The question at the heart of the EU-US deal is ‘will it hold’?
The “massive trade deal” between the U.S. and the EU vaunted by President Trump as he shook on it with European Commission President Ursula von der Leyen at his Scottish golf resort at the end of July is not, contrary to appearances, anything like done and dusted but remains very much a “work in progress.”
The headline figure that focused attention was a tariff at 15%, applicable to roughly 70% of the goods imported into the States from the 27-nation bloc – half the threatened rate of duty’, ostensibly from 7 August.
‘Unstable Interim Accord’
A few weeks on since its announcement, there continues to be deep discontent politically towards the “deal” from EU member state heavyweights, such as France, who said it amounted to “submission” and also Germany, who denounced it as “weak.” A former European commissioner said the EU had effectively condoned Trump’s bullying tactics.
There is also sentiment that the EU could and should have called Trump’s bluff. But as French president Emmanuel Macron commented the EU isn’t “feared enough”.
According to one former EU official, the ‘deal’ announced in Scotland “is in reality an unstable interim accord. Nothing is yet inked or signed”, adding: “Washington and Brussels are already locking horns on its interpretation and negotiations on the finer (and broader) points are ongoing.”
‘Strategic Realism’
Despite the volley of fierce criticism, Von der Leyen’s team of negotiators assert that an essential objective has been attained: offsetting a full-blown tariff war. As one Commission official quoted in a media report, noted: “It was never going to be between a good and a great deal, but between a bad and less bad one. We certainly believe this is less bad,” adding that the Brussels’ approach had been one of “strategic realism.”
They will take some comfort from the rather upbeat view economic analysts have expressed about the “deal.”
Goldman Sachs believes “it is the best available for Europe”. As for Deutsche Bank, it noted that “the worst outcomes have been avoided.”
Another analyst argued that a 15% US import tariff keeps the EU relatively competitive compared to other nations who face higher rates of duty. Also, EU goods have the advantage of being highly-innovative which US manufacturers have only limited scope to replace, short of investing heavily over time in production expertise and capacity.
No Certainty ‘Compromise’ Will Hold
But, by and large, business and industry see little in the deal to be enthusiastic about.
“This agreement may have been necessary politically, but it remains a bitter pill to swallow for many companies,” said Helena Melnikov, CEO of Germany’s Chamber of Commerce and Industry. “It creates additional burdens instead of relief: higher tariffs, more bureaucracy, and reduced competitiveness. And what’s particularly problematic is that it’s not even certain that this compromise will hold.”
A survey conducted by the Chamber among 3,500 companies showed that more than half (58%) expect further disruptions in trans-Atlantic trade. This figure rises to 74% for those with a subsidiary in the U.S.
Devil in the Detail
It is the outcome of the second-phase, the negotiations, the nitty-gritty of thrashing out the details sector by sector in order to finalize a trade deal, which the European business community eagerly awaits.
“As things stand, the deal is a work in progress,” James Hookham, the director of the Global Shippers Forum – a grouping of national shippers’ associations, told AJOT.
“What shippers need is information by tariff classification i.e. the Harmonized System (HS) Number. This is where the fine distinction between products of slightly different composition, country of origin, or intended use is made, and different tariff rates may be applied. That level of detail has not emerged yet for the various trade deals, but that’s the required operational vocabulary for importers and exporters.”
Hookham said it was his understanding that the U.S. import tariffs could not come into effect until the rate for each HS code is agreed and the US Harmonized Tariff Schedule (HTS) is updated to include them.
“If you look at the EU statement (on the trade deal) and how vague that is about, say, fish products, it would not be possible to apply tariffs until each type of fish or fish product (defined by HS number) was assigned a tariff (and probably a quota).The US Customs and Border Protection issue bulletins announcing when Harmonized Tariff has been updated with this level of detail.”
No new developments on the negotiations front were reported in the first two weeks of August, certainly not at the level of HS Code numbers that shippers need to work out the precise impacts of the tariffs on their particular products, Hookham noted.
“The Commission is all but closed for business during August as it’s the customary holiday season and I would also guess bandwidth in the US Department for Commerce has been maxed out recently by the President’s announcements on 31 July on the ‘Reciprocal Tariffs’”.
Investment Pledge Doubt
Meanwhile, one part of the ‘deal’, stated in a White House fact sheet but which has had only limited media coverage and could become a major obstacle, is a ‘pledge’ by the EU to invest $600 billion in the US by the end of Trump’s second term.
“This new investment is in addition to the over $100 billion (that) EU companies already invest in the United States every year,” the fact sheet added.
However, such a pledge would appear to be untenable as the European Commission (EC) does not have the power to design and implement investments on behalf of the private sector.
This has not deterred Trump from asserting that the investment pledge was one of the reasons he had dropped tariffs to a blanket rate of 15% rate and will need to be honored otherwise duties of 35% will be imposed on the 27-nation bloc.
