action (JCPOA), the continued US blocking of new nominations to the World Trade Organization (WTO) Appellate Body, and the withdrawal of the United States from the Paris Climate Agreement.
- Scope: The EU and the US draft negotiating objectives differ in their scope and the sectors covered —the biggest difference is the United States insisting on the opening up of the European agricultural market for US products, an area not covered in the joint July statement. Furthermore, due to the limited nature of the agreement proposed, the draft mandates are not in line with the Commission’s ambitious and comprehensive Trade for All strategy.
What happens if…
The draft resolution will be up for vote during the EP Trade Committee’s next meeting on February 19. If it passes, the European Council will then decide if it gives authorization to the European Commission to negotiate an agreement with the United States—or if it follows the EP’s suggestion not to pursue trade talks under the current mandate. This could happen as soon as on March 21-22, when the European Council convenes in Brussels.
In case the EP votes to adopt the draft resolution to nix the European Commission’s mandates as they stand, this would send a powerful message to Washington at a time when the only thing keeping Trump from imposing car tariffs on the EU is the continued progress in transatlantic economic dialogue. While it would remain to be seen if the European Council agrees to or disregards the EP’s recommendation, the current hesitation is likely to seed doubts in Washington regarding Europe’s commitment to achieving a transatlantic deal.
Should the European Council decline to authorize the European Commission’s negotiating mandate, the US administration could see this as a breach of the July agreement, in which case Trump could decide to impose further tariffs on European cars or other products. The economic effects would be severe for the EU, but also for the United States. Auto related trade accounts for roughly 10 percent of total transatlantic trade. The United States is the top destination for EU-built cars, accounting for almost 30 percent of total EU exports and roughly 25 percent of US car imports by value.
If the European Council decides to disregard the EP’s concerns and authorizes the European Commission to negotiate with the United States, negotiators could potentially reap the low-hanging fruit in the areas of conformity assessment and the removal of tariffs for industrial goods—even though the window of opportunity for this is very brief given the upcoming EU elections in May, followed by the start of US presidential primaries. While any such agreement is limited in scope, it could potentially be sufficient to keep the transatlantic dialogue open, kicking the can of additional tariffs down the road. Regardless, Trump may well come to share the EP’s concern that the proposed trade talks are not ambitious enough in the absence of discussions on agriculture and impose the car tariffs he has so long threatened.
Marie Kasperek is deputy director with the Atlantic Council’s Global Business and Economics Program. Follow her on Twitter @TheTradeShop.