A US Trade Agenda With Europe For A Biden Administration

Now that Joe Biden is registering a significant lead over Donald Trump in nation-wide polling for the November presidential race, attention is turning to what trade policy his administration would pursue with Europe.

Now that Joe Biden is registering a significant lead over Donald Trump in nation-wide polling for the November presidential race, attention is turning to what trade policy his administration would pursue with Europe. Even at the best of times, trade is hardly the most popular area for a president to spend political capital (always in short supply). Moreover, influential members of the Democratic party, including Bernie Sanders and Elizabeth Warren, appear to have such a skeptical view of international trade agreements that perhaps none would meet with their enthusiasm. Moreover, a Biden administration may have limited policy bandwidth left after focusing on repairing what it will perceive as the wreckage inherited from the prior administration. 

Nevertheless, there is a pragmatic trade agenda with Europe (much of it not requiring Congressional approval). It will look rather different from the one pursued under President Obama’s administration: the US and EU cannot pick up the Transatlantic Trade and Investment Partnership Agreement (TTIP) where it stood as of January 2017. Given the deep recession caused by coronavirus and the urgent need for measures to boost growth and employment, both sides will be incentivized to identify areas where rapid progress is possible in trade liberalization and to prop up the rules-based international world trading system. The following is a list of priorities that are feasible and actionable, some even in the short term (i.e. first year).

Priority #1: eliminate tariffs on industrial goods trade with the EU

During TTIP negotiations, the US and EU agreed to eliminate 97 per cent of all tariff lines for US-EU trade. While the US pushed for total tariff elimination, the EU was reluctant to remove the remaining three per cent of tariff lines (relating largely to sensitive agricultural items) without US concessions in unrelated areas.

Although trade-weighted transatlantic tariffs on goods average between 2 and 3 percent, the EU applies substantially higher tariffs, especially in agriculture, but also in industrial products, such as trucks, footwear, audio-visual products, and clothing; and the US also applies substantially higher tariffs on industrial products such as footwear, textiles, and clothing. According to one study, total transatlantic tariff elimination would boost two-way US-EU goods exports by around 17 per cent.

In order to win political backing in the United States, a deal to eliminate tariffs on industrial goods trade must be accompanied by EU movement on agriculture. That sector accounts for a large and growing amount of the surplus the EU runs with the US in goods trade. Some of the long-standing EU obstacles to US agricultural exports (on hormone treated beef, poultry disinfected with chlorine, pork reared with growth promoters etc.) are highly unlikely to be resolved. But there are many others that can.

Priority #2: conclude a free trade agreement with the United Kingdom

This is a worthy and achievable goal, even if the economic benefits will be rather modest (the UK has estimated that an agreement would increase the country’s GDP by between 0.07 per cent and 0.16 per cent over 15 years). In some areas the negotiations should be less contentious than the ones the US has had with the EU. These areas include agriculture (especially geographical indications), investor-state dispute settlement, mutual recognition of professional qualifications, data flows and perhaps even public procurement (one of the toughest areas in US-EU negotiations). But there will be areas of disagreement, including on food safety standards and the UK’s digital services tax. UK farmers will no doubt be reticent about letting in significantly greater imports of US agricultural products so soon after losing EU farm subsidies. Importantly, a Biden White House might share House Speaker Nancy Pelosi’s view that no US-UK free trade agreement should go ahead if the UK takes steps that endanger the Irish Good Friday Accords through the re-emergence of an inter-Irish border.

Priority #3: lift US steel/aluminum tariffs and EU countersanctions

A Biden administration would be highly likely to lift the tariffs that the Trump administration imposed unilaterally on the spurious argument that imports of steel and aluminum, even from allies at a time of peace, represent a threat to national security. As the WTO has rightly ruled on several occasions, the national security exemption from trade rules is not a free pass and should not be abused as such. If it were otherwise, the law of the jungle would prevail.

Priority #4: settle the Boeing/Airbus dispute

There is growing recognition on both sides of the Atlantic that it is past time to settle this 16-year-old dispute over state support for these aircraft manufacturers. The World Trade Organization has found that both have received billions of dollars/euros of unfair subsidies. The WTO has already approved US tariffs on up to $7.5 billion worth of goods from the EU and is expected to approve EU tariffs on goods from the US in the Fall. The only winners from this epic dispute (aside from the lawyers) are the Chinese who are busy preparing for a third competitor.

Priority #5: reconstitute the WTO dispute settlement body

Due to the Trump administration’s block on appointments to the dispute settlement body, it has ceased to have the minimum required number of judges and therefore cannot issue rulings. This has raised the serious risk of countries appealing cases they lose “into the void” in the knowledge that nothing can happen. While the EU and other WTO members have agreed on an alternative dispute settlement body, this is an imperfect and temporary solution.

Priority #6: relaunch some plurilateral trade negotiations

The US and the EU were co-sponsoring the Environmental Good Agreement (‘EGA’) and the Trade in Services Agreement (‘TISA’) before the Trump administration put them on hold. The EGA will be particularly important as the elimination of tariffs on environment-related products will help achieve environmental and climate protection goals, such as generating clean and renewable energy. The TISA negotiations were troubled by transatlantic disagreements over data flows and data privacy even under the Obama years. But due to the hugely important and growing role of services in world trade, an agreement to liberalize services trade could be hugely beneficial.

Priority #7: re-engage with the EU on OECD negotiations on global digital taxation rules

The withdrawal of the Trump administration from the OECD multilateral negotiations on how to amend taxation rules to better reflect the new realities of the digital economy has encouraged a growing list of EU countries to implement national digital services taxes. The US Trade Representative has initiated so-called Section 301 investigations into these national tax regimes and has issued a highly critical report alleging that they are discriminatory. An incoming Biden administration might wish to agree with the EU and its member states that they abandon EU and national DST schemes in return for the US dropping the Section 301 investigation and re-entering into OECD negotiations in good faith.

Priority #8: form a US-EU working group on WTO reform and on Chinese trade abuses

Perhaps the biggest area of divergence between a Biden administration and its predecessor may be the realization that the EU is a partner with whom to work on reforming the WTO system that has been badly abused, especially by China. The EU has put forward detailed proposals on reform; although the United States shares many of them, even under the current administration, there has been no common effort so far to force China to accept them. Some of these proposals relate to the manner in which the Dispute Settlement Body has carried out its work. A Biden administration may wish to pursue more cases at the WTO, many of them perhaps in alliance with the EU.

Priority #9: establish a US-EU working group on regulations for critical technologies of the future

The issue of who controls the standards relevant to critical future technologies, such as artificial intelligence and the internet of things, is of fundamental importance. China has understood this well, seeking to place its officials at the head of key standard-setting bodies, such as the International Telecommunications Union (where it did so successfully) and the World Intellectual Property Organization (where it failed). The US and the EU share concerns about allowing China to set standards regarding facial recognition and 5G to lock in their values and exporters’ advantages.

Priority #10: agree to recognize certain non-safety auto standards as “functionally equivalent” and agree to set future auto regulations in partnership

During the TTIP negotiations the US and EU tried but failed to achieve mutual recognition of auto safety standards, largely because the US regulatory agencies were unable to obtain necessary data from all EU member states. However, there are numerous non-safety related areas of divergence in auto standards that add significant cost to the flow of trade in cars. And it should be possible for the US and EU to work more intensively together on new auto regulations, especially in evolving areas such as autonomous vehicles, including at the UN Economic Commission for Europe.