May 15, 2019
Proposed U.S.-EU Trade Agreement Negotiations
On October 16, 2018, the Trump Administration notified
Congress under Trade Promotion Authority (TPA) of new
U.S. trade negotiations with the European Union (EU), the
United States’ largest trading partner (see Figure 1).
Figure 1. U.S. Trade with the EU-28, 2018
products (excluding agriculture) and address regulatory
NTBs in a conformity assessment agreement. The EU
claims it is adhering to commitments made in the Joint
Statement (see Figure 2). Although both sides agreed not to
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
practices, particularly by Germany, for the U.S. goods trade
deficit with the EU, and seeks a “fairer, more balanced”
relationship. In June 2018, the United States imposed
Section 232, national-security-based tariffs on steel and
aluminum imports; the EU followed with retaliatory tariffs.
Both sides are now pursuing cases in the World Trade
Organization (WTO) on the measures. Potential Section
232 auto tariffs also have strained ties. Frictions may grow
more with potential U.S. and EU countermeasure tariffs on
bilateral imports, stemming from the protracted U.S.-EU,
“Boeing-Airbus” cases in the WTO on aircraft subsidies.
U.S.-EU disagreement over the scope of the negotiations,
particularly on agriculture, have cast uncertainty over their
outlook. U.S. negotiating objectives aim to address tariffs
and NTBs for goods, services, agriculture, government
procurement, investment, and other areas. The United
States may seek to negotiate in stages. The EU, meanwhile,
seeks limited negotiations to defuse tensions and avoid the
pitfalls of T-TIP. EU negotiating directives authorize the
European Commission to eliminate tariffs on industrial
Source: U.S. and EU official documents, press reports.
Selected Issues and Sectors
Industrial Tariffs. Average U.S. and EU tariffs are
relatively low (3.4% and 5.1%, respectively in 2017), after
successive rounds of multilateral trade liberalization. Over
60% of bilateral merchandise flows are duty-free, but “tariff
peaks” make sensitive imports more expensive. Further
tariff liberalization could yield significant economic gains
given the magnitude of commercial ties. The Trump
Administration repeatedly has criticized the tariff imbalance
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.
tariff is 25%.) The planned exclusion of autos may preserve
U.S. leverage to negotiate, but the threat of Section 232
auto tariffs could affect EU willingness to engage in the
Services. The EU accounts for over one-third of annual
U.S. services trade worldwide. Financial services, a key
part of the economic relationship, could be a major issue,
depending on the scope of the negotiations, in terms of
Proposed U.S.-EU Trade Agreement Negotiations
market access and regulatory cooperation. Other potential
issues include licensing and certification of professional
services providers and e-commerce.
Agriculture. A central U.S. issue is the EU exclusion of
agriculture from the talks. According to an EU interim
report, agriculture is not included because it is “a sensitivity
for the EU side.” In part, this is due to EU commercial and
cultural practices that are often enshrined in EU laws and
regulations—and differ from those in the United States.
Such differences impeded T-TIP. U.S. exporters’ market
access concerns involve the EU’s use of tariff-rate quotas
for many agricultural products, including meat and dairy
products, grains and oilseeds, and some fruits and
vegetables. As reported by U.S. officials, the calculated
average tariff rate across all U.S. agricultural imports is
roughly 12%, below the EU average of 30%. U.S. nontariff
and regulatory concerns involve sanitary and phytosanitary
(SPS) standards, including the use of biotechnology, and
the use of growth hormones and pathogen reduction
treatments in meat production. Other U.S. concerns involve
certification and labeling requirements, as well as
geographical indications (GIs)—certain EU-protected
names for foods, wine, and spirits that U.S. producers view
as generic names. The EU has sought to defuse trade
tensions by increasing imports of U.S. soybeans and
negotiating changes to its quota for U.S. hormone-free beef.
Government Procurement. U.S. and EU public
procurement markets are significant. The United States
seeks more transparency about procurement opportunities
in EU member states, and the EU prioritizes obtaining
greater sub-federal bidding access in the United States.
Regulatory Cooperation. Greater cooperation,
convergence, and transparency in regulations and
standards-setting processes could lead to greater U.S.-EU
market access. Some current barriers may be duplicative,
costly, and burdensome, or not reflect widely shared safety
and environmental risk assessments.
Areas for cooperation include pharmaceuticals, medical products,
and chemicals. A 2017, U.S.-EU mutual recognition agreement
(MRA) on pharmaceutical manufacturing practices removed some
duplicative regulations that slow global drug development.
Negotiators have reportedly agreed in principle to expand the
MRA and start joint inspections of certain manufacturing facilities.
In addition, they have discussed improved coordination in medical
device regulations, as well as cooperation on chemicals between
respective regulators and risk assessment agencies.
Rules. In contrast to the EU, U.S. negotiating objectives
aim to establish trade rules on a range of issues as in recent
U.S. FTAs. These include intellectual property rights (IPR),
investment, labor, the environment, as well as newer issues
such as digital trade, state-owned enterprises (SOEs), and
currency misalignment. Differing U.S. and EU approaches
on some issues constrained T-TIP. Given the weight of the
transatlantic economy, U.S.-EU consensus, if reached,
could shape rules globally and address issues of mutual
concern, for instance, regarding China’s trading practices.
Issues for Congress
Scope and Outlook. A path forward appears uncertain. A
narrow agreement could lead to some “wins” and facilitate
future negotiations, but may be limited in the trade
liberalization secured across sectors. Yet, T-TIP shows the
challenges of negotiating a more comprehensive FTA.
Many in Congress and in the U.S. agricultural sector
strongly oppose excluding agriculture. It is unclear how a
potentially staged approach to the talks would prioritize
issues, as well as if a potential final FTA would meet
congressional expectations or TPA requirements. In the EU,
complexities include Brexit, which would remove the UK’s
leading voice on trade liberalization from the EU. France
says it opposes the U.S.-EU talks due to the U.S. position
on global efforts to address climate change.
Economic Implications. The effects of a potential U.S.EU trade agreement on the U.S. economy are difficult to
quantify due to data limitations and other issues. A general
consensus exists that the aggregate economic benefits of an
agreement would outweigh the costs. Most studies find that
a U.S.-EU FTA, whether addressing tariffs or also NTBs,
would yield net gains for the U.S. economy. Estimates vary,
but given the relatively low U.S.-EU tariffs on average,
most gains would come from reducing NTBs. Ultimately,
the impact will depend on the issues covered, the extent to
which barriers are reduced, and the policy responses, if any,
to ease hardships on those firms and workers facing costs
from greater U.S.-EU economic integration.
U.S.-EU Trade Relations. Depending on its scope and
ambition, a U.S.-EU FTA would be a culmination of years
of efforts toward further bilateral trade liberalization. In the
absence of a U.S.-EU FTA, U.S. businesses are
disadvantaged in the EU market relative to such trading
partners as Canada, Japan, and Vietnam, with whom the EU
recently concluded FTAs. An FTA also could be significant
strategically in jointly shaping global “rules for the road”
on new issues and, for instance, with respect to China.
Successful negotiations, however defined, could not only
help resolve the current standoff over tariffs, but also
rebuild trust and reinforce trade ties amid shifts in U.S.
trade policy approaches under the Trump Administration
and changes to the EU post-Brexit. Proposed U.S.-UK FTA
negotiations—contingent upon the UK regaining a national
trade policy after it withdraws from the EU—raise
questions of whether or how the United States would
prioritize talks with the EU and UK. Concluding even
limited U.S.-EU trade negotiations likely will take time. If
talks fail, trade tensions could escalate, or the two sides
may explore other avenues for engagement, such as
enhanced regulatory cooperation and sectoral agreements.
Whatever the outcome, many transatlantic watchers argue
that U.S.-EU trade ties will endure, buttressed by 70 years
of transatlantic economic, security, and political
cooperation. See CRS In Focus IF10931, U.S.-EU Trade
and Economic Issues, by Shayerah Ilias Akhtar.
Shayerah Ilias Akhtar, Specialist in International Trade
Andres B. Schwarzenberg, Analyst in International Trade
Renée Johnson, Specialist in Agricultural Policy
Proposed U.S.-EU Trade Agreement Negotiations
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https://crsreports.congress.gov | IF11209 · VERSION 1 · NEW