EU Negotiating Directives Say Section 232 Tariffs Must Be Removed, Dropping Industrial Tariffs Could Boost US Exports

The Council of the European Union passed its negotiating directives for free trade talks with the U.S. on Jan. 18, and as expected, agriculture is not part of the scope. The EU also said it would require the lifting of the Section 232 tariffs on aluminum and steel before any deal is finalized. "These two proposed negotiating directives will enable the Commission to work on removing tariffs and non-tariff barriers to transatlantic trade in industrial goods, key goals of the July Joint Statement," EU Trade Commissioner Cecilia Malmstrom said.

All industrial goods are on the table, though, as the EU noted, it is "ready to take into account potential US sensitivities for certain automotive products." The U.S. has a 25 percent tax on imported pickup trucks, far higher than the 10 percent tax the EU has on vehicles. In general, the average most-favored nation tariff on non-agricultural products in the U.S. is 3.1 percent, and in the EU is 4.2 percent. The document predicted that EU exports would increase by 10 percent if all industrial good tariffs went to zero, and U.S. exports would increase by 13 percent.

The EU negotiating directives -- which must be approved by the 28 member countries -- are far different from the U.S. negotiating objectives, which emphasize tariff and non-tariff barriers to agriculture imports, including phytosanitary rules (see 1901140020).

The annex to the directive says the EU will not finish negotiations unless the U.S. has removed "any measures on exports of steel and [aluminum] originating in the European Union." Canada and Mexico did not get the Section 232 tariffs on steel and aluminum lifted as part of their trade deal, and Europe laid down a marker with this provision that it will not do the same.

The EU sees reopening trade talks with the U.S. as a way to avoid Section 232 tariffs on autos and auto parts. President Donald Trump promised last July that no tariffs would be levied on Europe while talks are progressing. The annex specifically says that it will suspend talks "if the United States does not respect the commitment made on 25 July 2018 to abstain during the course of the negotiations from adopting new measures, against the European Union under Section 232 of the Trade Expansion Act of 1962. The Commission may also suspend negotiations if the United States adopts trade restrictions against European Union exports on the basis of Section 301 of the 1974 Trade Act or under any other similar United States law."

The EU also said that it will ask that the U.S. allow the EU to unilaterally suspend concessions if tariffs are levied in the future under sections 232 or 301. The EU already did such a unilateral suspension because of the U.S. tariffs on steel and aluminum, but the U.S. is challenging that decision at the World Trade Organization. There are no EU members on the "priority watch list" under Section 301, but Greece is on a watch list because it does not have adequate procedures to make sure its government is using licensed software, the U.S. trade representative said in its last report.