Restarting the U.S.-EU Trade Talks
February 11, 2019
While the trade Twittersphere is largely filled with speculation about the China talks and the prospects for getting the United States-Canada-Mexico Trade Agreement (USMCA) through Congress, there are, in fact, other things going on, and one of them is the U.S.-EU trade negotiations. These were initiated by the Trump-Juncker agreement of last July, which laid out parameters for the talks. I’ll get to that, but first a bit of history.
The United States and the European Union have held trade talks for decades, and most of them have been unsuccessful. Dating back at least to the renowned “chicken war” of the 1960s where the U.S. retaliatory 25 percent tariff on trucks remains in place more than 50 years later, the two sides have largely failed to resolve a long list of trade disputes ranging from fundamental differences in policy (agriculture subsidies, rules on genetically modified organisms, geographical indications, the precautionary principle, limitations on government procurement, and the Jones Act) to the merely irritating (chlorinated chickens and other minor regulatory differences). The creation of the European Union did not help that, since it has set the stage for an elaborate two-step: the European Union cannot negotiate until it has an agreed-upon position; it spends a large amount of time and energy producing that and then says it has little flexibility to negotiate beyond it because the internal consensus had been so difficult to achieve.
Efforts to bridge regulatory gaps—where both sides have the same health, safety, and environmental goals but choose to reach them in different ways—for years ran aground because each side’s regulators, while welcoming the idea of harmonization, insisted that the way to achieve it was for the other side to change its procedures and “do it our way.”
In the Obama administration frustration over our collective inability to get over these humps was amplified by the growing realization that the more important challenge for both of us was China. The best way to combat China’s economic challenge was for the two largest middle-class consumer markets in the world to join forces, harmonize their rules, and present the Chinese with a united front based on sound science and rule of law principles. These concerns led to the launch of the Trans-Atlantic Trade and Investment Partnership (TTIP), which captured the imagination of leaders in the United States, Germany, France, and the United Kingdom in particular.
The people tasked with actually negotiating such agreement were a bit more cynical, having beaten each other over the head on the same issues for the previous 30 years without much success, but they gamely tried again. However, progress was slow; time ran out on the Obama administration; and his successor put the talks in the deep freeze, although he never explicitly called them off.
Now a more modest version has returned, impelled more by President Trump’s desire to do something about auto imports and our bilateral trade deficit with Germany than collectively confronting China, and the latter rationale is more important than ever, whether the president recognizes it or not. So the decision to go back to the table was a good one, even if the stakes are smaller.
Sadly, it is becoming clear that even a more limited negotiation is having trouble getting off the ground because we cannot agree on what to talk about. The biggest issue is that the Trump-Juncker agreement omitted agriculture. That made the European Union happy but annoyed our farmers and the members of Congress who represent them, and it clearly frustrated the president’s advisers who apparently did not expect him to give that one away.
The result has been a U.S. campaign, backed by a good portion of Congress, to put agriculture back on the table. The European Union, once it got past quietly gloating that it had put one over on our president, pointed out that agriculture was not there because the United States had refused to put its sensitive issues on the table, such as the Jones Act and government procurement. And there the matter rests, with growing nervousness in Europe about our impatient president who only promised not to go forward on auto tariffs while the two sides were talking, and growing concern on the U.S. side that an agreement without agriculture will have difficulty getting through Congress.
There is, however, at least a temporary solution to this problem, which I modestly recommend: go back to the salad days of TTIP and have both sides put everything on the table. Of course, that will not reduce the intractability of the issues, and everybody knows that many of them will be tossed over the side eventually, but it would have two benefits.
First and most obvious, it would allow the talks to get started. As long as the parties are, in effect, arguing about the shape of the table (to dust off a Vietnam war analogy), there won’t be any progress. Second, putting everything on the table allows everything to be a tradeable item. The European Union doesn’t want to talk about agriculture? Fine. What will they pay to take it off the agenda? The United States wants to save the Jones Act? Also, fine. What will we pay to do that? All those sticky items will likely disappear, but it will be the result of negotiations where each side will pay something and also have a chance to demonstrate where it is more or less flexible and where further deals might be possible.
The obvious criticism is that this just postpones the arguments, but it would allow the parties to get started and perhaps by doing so to resolve some easier issues instead of trying to tackle the hardest ones first. And, given the growing Chinese challenge to both of us, the sooner we can get started, the better.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
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