Fortune | 7 May 2019
Why the new US-EU trade talks may be doomed before they even start
By DAVID MEYER
By the middle of last year, the U.S. had hit the European Union with steel and aluminum tariffs, the EU had responded with counter-tariffs on American goods, and some feared the situation could escalate into a full-blown trade war.
But then U.S. President Donald Trump and European Commission President Jean-Claude Juncker had a meeting and emerged with an agreement—the two sides would try to strike a new free-trade deal to give their countries easier access to each other’s markets.
The good news: preliminary talks are finally starting this week, more than nine months after that agreement. The bad news: the talks are probably already doomed before they start.
That’s in part because of a long-running catch 22: the U.S. won’t contemplate a deal that doesn’t include agricultural goods, and the EU, keen to protect its own farmers and maintain food standards, refuses to allow a deal that does include them.
The biggest problem facing the fresh trade negotiations is that of food.
“The United States has made it clear to the EU on many occasions that a trade agreement between the United States and the EU needs to include agriculture if the agreement is to get support in Congress,” said a U.S. Trade Representative (USTR) official Monday.
The EU has long opposed opening the way for more U.S. farm foods to come into the bloc. This is partly to protect Europe’s small farmers from their larger U.S. competitors, and partly to keep out food that has been heavily genetically modified or—like chlorinated chicken—treated in ways that fall short of EU sanitary standards.
France in particular strongly resists any deal that includes agricultural goods, and France is one of the EU’s most influential members.
The EU has a fairly good argument for not including agricultural goods in these talks: they weren’t part of the agreement struck between Trump and Juncker last July. The two presidents talked about a free-trade deal encompassing non-auto “industrial goods”—a category that takes in everything from chemicals to textiles, but not meat, fruit or wine.
Accordingly, when the EU’s member countries last month gave EU negotiators permission to start talks with their American counterparts, they did so on the basis that the talks would be “strictly focused on industrial goods, excluding agricultural products.”
The Commission is not budging on that point, with sources there saying it is “convinced that a strict implementation” of what was agreed with Trump would “benefit both sides and could help address current challenges for the multilateral trading system.”
No dice, say the Americans.
“U.S. agricultural exports to the EU face high tariffs and unjustified non-tariff barriers. American farmers and ranchers need to be allowed to compete on a level playing field in the EU,” said the USTR official.
All of which should make for lively discussions this week in Washington, D.C., where EU and U.S. teams are meeting to pave the way for formal talks between USTR Robert Lighthizer and EU Trade Commissioner Cecilia Malmström in the coming weeks. Because the official talks are yet to begin, the two sides are free to discuss the agricultural goods issue at this stage—but later on, it’s most likely going to be off the table.
The business community in the EU is certainly keen to see the talks succeed, though not at any cost.
“The United States [is] the most important export destination for the German economy,” said Ilja Nothnagel, a member of the executive board at the German Chambers of Commerce and Industry. “Continued trade tensions not only endanger trade flows but jobs in Germany and the U.S. Many German companies…have invested in the U.S. and employ around 850,000 people there. That is why the trade talks are an important step.”
Nothnagel said German companies have long been struggling with bureaucracy in U.S. states and in public procurement there, and are hoping a deal would cover non-tariff-related trade barriers of this sort.
The biggest lobbying group that represents European farmers, COPA-COGECA, claims it’s in favor of agriculture being part of a comprehensive trade package—but not a cut-down deal of the sort that U.S. and EU negotiators hope to strike.
“We believe that it would be beneficial if agriculture is included in a comprehensive trade negotiation, but we need to talk about all key issues… and not only tariffs. This would help to reduce tensions,” said the organization’s secretary general, Pekka Pesonen, in an emailed statement. “Nevertheless we know that the calendar and current trade/political environment wouldn’t give much room for a comprehensive agreement.”
Agricultural products aside, there are quite a few hurdles to overcome if the U.S.-EU free-trade deal—the first attempted since the Transatlantic Trade and Investment Partnership (TTIP) talks—is to become reality.
The TTIP talks failed in 2016, and the impasse over agricultural goods was a major factor. This time round, there are several new problems that generally stem from the policies of the Trump administration.
For a start, France doesn’t even want the fresh talks to be taking place, because of the U.S. withdrawal from the Paris climate agreement.
Then there are the tariffs that are still in place between the two sides—the U.S. metals tariffs and the counter-tariffs that followed—plus the tariffs that Trump keeps threatening to levy on European cars—and the tariffs the EU is threatening to introduce in response.
On top of that, the EU is currently setting up a new payments channel to bypass U.S. sanctions on Iran. There are also big tensions over the U.S.’s decision to fully implement sanctions against Cuba in a way that could hurt European companies that have invested there. And there’s also the ongoing spat over subsidies and tax breaks given to the U.S.’s Boeing and the EU’s Airbus.
In short, the outlook for any new deal is about as good as it was for TTIP—unlikely at best.