How to make US-EU trade talks a success: Think small and cover China

The European Commission is now set to begin formal trade negotiations with the US after getting the green light from EU ministers on Monday. While this is a positive sign after a turbulent period marred by escalating trade tensions, the talks risk being derailed.

For starters, negotiations will proceed even though France voted against the trade mandate and Belgium abstained. The former objected primarily over concerns that the EU will renege on its pledge to only enter into trade deals with countries that ratify the 2015 Paris Agreement on climate change. In light of the U.S.’s intended withdrawal from the accord, France may seek to scupper a final U.S.-EU trade deal down the road by rallying support for blocking it in the Council of the EU and in the European Parliament. 

{mosads}In addition, both sides fundamentally disagree on the scope of trade talks, with agriculture remaining the most difficult obstacle. The European Commission wants to exclude the sensitive issue, which became a sticking point in the stalled Transatlantic Trade and Investment Partnership (TTIP) negotiations because of concerns over food safety standards (read GMO foods) and the protection of geographical indications (such as champagne and feta cheese). It has thus only sought two negotiating mandates: one on the removal of tariffs on industrial goods and one on conformity assessment that would make it easier for companies on both sides of the Atlantic to prove their products meet each other’s technical requirements. In contrast, the U.S.’s negotiating objectives seek comprehensive coverage of agriculture in trade talks with the EU – as required under Trade Promotion Authority. Congress is unlikely to approve a future U.S.-EU trade deal that does not cover agriculture.

Aim for incremental progress and parallel-track approach

To break this stalemate and ensure that U.S.-EU trade talks do not unravel just as they are about to start, both sides should ‘think small’ by first focusing on the least controversial issues and then aim for incremental progress. In other words, negotiators should start with a limited deal focused on removing tariffs for industrial products (where they could build on headway made during the TTIP talks) to get quick wins and rebuild trust, and then address agriculture at a later stage.

Once agriculture is eventually tackled, both sides should focus on tariffs and quotas, while leaving sensitive issues around food safety to be addressed separately by a transatlantic regulatory dialogue. This parallel track approach — where each issue is dealt with according to its own schedule and in the most appropriate forum — offers the best path forward for the U.S. and EU.

For both sides, pursuing talks via separate tracks that capitalize on low-hanging fruit is politically expedient.

{mossecondads}For the EU, a speedy agreement would help to keep at bay the threat of U.S. tariffs on cars and automobiles in the name of national security (on which a decision from President Trump is due in mid-May). If the U.S. adopts new tariff measures against the EU, Brussels will suspend trade talks with Washington. Before concluding a transatlantic trade deal, the EU will insist that the U.S. lift the tariffs imposed on steel and aluminum. The EU faces a critical political calendar: If significant headway in U.S.-EU trade negotiations cannot be achieved before the European Parliament elections in May 2019, they are unlikely to advance before the appointment of a new European Commission in the fall.

Meanwhile, the U.S. is interested in a quick deal that the Trump administration can showcase in the run-up to the presidential election in 2020. But for now, the U.S. is focused on ratifying the United States-Mexico-Canada Agreement (USMCA) and resolving trade tensions with Beijing. Because the U.S. and the EU are each other’s largest trade and investment partners it would be prudent to focus on advancing transatlantic trade talks and for both sides to invest significant political capital in light of a narrow window of opportunity.

Look beyond transatlantic marketplace and address systemic problems

Besides pursuing a bilateral trade agreement, the U.S. and EU should also use their trade talks as a forum to tackle mutual concerns regarding the global trading system. For instance, both sides regard China’s practices of forced technology transfer and intellectual property theft critically. They are also concerned by China’s overcapacity in the steel sector and market-distorting subsidies. Moreover, the U.S. and EU agree that the current rules of the World Trade Organization are not sufficient to address issues relating to state-owned enterprises and ‘new trade agenda items’ such as digital trade.

But while both sides largely agree on what the challenges are, they have not yet found shared solutions. In this regard, the U.S. and EU should build on their existing efforts (conducted in a trilateral context with Japan) to develop a constructive agenda towards tackling unfair trade practices and reforming the WTO.

Addressing systemic trade problems is far more important than simply further integrating the U.S. and EU markets, which are already closely interlinked. But progress on the bilateral trade front could help to stabilize the U.S. and EU relationship and thus advance their joint efforts on global trade issues.

In short, securing a bilateral trade deal and fixing the broader systemic issues should go hand in hand. This is what a true ‘win-win’ scenario for U.S.-EU trade relations could look like.

Marianne Schneider-Petsinger (@mpetsinger) is a Geoeconomics Fellow in the US and the Americas Programme at Chatham House and is based in London. This piece builds on her latest research paper ‘US–EU Trade Relations in the Trump Era: Which Way Forward?’