EU Draft Mandates for Agreements with the United States

POSITION PAPER | FOREIGN TRADE

EU Draft Mandates for Agreements with the United States on Industrial Goods and Conformity Assessments 18 March 2019 Background On 18 January 2019, the European Commission published the drafts of two negotiating mandates for trade talks with the United States. Some two weeks later, on 30 January 2019, the Executive Working Group published its interim report, which provides additional information.1 One of the mandates allows the European Commission to negotiate an industrial goods agreement with the United States. The other authorizes the Commission to conduct negotiations about an agreement on conformity assessments. Both mandates will be granted only if the EU Member States vote in favor.

The BDI assessment of the EU draft mandates is to be read as complementary to the BDI position paper of 9 January 2019 titled “Negotiations with the United States on a Transatlantic Trade Agreement.”2

Draft Mandate for an Industrial Goods Agreement Summary ▪

The mandate underlines that the European Commission ‘shall’ suspend negotiations if, contrary to the agreements of 25 July 2018, the United States was to impose new tariffs on the EU under Section 232 (for example, on automobiles or auto parts). The Commission would also consider suspending negotiations if the United States was to impose trade restrictions on the EU under Section 301 (or a similar piece of legislation). According to the Annex of the draft mandate, the agreement with the United States should include a provision that allows the EU to suspend unilaterally the application of equivalent concessions or obligations to the United States if that country was to adopt measures against the EU under Section 232, Section 301 or other similar U.S. legislation.

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The European Commission states that the completion of negotiations is conditional on the United States lifting the Section 232 measures on steel and aluminum implemented against the EU.

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Note for the TPC/INTA. EU-US Relations: Interim Report on the Work of the Executive Working Group, 30.1.2019.

BDI, Negotiations with the United States on a Transatlantic Trade Agreement, 9.1.2019, Meanwhile the EU Council has voted for both mandates. The mandates have yet to be made public.

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

EU Draft Mandates for Agreements with the United States on Industrial Goods and Conformity Assessments

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The goal of the negotiations is the elimination by both sides of all industrial goods tariffs whereby the objective is to remove a substantial number of tariffs upon entry into force and to phase out tariffs within a short period.

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The particular sensitivities of certain products may be taken into account – for its part, the EU is prepared to take into account U.S. sensitivities with regard to certain auto products.

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The elimination of industrial goods tariffs would benefit the two sides to more or less the same degree – according to an internal analysis, EU exports to the United States would increase by 10 percent and U.S. exports to the EU by 13 percent.

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In particular, small and medium-sized enterprises (SMEs) would benefit.

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The goal with regard to rules of origin should be to harmonize the approaches of the EU and the United States to such an extent that trade would be facilitated for both sides. In addition, the most recent developments as regards the EU’s preferential rules of origins should be taken into account.

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The European Commission emphasizes that the recommendation to open negotiations with the United States reflects today’s exceptional circumstances. It should by no means be construed as implying that the European Commission would consider derogating from a comprehensive trade and investment policy such as that laid out in the “Trade for All” strategy document.

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The draft makes no mention of any plans for new stakeholder consultations. It is merely noted that since 2012 there have been many such consultations.

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In order to allow negotiations to take place at short notice, the impact assessment process has been waived.

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The implementation of the agreement is to be monitored by an institutional structure.

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The two sides are to agree on a dispute settlement mechanism.

Assessment ▪

U.S. imports of steel, aluminium, and automobiles and auto parts from the EU do not endanger the national security of the United States. For this reason, BDI calls on the United States to rapidly and unconditionally remove the tariffs imposed on steel and aluminium in summer 2018. Moreover, it should refrain from imposing additional tariffs on automobiles and auto parts.

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Until such a time as U.S. President Trump has reached a decision about measures on automobile imports under Section 232, it will remain difficult to find a footing for trust-based talks between the EU and the United States on a transatlantic trade agreement. Nonetheless, attempts should be made to restore confidence and trustworthiness. German industry will continue to support the goal of constructive negotiations with the United States on a WTO-compliant trade agreement that covers all industrial goods. Should U.S. President Trump decide to impose additional tariffs on EU auto-industry products, BDI would support considering the introduction of rebalancing tariffs. Moreover, the EU should contemplate filing a complaint with the WTO – where applicable, in cooperation with other affected partners – as it has done with regard to the steel and aluminum tariffs. If consultations with the United States failed to yield any results, the EU could request the establishment of a dispute settlement panel.

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BDI supports the elimination of all industrial goods tariffs. A transatlantic agreement on industrial goods should meet WTO standards and thus liberalize “substantially all the trade.” Special regulations for sensitive products, which would be possible according to the draft mandate, should not mean that these standards are not met. An industrial goods agreement that excludes trade in auto-

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EU Draft Mandates for Agreements with the United States on Industrial Goods and Conformity Assessments

industry products would not be compatible with WTO requirements and hence neither viable nor desirable. Transition periods – if needed – should be short, as envisaged in the draft mandate.

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The draft mandate remains very vague with regard to rules of origin. Trade agreements must be of use to industry. Very strict and complicated rules of origin lead to low utilization rates. For this reason, BDI recommends simple and liberal rules of origin as well as the return to proof of origin provided by the approved exporter. From the BDI’s point of view, cross-industry rules are key to increasing the utilization rates of free trade agreements and facilitating market access, especially for SMEs. Such an approach would not exclude sector-specific rules.

In noting that the latest developments with regard to the EU preferential rules of origin should be taken into account, the European Commission is referring to the switch to the system of registered exporters, as previously foreseen in the Generalized System of Preferences (GSP). Under a possible agreement with the United States, the legal proof of origin of European exports, required by customs, would thus be delivered by importers to the local authorities. German industry rejects any form of extra-territorial verification and opposes the exchange of sensitive information as part of verification requests. Mutual recognition – which means cooperation between the customs authorities of the United States and the EU that is both trust-based and on an equal footing – is the only way to achieve real trade liberalization.

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BDI supports the goal of the EU to conclude comprehensive trade agreements. This fundamental objective should not be called into question by the current plan to negotiate a limited industrial goods agreement with the United States and – at least for the time being – not discuss other issues.

Comprehensive trade agreements with third countries must remain the ultimate goal.

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BDI is in favor of monitoring implementation through an “institutional structure” and establishing a dispute settlement mechanism.

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Both EU mandates should pave the way to negotiations that are the first step toward a series of more comprehensive trade agreements. A modular approach to reconciling interests on the basis of further mandates is conceivable. The goal should be a deep EU-U.S. economic partnership.

Draft Mandate on Conformity Assessments Summary ▪

Enterprises on either side of the Atlantic would benefit considerably from eliminating the duplication of product-testing, inspection, and certification requirements, according to the draft mandate. Company costs would sink as a result.

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The EU and the United States have their respective practices for ensuring that a product on the market meets the necessary requirements. In case of third-party conformity assessment, which is used in some 70 percent of cases in the United States, trade can be facilitated by enabling companies to certify products in the exporting country and prove compliance with the rules of the importing country. Currently, this possibility exists only for certain sectors under the mutual recognition agreement (MRA) concluded by the EU and the United States in 1998, which does not function properly for all sectors covered, according to the draft mandate. For EU exporters, the costs of conformity assessment can be too high, especially in sectors such as machinery and equipment.

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In particular, SMEs suffer under the requirements and could enjoy considerable benefits from cost reductions.

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For this reason, the EU is keen to enter into negotiations with the United States in order to reduce the costs of conformity assessment for both sides. The goal is the recognition by the importing country of the results of conformity assessments carried out in the exporting country. To this end, 3

EU Draft Mandates for Agreements with the United States on Industrial Goods and Conformity Assessments

the corresponding requirements should be defined. In addition, improved measures and approaches should be agreed for those sectors that currently face hurdles. Here, the emphasis is on engineering and the electrical and electronics sectors.

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The agreement should cover, above all, those sectors in which the importing country requires a third-party conformity assessment. A prerequisite for this is that the EU and the United States commit to the effective official monitoring of conformity assessments on their territory.

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The agreement should, if necessary, clarify how it relates to the existing MRAs between the EU and the United States.

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The full preservation of a high level of protection should be ensured.

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Since 2012 there have been many stakeholder consultations. A new round of consultations is due to start soon and, within this framework, a roadmap setting out a stakeholder consultation strategy is to be published. The results of the consultations are to be summarized in a short report. Consultation is not to be limited to the issue of conformity assessment but should also identify possible initiatives (whereby the existing level of protection is to be preserved or increased).

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In order to allow negotiations to take place at short notice, the impact assessment process has been waived. At the same time, the stakeholder process is referred to as the more appropriate approach for assessing potential consequences.

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An institutional structure is to monitor the implementation of the agreement.

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The agreement should include provisions on the termination or (partial) suspension of the agreement.

Assessment ▪

The transatlantic relationship demands not only the elimination of all tariffs but also the harmonization of technical standards, especially with regard to the testing of products. As emphasized by the European Commission, among others, this would benefit, in particular, SMEs, for which the various requirements pose a huge barrier.

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At the same time, BDI firmly supports that the harmonization of technical standards and rules is partly not the task of the European Commission or the U.S. government; rather, it is the task of international standardization bodies such as the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC).3

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BDI strongly welcomes the fact that regulatory cooperation is to be part of a transatlantic liberalization agenda. As the draft mandate proposes, the implementation of an agreement is to be monitored and thus guaranteed. This is important because regulatory cooperation requires an institutional framework as well as a clear agenda and a fixed timetable. Otherwise, there is a danger that regulatory cooperation – just like under the Transatlantic Economic Council (TEC) – fails to yield satisfactory results.

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BDI supports the bilateral mutual recognition of inspection procedures and certificates based on identical requirements. However, another important factor is the structural alignment of the regulatory systems so that, together with the harmonization of technical norms, the recognition of conformity assessments from the other market region is possible. Moreover, the mutual recognition of the test and inspection results of inspection bodies operating in the same economic area

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For further details about the electro industry, see, ZVEI, Die deutsche Elektroindustrie: Neukonzeption zur Überwindung aktueller Handelskonflikte, July 2018, <https://www.zvei.org/presse-medien/publikationen/die-deutsche-elektroindustrie-neukonzeption-zur-ueberwindung-aktueller-handelskonflikte/> (in German).

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EU Draft Mandates for Agreements with the United States on Industrial Goods and Conformity Assessments

should be clearly regulated. For example, inspection bodies that carry out inspections for the U.S. market should recognize one another within the supply chain in order to break up monopolylike positions.

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The mandate on conformity assessment should be – alongside the industrial goods agreement – just one of several elements that shape EU-U.S. trade relations. At a later stage of what will be a multi-stage process, bilateral agreements should be concluded in other areas of regulatory cooperation, as proposed by the Commission in its interim report, such as the chemical industry and the automobile sector.

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Furthermore, the EU and the United States should not neglect to seek possible forms of cooperation when drawing up new standards – e.g., for autonomous vehicles and service robots – or when developing globally relevant standards for cybersecurity. This should be the case even if it is not part of the negotiating mandate.

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BDI strongly believes that the goal of regulatory cooperation should be not the lowering of standards but rather the simplification of procedures, maintaining the level of protection.

Further Remarks and Recommendations Regarding Both Draft Mandates ▪

No stakeholder consultations are planned with regard to the industrial goods agreement, while such discussions are to take place in relation to the agreement on conformity assessment. It is of fundamental importance – not least against the background of the TTIP criticism in Germany and other European states – to ensure from the outset that there is an exchange with civil society regarding the agreements. Even if the mandates are much more narrowly defined than the TTIP mandate, it is only in this way that misunderstandings and misconceptions within civil society can be avoided. And that is important because the U.S. negotiating objectives cover far more negotiating topics. Indeed, it is encouraging that the European Commission has already made the draft mandates publicly available.

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Furthermore, the European Commission must ensure it has the support of all Member States. For its part, France appears to take a critical view of the negotiations, according to media reports, the reason being that it fears that anti-government protests could flare up again. There are also concerns that, contrary to the Commission’s plans, the United States might successfully push for negotiations on the liberalization of the agricultural market. Both France and Poland are particularly defensive on this issue.

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The U.S. negotiating objectives are much more broadly defined than are the two EU draft mandates. They include demands related to all the current topics and issues covered by modern free trade agreements, even if some of those demands are not that far-reaching (for example, in the area of public procurement) and fall short of the usual positions of the EU.

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It is fundamentally in the interest of German industry that other areas, such as public procurement, are covered by the negotiations. If, despite French opposition, the opening of the European agricultural market were to be discussed, the European Commission should demand the opening of the U.S. public procurement system (including equal treatment as regards the “Buy American” rules etc.). However, in view of the current difficult situation, we can understand why the European Commission wants to enter into negotiations with the United States about a rather narrow agreement on trade. In view of the differences between the EU draft mandates and the U.S. negotiating objectives, BDI urges the EU and the United States to intensify their exchanges about the different objectives and draw up a timetable for further negotiations. The U.S. negotiating objectives provide for a step-by-step approach to the negotiations, though only in close coordination with the Congress (“We may seek to pursue negotiations with the EU in stages, as appropriate, but we will only 5

EU Draft Mandates for Agreements with the United States on Industrial Goods and Conformity Assessments

do so based on consultations with Congress.â&#x20AC;?). This could be a way to reconcile what are currently very different approaches. For its part, the European Commission could draw up and seek approval for other negotiating mandates.

Impressum 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 Valerie Ross Tel.: +49 30 2028-1623 v.ross@bdi.eu

As of: March 2019 BDI document number: D 1033

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