Negotiations with the United States on a Transatlantic Trade Agreement

POSITION PAPER | EXTERNAL ECONOMIC POLICY

Negotiations with the United States on a Transatlantic Trade Agreement Demands for the Contents of the Talks

9 January 2019 Core Demands Industrial goods agreement: German industry regrets that it is not possible at the present time to conduct negotiations with the United States on a comprehensive and ambitious trade agreement comparable to the Transatlantic Trade and Investment Partnership (TTIP). In view of today’s difficult situation, we can understand why the European Commission wishes to enter into talks with the United States about a lean agreement on trade. We support the efforts to defuse the trade conflict and normalize relations with the United States. For this reason, we also support the plans of the EU to negotiate a transatlantic agreement on industrial goods. This agreement must be compatible with WTO requirements and must liberalize “substantially all the trade”. An industrial goods deal that excludes the automotive trade would be unacceptable. Tariff phase-out periods – where necessary – should be short. Moreover, the two sides should agree on simple and liberal rules of origin and a verification process that facilitates trade.

Regulatory cooperation: Making progress in regulatory cooperation is of considerable importance for German industry and offers the greatest potential for reducing costs and improving market access. For this reason, the EU and the United States should agree on a clear agenda, as well as a fixed timeframe for dealing with regulatory issues. In this context, German industry expects the United States to make an unequivocal binding commitment. The EU’s mandate must provide for concrete undertakings as well as an open process that permits new cooperation initiatives to be included at any time. No sector should be excluded in advance from the scope of regulatory cooperation by the negotiating partners. The goal of regulatory cooperation is not the lowering of standards, but rather, the procedural simplification in maintaining the level of protection.

WTO reform: The EU and the United States must make joint efforts to modernize WTO regulations and strengthen the monitoring and enforcement mechanisms. The reform proposals of the EU and Canada and the joint proposal of the EU, the United States, Japan, Costa Rica, and Argentina on tightening the notification requirements provide a sound basis for such efforts. However, it will ultimately be necessary to establish a broader coalition of states in favor of WTO reform. The EU and the United States must involve other partners in their efforts. Plurilateral liberalization initiatives should also be part of a transatlantic WTO agenda.

Public procurement: The BDI regrets that at the present time, public procurement is not to be covered by the talks. It calls on the EU and the United States not to lose sight of this important issue.

U.S. tariffs on steel, aluminum, and cars and car parts: The national security of the United States is not endangered by U.S. imports of steel, aluminum, and cars and car parts from the EU. Therefore, the United States should rapidly and unconditionally remove the tariffs imposed on steel and aluminum in June 2018. Moreover, it should absolutely refrain from imposing tariffs on cars and car parts.

Dr. Stormy-Annika Mildner, Julia Howald | Außenwirtschaftspolitik | www.bdi.eu

Negotiations with the United States on a Transatlantic Trade Agreement

Trade agreements with other trade partners: The BDI supports the EUʼs goal of concluding comprehensive trade agreements. This fundamental goal should not be called into question by the current plan to commence negotiations with the United States on an agreement limited to industrial goods that does not, at least for the present, tackle other issues. The conclusion of comprehensive trade agreements with third countries must remain the objective.

Background: The Current State of Transatlantic Trade Relations The United States of America is an important political and economic partner for Germany. However, since U.S. President Donald Trump took office, the transatlantic relationship has had to navigate tumultuous waters. On 8 March 2018 the United States proclaimed the imposition of tariffs on steel (25 per cent) and aluminum (10 per cent). Since 1 July 2018 these tariffs have also applied to imports from the European Union (EU). As the legal basis for its decision, the United States references Section 232 of the Trade Expansion Act of 1962, which pertains to the protection of national security. The EU has responded to the U.S. tariffs by filing a complaint with the World Trade Organization (WTO), taking temporary measures to protect the EU steel industry, and imposing rebalancing tariffs.

In May 2018 the United States launched an investigation under Section 232 into imports of automobiles and car parts. The investigation report of the U.S. Department of Commerce (DOC) must be submitted within 270 days. It has been completed and is currently being internally discussed; thus, it could be published at any time, which means even before the 270 days granted to the DOC. Since U.S. President Trump has repeatedly accused the EU of unfairness particularly in the auto trade, it can be presumed that import restrictions in this area could also hit the EU. Meanwhile, the meeting between European Commission President Jean-Claude Juncker and U.S. President Donald Trump in Washington on 25 July 2018 helped to ease tensions in the transatlantic relationship. Both agreed in principle to: ▪

The removal of all tariffs, non-tariff barriers, and subsidies on all industrial goods with the exception of the auto industry;

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The dismantling of trade barriers, especially in the following sectors: services (not specified), chemicals, pharmaceuticals, medical devices, and soybeans;

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Increased shipments of U.S. liquified natural gas to the EU;

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A dialogue on standards aimed at simplifying trade and reducing bureaucratic costs;

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Joint action with “like-minded partners” to reform the WTO and crack down on unfair trade practices such as intellectual property theft, forced technology transfer, industrial subsidies, market distortions caused by state enterprises, and overcapacity;

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The establishment of a joint “Executive Working Group” tasked with pushing the joint agenda forward.

Furthermore, the two sides agreed to refrain from imposing new tariffs against each other so long as negotiations are ongoing. This applies, among others, to the tariffs that the United States could impose on imports of automobiles and car parts on the grounds of protecting national security. In addition, Juncker and Trump agreed to work toward resolving the issue of the steel and aluminum tariffs imposed by the United States and the EU’s rebalancing tariffs. However, these tariffs remain in force at present.

A joint EU-U.S. working group headed by EU Trade Commissioner Malmström and U.S. Trade Representative Lighthizer is currently conducting exploratory talks.

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Negotiations with the United States on a Transatlantic Trade Agreement

The discussions are divided into three baskets: ▪

Basket 1: Elimination of tariffs on industrial goods

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Basket 2: Regulatory cooperation outside of the agreement

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Basket 3: WTO reform

The United States has so far insisted on excluding the auto trade. At the same time, important figures in the U.S. administration and the U.S. Congress are calling for agricultural trade to be included.

This means that many areas that are integral to “modern” free trade agreements concluded by the EU and were also negotiated under the TTIP would not be part of the discussions. They include: ▪

Public procurement

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Sustainability (labor and environmental standards)

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Small and medium-sized enterprises (SMEs)

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Digital trade / e-Commerce

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Competition

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Dispute settlement

The EU hopes to receive a negotiating mandate from the Member States in early 2019; thereafter, it would be able to enter into negotiations with the United States. In mid-October, the U.S. administration notified Congress that it wanted to negotiate an agreement with the EU. Official negotiations can begin 90 days after notification was given – that is, at the earliest, in mid-January 2019.

The Position of German Industry on the Negotiating Strategy of the EU Basket 1: Negotiate an industrial goods agreement that includes the auto sector!

Numerous tariff and non-tariff trade barriers continue to weigh on trade between the United States and the EU. Dismantling those barriers, which would safeguard jobs and create prosperity, should remain a long-term goal of negotiations between the EU and the United States. Moreover, EU-U.S. negotiations could send a strong signal for open and rules-based trade and contribute to removing market uncertainties. Moreover, a transatlantic trade agreement that covered almost 50 per cent of global economic output and one third of world trade could strengthen market economy and lawbased principles in the global economic order.

A transatlantic agreement on industrial goods should be compatible with WTO requirements and liberalize “substantially all the trade”. The WTO does not define “substantially all the trade”, but the EU typically defines this objective as covering around 90 percent of the volume of trade as well as 90 percent of tariff lines.

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Removal of all tariffs on industrial goods: German industry recommends removing all tariffs on industrial goods, including cars and car parts. An industrial goods deal that excludes the auto trade would be unacceptable. Phase-out periods – where necessary – should be short.

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Simple rules of origin: Trade agreements must be of use to industry. Very strict and complicated rules of origins yield low utilization rates. For this reason, the BDI recommends simple and liberal rules of origin, as well as a verification process that facilitates trade. In the view of the BDI, a cross-sector rule can play a central role in increasing the utilization rates

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Negotiations with the United States on a Transatlantic Trade Agreement

of free trade agreements and making it easier, particularly for small and medium-sized enterprises, to gain market entry. Such an approach would not exclude sector-specific rules.

Basket 2: Step up regulatory cooperation!

The transatlantic partners would not only benefit from the elimination of all tariffs, but also from the harmonization of technical standards, especially with regard to product-testing. We welcome the fact that regulatory cooperation is to be part of a transatlantic liberalization agenda. However, we regret that, at present, negotiations on a comprehensive trade agreement with the United States are not possible in this area. To ensure that regulatory cooperation is as binding as possible, the EU and the United States should create an institutional framework for transatlantic regulatory cooperation and establish a clear agenda and a fixed timeframe. Otherwise, there runs the risk that regulatory cooperation will not deliver satisfactory results, as in the case of the Transatlantic Economic Council (TEC).

At the same time, the mandate of the EU should provide for an open process that permits new cooperation initiatives to be included at any time. No sector should be excluded in advance by the negotiating partners from the scope of regulatory cooperation. The goal of regulatory cooperation is not the lowering of standards but rather procedural simplification without lowering the level of protection.

According to media reports, the European Commission has proposed that the following three areas be discussed in the negotiations under the second basket: 1) Avoiding duplicate inspections of manufacturers: Building on the progress made during the TTIP negotiations, the mutual recognition agreement (MRA) by the U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMA) of good manufacturing practice (GMP) inspections of pharmaceutical manufacturers entered into force at the end of 2017.

This agreement could be expanded in the coming years to include inspections of manufacturers of other products - for example, vaccines for human beings and pharmaceutical products for animals. The MRA already provides for expanding the deal to include other product groups and lays down a timetable. However, expediting the process and covering more products would still be a welcome development.

Medical devices are another area already in discussion by the EU and the United States. We welcome the idea of mutual recognition of reports on GMP inspections of medical device manufacturers that conform with the regulatory requirements of both systems.

2) Reducing the costs of conformity assessments: This involves the mutual recognition of conformity assessment bodies. German industry would explicitly appreciate closer transatlantic cooperation in this area.

3) Jointly developing new standards for new technologies: German industry strongly supports the European Commission’s proposal to increase transatlantic cooperation in drawing up new rules, e.g. for autonomous vehicles and service robots, or in developing globally relevant standards for cybersecurity.

We regret that the United States has so far shown little willingness to discuss regulatory cooperation in the auto sector. During the TTIP negotiations, studies were carried out to compare the safety of U.S. and European cars with the intention of identifying which standards or regulatory requirements in the automobile sector were already very similar, and thus could be mutually recognized. The studies showed that requirements for seat belt anchorages, lighting and brake-assist systems, as well as, possibly, for the area of crash safety, could be recognized as equivalent. The two sides can build on the progress achieved in these results.

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Negotiations with the United States on a Transatlantic Trade Agreement

Basket 3: Advance and promote WTO reform!

The WTO is the essential guardian of world trade. It provides for rules-based trade to the largest extent possible and for open global markets. Nonetheless, its monitoring mechanisms and rules are being increasingly stretched to the limit. The EU and the United States must make joint efforts to modernize the rules and strengthen the monitoring and enforcement mechanisms. Thus, BDI supports the EU proposals on WTO modernization submitted by the Commission to the Council in July 2018, which lay a sound foundation for further talks with the United States.

The BDI also supports the joint proposal submitted to the WTO on 1 November 2018 by Argentina, Costa Rica, the EU, Japan, and the United States, which aims to induce WTO members to respect the existing reporting obligations. This is vitally important because the current WTO regulations in this area are not being sufficiently implemented and enforced. The BDI believes that the proposal offers a balanced package that combines new and stricter procedures, targeted support and transparency measures, as well as effective incentives and sanctions.

Ultimately, it will be necessary to establish a broader coalition of states in favor of WTO reform. Thus, the EU and the United States must involve other partners in their efforts. Indeed, plurilateral liberalization initiatives should be part of a transatlantic agenda on WTO reform. At the same time, it must be understood that efforts to push ahead with WTO reform cannot be made alone by the EU and the United States, but rather in cooperation with all WTO members.

Do not remove public procurement from the negotiating agenda!

In the United States, requirements such as “Buy America� continue to restrict access for foreign companies to the procurement market. The BDI regrets that, at this time, public procurement is not to be covered by negotiations between the transatlantic partners. It calls on the EU and the United States not to lose sight of this vital issue. Moreover, within the framework of the WTO, the EU and the United States should work toward increasing the number of parties to the agreement on public procurement.

Eliminate tariffs on steel and aluminum and do not impose tariffs on cars and car parts!

U.S. imports of steel, aluminum, and cars and car parts from the EU do not endanger the national security of the United States. Therefore, the United States should rapidly and unconditionally remove the tariffs imposed on steel and aluminum in June 2018. Rebalancing measures taken by the EU should remain in force until the United States has removed the tariffs, and in the meantime, the Union should move forward with the dispute resolution procedure initiated at the WTO. Moreover, the United States should absolutely refrain from imposing tariffs on cars and car parts.

The BDI demands that the EU examines the legitimate concerns of steel producers and processors on the basis of objective criteria, giving these concerns due consideration when moving towards a decision on definitive steel safeguard measures. Any solution must furthermore be rules-based and WTO-compatible. Safeguard measures are conditional on a significant surge in imports, the threat of considerable damage to the steel industry, and the presence of trade diversion. Should final measures be taken, these should not harm the downstream industries and value chain stages; rather, they should be targeted solely at preventing trade diversion.

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Negotiations with the United States on a Transatlantic Trade Agreement

Imprint Bundesverband der Deutschen Industrie e.V. (BDI) Breite StraĂ&#x;e 29, 10178 Berlin www.bdi.eu Tel.: +49 30 2028-0 Editors Dr. Stormy-Annika Mildner Tel.: +49 30 2028-1562 s.mildner@bdi.eu Julia Howald Tel.: +49 30 2028-1483 j.howald@bdi.eu

As of: 9 January 2019 BDI document number: D 1019

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