MEMA Industry News Editor’s Note: The EU is a critical trading partner for the U.S. and, particularly, for vehicle parts manufacturers. For more information, please contact Ann Wilson or Leigh Merino.
New European Union Trade Commissioner Phil Hogan arrives in Washington this week on what could be an impossible mission — resetting the world’s largest investment and trade relationship after three years of President Donald Trump’s trade-rattling tariffs.
The challenge could be the 6-foot-5-inch Irishman’s most daunting to date, following tough but successful negotiations on an EU beef deal with the U.S. and a broader trade deal with Japan that took effect last year.
The visit comes as Trump and U.S. Trade Representative Robert Lighthizer are feeling flush from a successful NAFTA renegotiation and a preliminary trade deal with China that will be signed on Wednesday.
Trump sees both agreements as vindication of his get-tough approach to trade negotiations, which included threatening to withdraw from NAFTA and slapping duties on literally hundreds of billions of dollars of Chinese goods.
Now, disputes over France’s new digital services tax and European support for Boeing’s chief rival, Airbus, give Trump another chance to fire his tariff cannon. And with an impeachment trial looming, new duties on Europe would allow Trump to show the world his presidency is alive, if not completely well.
Against that fraught background, Hogan hopes to persuade Lighthizer to delay any new action that would further disrupt the U.S.-EU relationship.
"Phil Hogan is a serious man, who I think takes his job very seriously and his belief and feeling in the EU is strong," said former U.S. Agriculture Secretary Tom Vilsack, who sparred with Hogan during unsuccessful talks on the proposed Transatlantic Trade and Investment Partnership pursued by the Obama administration. "He is a tough negotiator, but fair."
"Hogan has said publicly he wants “to reset the relationship between the EU and the U.S., and I think that's the message that he would obviously be conveying privately to Robert Lighthizer,” an EU official said.
But there’s considerable frustration in both the administration and Congress over the EU’s refusal to negotiate with the U.S. on agriculture. EU farmers enjoy a $10 billion trade surplus with the United States, partly because of the EU’s barriers to many U.S. farm products.
The U.S. business community, for its part, is weary of Trump’s tariff actions, but eager to work with the EU both on bilateral irritants and common challenges posed by China.
This week’s visit is Hogan’s “chance to meet with Cabinet members like Bob Lighthizer and Secretary Wilbur Ross, and I think to take the temperature of what's possible," said Myron Brilliant, executive vice president and head of international affairs at U.S. Chamber of Commerce.
It could also set the stage for an even more consequential introductory meeting between new European Commission President Ursula von der Leyen and Trump on the sidelines of the World Economic Forum in Davos, Switzerland.
Von der Leyen, a former German defense minister, also would like quiet on the U.S. trade front as the EU wrestles with the difficult challenge of negotiating a new trade relationship with a major departing member, the United Kingdom.
“Stabilizing the European economy, and Britain's role in that, is probably something that has to come first,” Peter Rashish, director of the Geoeconomics Program at Johns Hopkins University's American Institute for Contemporary German Studies, said.
That’s important “both strategically and also in the sense that until we know what the U.K.-EU trade relationship is going to look like, it's going to be very tough for both the U.K. and the EU to negotiate with us,” Rashish said.
For the EU, the stakes are high. Its historical transatlantic partner has caused more than one headache with Brussels eurocrats. The EU capital would now like a little less drama on the Western front so it can focus on its future relationship with the U.K., its planned investment deal with China and other trade negotiations with Australia and New Zealand.
But Hogan’s visit comes amid troubled transatlantic times, as the Trump administration is considering slapping 100 percent duties on up to $2.4 billion worth of French champagne, cheeses, handbags and other goods in a dispute over that country’s new digital services tax, which U.S. officials believe is unfairly aimed at American internet giants Google, Amazon, Facebook and Apple.
Lighthizer has also threatened to launch investigations that could lead to additional tariff threats against other EU countries, such as Italy and Austria, that have also imposed a digital services tax, as well others like Spain, Poland and the Czech Republic, which are considering one.
For its part, the EU has threatened to punch back with unilateral duties. That same tactic may have persuaded Trump not to impose tariffs on EU auto imports, as he has often threatened to do. But Trump has kept national security tariffs in place on EU steel and aluminum, despite EU retaliation on U.S. farm and other goods.
Lighthizer also has proposed raising tariffs to 100 percent on $7.5 billion worth of goods from a broader array of European countries in a separate dispute over European government support for aerospace giant Airbus. Unlike the tax case, that potential U.S. action is sanctioned by the WTO.
The Trump administration previously imposed a 10 percent duty on large civilian aircraft and a 25 percent duty on wine, cheeses and other goods in the dispute. The EU has its own WTO case against U.S. support for Boeing. But a decision on final damage award is still months away, and U.S. officials feel confident it will be less than they were awarded.
The transatlantic powers are also on separate sides of a crisis threatening the future of the WTO.
With the U.S. blocking the appointment of judges to the WTO’s highest dispute-resolution body, there is no longer a world trade referee. The EU has been working on alternatives to preserve the idea of a rule-based multilateral trading system. At the same time, it wants to find a more permanent solution with the United States.
On that front, the EU’s new trade chief wants to shift the conversation from the dispute resolution to a broader WTO reform.
“Hogan wants to work together more broadly on WTO issues because, as is often the case, the issues that unite the European Union and the U.S. are often much more significant than those who divide us,” said the EU official. “There are more fundamental reforms needed for the WTO and the idea is to look for common ground between our respective positions which can be the basis for future work.”
All those disputes have the potential to get U.S.-EU trade relations off to a messy start with the new European leadership.
But Rashish said he was hopeful that the United States would refrain from tough action to give more time for negotiations in the Organization for Economic Cooperation and Development in the case of the digital services tax and bilaterally in the Airbus dispute.
“There is precedent for the administration sometimes stepping back,” he said.
That happened 18 months ago,when then-European Commission President Jean-Claude Juncker headed off Trump’s threat to impose tariffs on European autos by agreeing to bilateral trade talks. But that effort never flowered into a full negotiation largely because of the EU’s refusal to address U.S. demands to lower its agricultural trade barriers.
“I think that’s the fundamental challenge these two gentlemen will face,” Vilsack said. “If they are truly interested in a full scale deal, then agriculture has to be on the table and the EU has to change its position.”
Vilsack, who now heads the U.S. Dairy Export Council, was USDA secretary during the first two years that Hogan was EU agricultural commissioner. He sees a similarity between Hogan, who was raised on a family farm in Ireland, and Lighthizer, a son of the Rust Belt.
Another former U.S. government official, who asked not to be identified to speak frankly, saw an opportunity for Hogan and Lighthizer to work well together, even when the EU is unwilling or unable to meet U.S. demands.
“[Hogan’s] a person of great personal charm — he’s Irish after all — but also pretty blunt. ... I think Bob appreciates people who are well-prepared and professional. He is business-oriented and not always big on small talk. We’ll see if Hogan measures up,” the former official said.
But unlike Rashish, he was pessimistic about U.S.-EU trade relations in the near term, given Trump’s demonstrated fondness for imposing tariffs. “The EU doesn’t show signs of wanting to buckle to U.S. demands. I’m not optimistic about the near term future,” the former official said.
Hogan will also meet privately with U.S. industry officials during his Washington, and is likely to find a sympathetic ear to his “reset” message.
After two years of wrangling over autos and agriculture, the two sides need to move away from a focus on sector-specific issues and develop “a broader framework” for discussion, Brilliant said.
“We need to work with the EU to strengthen the global trading system through the World Trade Organization and other means. We need to build consensus around some of the new technology issues, standards and regulation and we need to work on third party issues, whether it’s China or elsewhere,” he added.
Hogan has a reputation as a strong enforcer of EU trading rights. During his time as agriculture commissioner, he was sometimes seen as undermining proposed EU agreements with the United States and countries in South America, which he identified as a threat to core European farming interests.
During the previous European Commission, Hogan regularly was seen as the “bad cop” in contrast with the more diplomatic and consensus-driven Swedish commissioner Cecilia Malmström, who was the EU trade chief before Hogan. During discussions with the U.S. over a later shelved transatlantic trade deal, he notoriously countered what he saw as a risible American offer by saying: “We’re not f---ing Burundi!”
On the other hand, Hogan’s long experience in agriculture can also be an asset in any talks with the United States on a broader trade agreement, although Vilsack said he was skeptical much could be accomplished to reduce EU agricultural trade barriers in the coming year.
“The problem is that many of the concerns being raised by the Europeans are not science-based, they are culturally-based,” Vilsack said, referring to Europe’s aversion to genetically modified crops, beef produced with artificial growth hormones and chicken carcasses cleansed with a chlorine-based wash. “That makes it really hard.”
In addition, EU Agriculture Commissioner Janusz Czesław Wojciechowski has the lead in trade negotiations involving agriculture — just as Hogan did when he was in that role.
Also, without a new mandate from EU member states, neither Hogan or Wojciechowski has much room to bargain on the agricultural front. And it’s far from clear that Von der Leyen has enough sway to persuade reluctant members like France to budge on those issues.
Still, Hogan’s frankness makes it easy to know where he stands. “What Ambassador Lighthizer is going to see across the table is a guy who is very straightforward,” Vilsack said.
Hogan won’t be starting from scratch when he meets with Lighthizer this week.
When Hogan was agriculture commissioner, the two men negotiated a deal to increase the amount of “hormone-free” beef the United States can sell in the European Union as compensation for the EU’s hormone-treated beef ban. That headed off even more U.S. tariffs on European goods.
Lighthizer, for his part, has identified reducing the U.S. goods trade deficit with the EU as an area that he wants to tackle in any negotiation. That trade gap could reach $175 billion this year, the highest on record, even as the U.S. deficit with China has shrunk significantly because of the tariffs that Trump has imposed on Beijing.
Focusing on the trade gap is not likely to be “a non-starter” with EU, largely because it is dictated more by macroeconomic factors like national savings rates than trade policy practices, Rashish said.
But Vilsack said he believed it was important that the EU agree to changes to bring agricultural trade more in balance, since it is much easier for EU farmers to sell their products in the United States than for U.S. farmers to sell their goods in the EU.
“There is a massive agricultural trade deficit between the U.S. and the EU, and that has to be addressed in some way or there won’t be support in Congress” for any agreement, Vilsack said.
Still, it will be hard for the United States to make progress in talks with the EU, as well as separate talks with the United Kingdom on a free trade agreement, will be hard this year because the top priority in both Brussels and London will be negotiating a new trade relationship, once the U.K. formally leaves the EU on Jan. 31.
U.K. Prime Minister Boris Johnson wants to complete those complex talks covering a variety of business sectors and issue by the end of December, putting a major drain on both EU and UK negotiating resources.
As much as Hogan might want to focus on improving trade relations with the United States, the negotiations with the U.K. will absorb a big chunk of his time.
Both the EU and the U.S. want the post-Brexit trade deal with the U.K. and both want the U.K. to conform to their standards.
Johnson might be able to use that as leverage during the negotiations with both the U.S. and the EU, but he will also have to weigh the impact that a trade deal with the U.S. might have on the U.K.'s access to the EU market with which it has the closest ties.
The EU absolutely wants to avoid a dangerous competitor on the EU’s doorstep. During her first visit to London, Von der Leyen repeated that the EU wants a deal with “zero tariffs, zero quota and zero dumping.”
Despite the challenges of reaching any deal this year, Rashish said he’s hopeful that the two sides can recalibrate their approaches to trade in a way that brings them closer together.
For the United States, that would mean working more in the multilateral arena to achieve of its trade objectives, while not completely giving up the unilateral approach.
For the EU, that would mean bolstering its own ability to take unilateral trade action — something the European Commission recently did in the form of new enforcement tool — even though that’s contrary to it multilateral instincts, Rashish said.