EU/US Trade: Holding Patterns

Published on February 18, 2020

On the eve of the just concluded long US holiday weekend, the office of the US Trade Representative issued a statement that effective March 18 tariffs on imported European Union aircraft will be hiked from 10% to 15%.

On the other hand, the USTR also announced tariffs on imports of European consumer products, such wine, cheese, and other such critical staples will remain at their current 25% rate, to be reviewed again in six months.

** EU trade officials will leave the aircraft tariff hike, part of a $7.5 billion settlement awarded by the World Trade Organization in the long-running Boeing/Airbus subsidy dispute with the US, stand as is, with no response and little comment for now. They will wait, in turn, for a WTO ruling on the EU’s mirror complaint against the US and Boeing to make a countermove, perhaps by May or June of this year.

** The main reason behind the European Commission’s relief, and its low-key response, according to sources in Brussels, is that the US is still threatening but has not commenced the dreaded “carousel” round of tariffs. Under that scheme, a higher tariff rate would be imposed on a “carousel” of a different set of goods every six months, resulting in tariff threats on an extremely broad range of products, and making it impossible for European exporters to plan for the future.

** And in the run up to the weekend decision, in a similarly low-key meeting in Washington on February 6 with US Trade Representative Robert Lighthizer, EU Trade Commissioner Phil Hogan attempted to diffuse the renewed threat of auto tariffs that was made by President Donald Trump to European Commission President Ursula von der Leyen at the World Economic Forum in Davos. Trump’s threats, however, did not come with any deadline attached, and for now at least are being taken in Brussels with a small grain of salt.

** That said, the EU remains unwilling still to give in to US pressure to put its highly protected agricultural market on the negotiating block, and that is not just due to French resistance, but as noted somewhat caustically by an EU official, due to general reluctance in Europe to accepting “American hormone fed beef, chlorine washed chickens, and genetically modified grains.“

** With that in mind, and anticipating renewed pressure for a trade deal from the White House as the November elections approach, Hogan and his team, from what we understand, may consider potential concessions on non-tariff barriers to trade – administrative restrictions that have held up trade negotiations with the EU for years, if not decades.

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