May 15, 2019
Proposed U.S.-EU Trade Agreement Negotiations
On October 16, 2018, the Trump Administration notified
products (excluding agriculture) and address regulatory
Congress under Trade Promotion Authority (TPA) of new
NTBs in a conformity assessment agreement. The EU
U.S. trade negotiations with the European Union (EU), the
claims it is adhering to commitments made in the Joint
United States’ largest trading partner (see Figure 1).
Statement (see Figure 2). Although both sides agreed not to
Figure 1. U.S. Trade with the EU-28, 2018
escalate tariffs while negotiations are active, and to
examine the Section 232 steel and aluminum tariffs,
President Trump has threatened the EU repeatedly with
tariffs, including over its exclusion of agriculture. The EU
asserts it will stop negotiating if the United States applies
new Section 232 tariffs, and may stop negotiating if subject
to new trade restrictions under other U.S. trade laws.
Figure 2. Proposed U.S.-EU Trade Negotiations

Source: U.S. Bureau of Economic Analysis, and the U.S.
Department of Agriculture.
The transatlantic economy is massive and highly integrated,
but still features tariffs and non-tariff barriers (NTBs) to
trade and investment. U.S.-EU negotiations on a
Transatlantic Trade and Investment Partnership (T-TIP)
stalled after 15 rounds under the Obama Administration.
The proposal for new talks followed a July 2018 U.S.-EU
Joint Statement aiming to deescalate trade tensions. The
new talks have not formally started, and their outlook is
uncertain. Congress may seek to monitor and shape the
trade negotiations, and could consider implementing
legislation for a potential final free trade agreement (FTA).
U.S.-EU Trade Context
The negotiations come amid heightened U.S.-EU trade

frictions. The Administration blames “unfair” EU trade
Source: U.S. and EU official documents, press reports.
practices, particularly by Germany, for the U.S. goods trade
Selected Issues and Sectors
deficit with the EU, and seeks a “fairer, more balanced”
relationship. In June 2018, the United States imposed
Industrial Tariffs. Average U.S. and EU tariffs are
Section 232, national-security-based tariffs on steel and
relatively low (3.4% and 5.1%, respectively in 2017), after
aluminum imports; the EU followed with retaliatory tariffs.
successive rounds of multilateral trade liberalization. Over
Both sides are now pursuing cases in the World Trade
60% of bilateral merchandise flows are duty-free, but “tariff
Organization (WTO) on the measures. Potential Section
peaks” make sensitive imports more expensive. Further
232 auto tariffs also have strained ties. Frictions may grow
tariff liberalization could yield significant economic gains
more with potential U.S. and EU countermeasure tariffs on
given the magnitude of commercial ties. The Trump
bilateral imports, stemming from the protracted U.S.-EU,
Administration repeatedly has criticized the tariff imbalance
“Boeing-Airbus” cases in the WTO on aircraft subsidies.
on passenger vehicles; the EU tariff is 10% and the U.S.
tariff is 2.5%. (For trucks, the EU tariff is 22% and the U.S.
U.S.-EU disagreement over the scope of the negotiations,
tariff is 25%.) The planned exclusion of autos may preserve
particularly on agriculture, have cast uncertainty over their
U.S. leverage to negotiate, but the threat of Section 232
outlook. U.S. negotiating objectives aim to address tariffs
auto tariffs could affect EU willingness to engage in the
and NTBs for goods, services, agriculture, government
negotiations.
procurement, investment, and other areas. The United
States may seek to negotiate in stages. The EU, meanwhile,
Services. The EU accounts for over one-third of annual
seeks limited negotiations to defuse tensions and avoid the
U.S. services trade worldwide. Financial services, a key
pitfalls of T-TIP. EU negotiating directives authorize the
part of the economic relationship, could be a major issue,
European Commission to eliminate tariffs on industrial
depending on the scope of the negotiations, in terms of
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Proposed U.S.-EU Trade Agreement Negotiations
market access and regulatory cooperation. Other potential
Issues for Congress
issues include licensing and certification of professional
Scope and Outlook. A path forward appears uncertain. A
services providers and e-commerce.
narrow agreement could lead to some “wins” and facilitate
Agriculture. A central U.S. issue is the EU exclusion of
future negotiations, but may be limited in the trade
agriculture from the talks. According to an EU interim
liberalization secured across sectors. Yet, T-TIP shows the
report, agriculture is not included because it is “a sensitivity
challenges of negotiating a more comprehensive FTA.
for the EU side.” In part, this is due to EU commercial and
Many in Congress and in the U.S. agricultural sector
cultural practices that are often enshrined in EU laws and
strongly oppose excluding agriculture. It is unclear how a
regulations—and differ from those in the United States.
potentially staged approach to the talks would prioritize
Such differences impeded T-TIP. U.S. exporters’ market
issues, as well as if a potential final FTA would meet
access concerns involve the EU’s use of tariff-rate quotas
congressional expectations or TPA requirements. In the EU,
for many agricultural products, including meat and dairy
complexities include Brexit, which would remove the UK’s
products, grains and oilseeds, and some fruits and
leading voice on trade liberalization from the EU. France
vegetables. As reported by U.S. officials, the calculated
says it opposes the U.S.-EU talks due to the U.S. position
average tariff rate across all U.S. agricultural imports is
on global efforts to address climate change.
roughly 12%, below the EU average of 30%. U.S. nontariff
Economic Implications. The effects of a potential U.S.-
and regulatory concerns involve sanitary and phytosanitary
EU trade agreement on the U.S. economy are difficult to
(SPS) standards, including the use of biotechnology, and
quantify due to data limitations and other issues. A general
the use of growth hormones and pathogen reduction
consensus exists that the aggregate economic benefits of an
treatments in meat production. Other U.S. concerns involve
agreement would outweigh the costs. Most studies find that
certification and labeling requirements, as well as
a U.S.-EU FTA, whether addressing tariffs or also NTBs,
geographical indications (GIs)—certain EU-protected
would yield net gains for the U.S. economy. Estimates vary,
names for foods, wine, and spirits that U.S. producers view
but given the relatively low U.S.-EU tariffs on average,
as generic names. The EU has sought to defuse trade
most gains would come from reducing NTBs. Ultimately,
tensions by increasing imports of U.S. soybeans and
the impact will depend on the issues covered, the extent to
negotiating changes to its quota for U.S. hormone-free beef.
which barriers are reduced, and the policy responses, if any,
Government Procurement. U.S. and EU public
to ease hardships on those firms and workers facing costs
procurement markets are significant. The United States
from greater U.S.-EU economic integration.
seeks more transparency about procurement opportunities
U.S.-EU Trade Relations. Depending on its scope and
in EU member states, and the EU prioritizes obtaining
ambition, a U.S.-EU FTA would be a culmination of years
greater sub-federal bidding access in the United States.
of efforts toward further bilateral trade liberalization. In the
Regulatory Cooperation. Greater cooperation,
absence of a U.S.-EU FTA, U.S. businesses are
convergence, and transparency in regulations and
disadvantaged in the EU market relative to such trading
standards-setting processes could lead to greater U.S.-EU
partners as Canada, Japan, and Vietnam, with whom the EU
market access. Some current barriers may be duplicative,
recently concluded FTAs. An FTA also could be significant
costly, and burdensome, or not reflect widely shared safety
strategically in jointly shaping global “rules for the road”
and environmental risk assessments.
on new issues and, for instance, with respect to China.
Sectoral Cooperation
Successful negotiations, however defined, could not only
help resolve the current standoff over tariffs, but also
Areas for cooperation include pharmaceuticals, medical products,
rebuild trust and reinforce trade ties amid shifts in U.S.
and chemicals. A 2017, U.S.-EU mutual recognition agreement
trade policy approaches under the Trump Administration
(MRA) on pharmaceutical manufacturing practices removed some
and changes to the EU post-Brexit. Proposed U.S.-UK FTA
duplicative regulations that slow global drug development.
negotiations—contingent upon the UK regaining a national
Negotiators have reportedly agreed in principle to expand the
trade policy after it withdraws from the EU—raise
MRA and start joint inspections of certain manufacturing facilities.
questions of whether or how the United States would
In addition, they have discussed improved coordination in medical
prioritize talks with the EU and UK. Concluding even
device regulations, as well as cooperation on chemicals between
limited U.S.-EU trade negotiations likely will take time. If
respective regulators and risk assessment agencies.
talks fail, trade tensions could escalate, or the two sides
Rules. In contrast to the EU, U.S. negotiating objectives
may explore other avenues for engagement, such as
aim to establish trade rules on a range of issues as in recent
enhanced regulatory cooperation and sectoral agreements.
U.S. FTAs. These include intellectual property rights (IPR),
Whatever the outcome, many transatlantic watchers argue
investment, labor, the environment, as well as newer issues
that U.S.-EU trade ties will endure, buttressed by 70 years
such as digital trade, state-owned enterprises (SOEs), and
of transatlantic economic, security, and political
currency misalignment. Differing U.S. and EU approaches
cooperation. See CRS In Focus IF10931, U.S.-EU Trade
on some issues constrained T-TIP. Given the weight of the
and Economic Issues, by Shayerah Ilias Akhtar.
transatlantic economy, U.S.-EU consensus, if reached,
Shayerah Ilias Akhtar, Specialist in International Trade
could shape rules globally and address issues of mutual
concern, for instance, regarding China’s trading practices.
and Finance
Andres B. Schwarzenberg, Analyst in International Trade
and Finance
Renée Johnson, Specialist in Agricultural Policy
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Proposed U.S.-EU Trade Agreement Negotiations

IF11209


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https://crsreports.congress.gov | IF11209 · VERSION 1 · NEW

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