Against all expectations, European Commission President Jean-Claude Juncker and US President Donald Trump agreed on a plan, in Washington on Wednesday 25 July, to defuse the latent trade conflict between the European Union and the United States, notably based on the negotiation of a possible agreement on total tariff liberalisation on industrial products (except for cars) and on the promise Europe importing soybeans and liquefied natural gas (LNG).
Although both had expressed pessimism before their meeting as to its outcome (see EUROPE 12070), Juncker and Trump did not hide their enthusiasm at the end of their meeting, with the US president tweeting assurances that "obviously the European Union and United States love each other!", and supporting his words with a photo of them embracing each other in the Oval Office of the White House, with Juncker kissing Trump on the cheek.
A "new phase" for bilateral relations
"I came for a deal, we made a deal. The EU continues to stand up for free and fair trade", Juncker stated.
"Great to be back on track with the European Union. This was a big day for free and fair trade!", Trump said, welcoming Juncker's promise that the EU "would start buying soybeans from our great (American) farmers immediately. Also, they will be buying vast amounts of LNG!"
"European Union Nations will be open to the United States and at the same time benefiting by everything we are doing for them. There was great warmth and feeling in the room – a breakthrough has been quickly made that nobody thought possible!", Trump tweeted, who just ten days ago was describing the Europeans as "enemies".
Juncker and Trump agreed on a joint statement "to launch a new phase in the relationship between the United States and the European Union – a phase of close friendship, of strong trade relations in which both of us will win", of cooperation "for global security and prosperity, and of fighting jointly against terrorism".
"The United States and the European Union together count more than 830 million citizens and more than 50 percent of global GDP. If we team up, we can make our planet a better, more secure, and more prosperous place", they said, agreeing "to further strengthen this trade relationship to the benefit of all American and European citizens". Already today, the United States and the European Union have a $1 trillion bilateral trade relationship – the largest economic relationship in the world.
Zero tariffs, zero barriers and zero subsidies but not TTIP 2.0
Juncker and Trump's plan to improve the transatlantic business climate provides firstly for the EU and US to work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on industrial goods, except automobiles, and to work to reduce barriers and increase trade in services, chemicals, pharmaceuticals, medical products, and soybeans.
"This will open markets for farmers and workers, increase investment, and lead to greater prosperity in both the United States and the European Union. It will also make trade fairer and more reciprocal", the statement says.
"This will not be a TTIP 2.0 agreement or a TTIP light agreement. But the prospect of an ad hoc agreement on customs duties on industrial products except automobiles", a Commission negotiator explains.
Indeed, Juncker and Trump's plan excludes de facto three sensitive issues that were negotiated as part of TTIP – that of agricultural products, which is sensitive for the EU and particularly for France and the countries of southern Europe; that of cars, which is sensitive for Germany; and that of public procurement, which is sensitive for the US.
European promise to import American soybeans
Although the plan rules out access to the agricultural market, it nevertheless provides for an increase in soybean trade – a demand from the USA, whose exports have been taxed on the Chinese market since 6 July (a market on which its exports stood at $14 billion in 2017).
Since the start of the Chinese-US conflict, the price of soybeans has lost 25% to now stand at its lowest level since 2008-2009.
"As regards agriculture, the EU can import more soybeans from the US, and will do so", Juncker stated after his meeting with Trump.
Cooperation on LNG and on reform of WTO
The plan also provides for "strengthened strategic cooperation" with respect to energy. The European Union wants to import more LNG from the United States to diversify its energy supply.
A "close dialogue" on standards in order to ease trade, reduce bureaucratic obstacles, and slash costs is also provided for in the plan.
Furthermore, "to join forces to protect American and European companies better from unfair global trade practices" (China being indirectly targeted), the EU and US will "work closely together (...) to reform the WTO" and "to address unfair trading practices, including intellectual property theft, forced technology transfer, industrial subsidies, distortions created by state owned enterprises, and overcapacity".
Joint working group...
To carry this "joint agenda" forwards, Juncker and Trump agreed "to set up immediately" an executive working group of their closest advisors.
Once this group is set up, "in the coming days", according to a Commission spokesperson, it will have 120 days to produce a report, "probably at the end of November", so after the mid-term elections for the two chambers of the American Congress.
This executive working group will "identify short-term measures to facilitate commercial exchanges and assess existing tariff measures", the statement says.
... and US renouncement of taxes on cars
While this group is at work, the two parties "will not go against the spirit of this agreement, unless either party terminates the negotiation".
In other words, Trump – who tasked his commerce secretary, Wilbur Ross, at the end of May to open an investigation, under Section 232 of the 1962 US Trade Expansion Act, into imports of vehicles, including lorries and spare parts, to determine their impact on US national security (see EUROPE 12026) – is renouncing his idea of imposing 20% customs duties on European cars (see EUROPE 12047, 12049).
"Trump said very clearly it was not his intention to apply tariffs on cars. How they will manage their internal procedure remains to be seen", a Commission source sated.
Furthermore, according to the statement, "the plan provides for cooperation on security", the same source said, referring to the theme of "national security" which is dear to Trump.
New talks on question of taxes on steel and aluminium
In addition, Juncker and Trump's plan provides for both parties to settle the tariff issues on steel and aluminium, and the EU's retaliation measures.
In response to the US taxes of 25% on imports of steel and of 10% on imports of aluminium, the EU set up rebalancing measures on 22 June, which were notified to the World Trade Organisation (WTO), and which initially slap additional customs duties on US products for a value of €2.8 billion (see EUROPE 12045).
France wants clarification
On Thursday 26 July, France's Economy and Finance Minister Bruno Le Maire rejected the possibility of negotiating a comprehensive trade agreement between the EU and the USA, demanding that agriculture remain "outside the scope of discussion" and giving assurances that "Europe will not compromise on its standards".
"We have high sanitary, food and environmental standards and production rules that we value because they guarantee our consumers' protection and security", Le Maire said.
Limited impact of protectionism on inflation, according to Draghi
"It is too early to evaluate the real content (Ed: of the agreement). It is a good sign, it shows that there is a willingness to discuss trade issues in a multilateral framework again", European Central Bank president Mario Draghi meanwhile stated, giving assurances that "the direct impact" of protectionism on inflation was for now "limited". (Original version in French by Emmanuel Hagry)