U.S.-EU Trade Agreement Negotiations: Issues and Prospects

U.S.-EU Trade Agreement Negotiations: Issues and Prospects

Updated December 23, 2020
U.S.-EU Trade Agreement Negotiations: Issues and Prospects
The United States and the 27-member European Union
tensions—heightened due to the Administration’s criticism
(EU) share a large, highly integrated trade and investment
of “unfair” EU trading practices, and issues such as:
relationship. The EU accounts for a significant share of
 U.S. application of Section 232, national-security-based
U.S. trade (see Figure 1).Yet, tariffs and nontariff barriers
tariffs on steel, aluminum, and possibly auto imports;
(NTBs) to U.S.-EU trade and investment exist. Successive
 EU retaliatory tariffs on certain U.S. exports to the EU;
Administrations have sought to address these barriers and
 the long-running Boeing-Airbus subsidy dispute, in
expand ties. If U.S.-EU trade talks take place under a Biden
which the WTO authorized each side to retaliate for
Administration, Congress likely would actively monitor and
illegal subsidies given by the other to its respective
shape them, and could consider implementing legislation
aircraft manufacturing industry; and
for a potential final free trade agreement (FTA).
 digital services tax measures by the EU and certain
Figure 1. U.S. Trade with the EU27, 2019
member states.
U.S. negotiating objectives aimed to address tariffs and
NTBs for goods, services, agriculture, government
procurement, and investment, as well as regulatory
cooperation and trade-related rules. The EU, meanwhile,
sought limited negotiations to defuse tensions and avoid the
complications of T-TIP. EU negotiating directives, released
in April 2019, authorized negotiations to eliminate tariffs
on industrial products (excluding agriculture) and to
address regulatory NTBs in a conformity assessment
agreement. Differences in scope stymied the talks from the
outset. Limited progress was made with some market-
opening commitments in agriculture sector-specific
regulatory cooperation steps.

Source: U.S. Bureau of Economic Analysis (BEA); U.S. Department
Selected Issues and Sectors
of Agriculture (USDA) Global Agricultural Trade System (GATS).
Potential future U.S.-EU trade negotiations could include:
Notes: Although the United Kingdom (UK) was stil a member of
the EU in 2019, this figure does not include UK trade data in light of
Industrial Tariffs. Average U.S. and EU tariffs are
the UK’s departure from the EU in January 2020. Agriculture and
relatively low (trade-weighted average of 2.3% and 3.3%,
related products data are included in goods trade, but U.S.
respectively in 2018), after successive rounds of
government trade data for agricultural and related products is
calculated distinctly for various reasons.
multilateral trade liberalization. Over 60% of bilateral
merchandise flows are duty-free, but “tariff peaks” make
Previous Trade Negotiation Efforts
sensitive imports more expensive. Additional tariff
High-level interest in a bilateral trade agreement dates back
liberalization could yield economic gains given the
to at least 1995, rooted, in part, in a desire to reinforce
magnitude of commercial ties.
transatlantic relations after the Cold War. Efforts did not
Services. Trade in services, given its magnitude, may be
advance, possibly due to concerns that they could signal a
prominent in any future talks. Potential issues include
lack of U.S. confidence in the newly-formed World Trade
financial services market access and regulatory cooperation,
Organization (WTO) and they might fail over longstanding
licensing and certification of professional services
differences on certain trade issues. Instead, the two sides
providers, digital services, and EU “cultural” restrictions on
focused primarily on sector-specific regulatory cooperation.
audiovisual and broadcasting services.
In 2013, during the Obama Administration, the two sides
Agriculture. A central U.S. issue during the Trump
launched comprehensive negotiations on a Transatlantic
Administration was the EU’s desire to exclude agriculture
Trade and Investment Partnership (T-TIP), in hopes of
from the negotiations. Despite public statements by U.S.
boosting U.S.-EU economic growth and jobs, along with
and EU officials in early 2020 signaling that talks might
responding to increased competition from emerging
include certain NTBs, other statements by EU officials
markets. After 15 negotiating rounds, T-TIP stalled in 2016
downplayed this possibility. In part, the exclusion of
over key differences, e.g., on agriculture, data flows,
agriculture is due to EU commercial and cultural practices
geographical indications (GIs), and investor protections.
that are often enshrined in EU laws and regulations, and
that differ from those in the United States. Such differences
On October 16, 2018, the Trump Administration notified
impeded T-TIP. U.S. exporters’ market access concerns
Congress under Trade Promotion Authority (TPA) of new
include the EU’s use of tariff-rate quotas for certain
trade negotiations with the EU. This followed a July 2018
agricultural products. As reported by U.S. officials, the
U.S.-EU Joint Statement to deescalate U.S.-EU trade
calculated average tariff rate across all U.S. agricultural
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U.S.-EU Trade Agreement Negotiations: Issues and Prospects
imports is roughly 12%, below the EU average of 30%.
During talks under the Trump Administration, many in
U.S. nontariff and regulatory concerns involve EU sanitary
Congress, including Senate Finance Chairman Grassley,
and phytosanitary (SPS) standards that limit the use of
have opposed the EU’s exclusion of agriculture from the
biotechnology, growth hormones, and pathogen reduction
talks. House Ways and Means Chairman Neal recently
treatments in meat production. Other U.S. concerns involve
voiced support for renewing U.S.-EU trade cooperation and
geographical indications (GIs) or certain EU-protected
negotiations, and some Members of Congress previously
names for foods, wine, and spirits that U.S. producers view
supported T-TIP. While EU leaders have been wary about
as generic names. The EU sought to defuse tensions by
embarking on broad-based trade talks in light of T-TIP, a
increasing imports of U.S. soybeans and raising the U.S-
recent European Parliament resolution calls for building on
quota for hormone-free beef. In an August 2020 deal, the
the momentum from the August 2020, limited tariff deal to
EU removed import tariffs on lobster in exchange for
work on a broader U.S.-EU trade agenda.
certain U.S. tariff reductions; both actions were on a WTO
Potential sticking points also may evolve. Brexit removed
most-favored-nation basis.
the UK’s leading voice on trade liberalization from the EU,
Government Procurement. U.S. and EU public
which could widen gaps in U.S. and EU positions. Yet,
procurement markets are significant. The United States
some issues may be less contentious. For instance, France
seeks more transparency about procurement opportunities
opposed U.S.-EU trade talks under President Trump due to
in EU member states, and the EU prioritizes obtaining
the Administration’s position on global efforts to address
greater sub-federal bidding access in the United States.
climate change; the U.S. position in a Biden Administration
Regulatory Cooperation.
may be more aligned with the EU’s position.
Greater cooperation,
convergence, and transparency in regulations and
If trade negotiations proceed, one issue is how the United
standards-setting processes could lead to greater U.S.-EU
States and EU would prioritize them relative to other
market access. Some current barriers may be duplicative,
negotiations. Another issue is whether they would seek to
costly, and burdensome, or not reflect widely shared safety
negotiate limited trade deals, or a more comprehensive
and environmental risk assessments. The two sides have a
FTA. A narrow agreement could lead to some “wins” and
long history of sector-specific cooperation, including under
facilitate future negotiations, but may be limited in the trade
the Trump Administration (see text box). Limited progress
liberalization it secures across sectors. T-TIP, however,
on NTBs in the recent trade talks included U.S. and EU text
showed the challenges of more comprehensive FTA
proposals in 2019 to enable each side’s domestic regulatory
negotiations. It is unclear how a potentially staged approach
bodies to test domestically-manufactured products for
to the talks would sequence issues, as well as if a potential
conformity with the other’s technical regulations.
final FTA would meet the requirements of TPA, which
Sectoral Cooperation
expires on July 1, 2021.
Areas for cooperation include pharmaceuticals, medical products,
Economic Implications. The effects of a potential U.S.-
and chemicals. A 2017, U.S.-EU mutual recognition agreement
EU trade agreement on the U.S. economy are difficult to
(MRA) on pharmaceutical manufacturing practices removed some
quantify due to data limitations and other issues. A general
duplicative regulations that slow global drug development.
consensus exists that the aggregate economic benefits of an
Subsequent U.S.-EU developments included:
agreement would outweigh the costs. Most studies find that

reportedly agreeing in principle to expand the MRA and
a U.S.-EU FTA, whether addressing tariffs or also NTBs,
carry out joint inspections of other manufacturing facilities;

would yield net gains for the U.S. economy. Estimates vary,

discussing improved coordination in medical device
regulations; and
but given the relatively low U.S.-EU tariffs on average,

most gains would come from reducing NTBs. Ultimately,

discussing cooperation on chemicals between respective
regulators and risk assessment agencies.
the impact would depend on the issues covered and the

extent to which barriers are reduced.
Rules. U.S. objectives include addressing trade-related
U.S.-EU Trade Relations. Without a U.S.-EU FTA, U.S.
rules in a range of areas, including intellectual property
businesses are disadvantaged in the EU market relative to
rights (IPR), investment, labor, the environment, digital
such trading partners as Canada, Japan, and Vietnam, with
trade, state-owned enterprises, and currency misalignment.
whom the EU recently concluded FTAs. An FTA also could
U.S.-EU differences on some rules constrained T-TIP.
be significant strategically for the United States and EU to
Issues for Congress
jointly shape global trade rules and address issues of mutual
concern, such as China’s trading practices. Successful talks
Outlook. While President-elect Biden pledged to work to
not only would culminate years of trade liberalization
deepen the U.S.-EU relationship, the outlook for bilateral
efforts, but they also could help reinforce U.S.-EU political
trade negotiations is unclear. Some observers speculate that
and economic ties after recent heightened frictions. For
the two sides may negotiate a trade agreement to spur post-
more information, see CRS In Focus IF10930, U.S.-EU
COVID-19 economic recovery and advance strategic goals.
Trade and Investment Ties: Magnitude and Scope.
Others expect them to focus on resolving specific trade
issues, such as the Boeing-Airbus subsidy and digital tax
Shayerah I. Akhtar, Coordinator, Specialist in
disputes, and addressing common trade challenges in the
International Trade and Finance
WTO. The EU proposed a new joint Trade and Technology
Andres B. Schwarzenberg, Analyst in International Trade
Council to tackle bilateral trade irritants and cooperate on
and Finance
data flows, regulations and standards, and other issues.
Renée Johnson, Specialist in Agricultural Policy
IF11209
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U.S.-EU Trade Agreement Negotiations: Issues and Prospects

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https://crsreports.congress.gov | IF11209 · VERSION 4 · UPDATED