USTR Katherine C. Tai

U.S. – EU efforts to resolve bilateral disputes and address underlying trade distortive practices

The Biden-Harris Administration has said from day one that a priority was to reach out to friends and allies to work together to address global challenges whether that be climate change, the COVID-19 pandemic or disruptive practices of some countries. Before the current U.S. Trade Representative was confirmed, the U.S. had agreed with the EU to suspend tariffs for four months each was imposing on the other following sixteen years of dispute settlement proceedings at the World Trade Organization on large civil aircraft to permit the parties to seek a negotiated solution. In statements before Congress and in press releases from USTR, it is clear that negotiations are underway with the intent of achieving a successful resolution by the July four-month deadline. See, e.g., Testimony of Ambassador Katherine C. Tai, United States Trade Representative, Senate Finance Committee Hearing on the President’s Trade Agenda, May 12, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/may/testimony-ambassador-katherine-tai-senate-finance-committee-hearing-presidents-trade-agenda-0 (“We are also working with the European Union and the United Kingdom to resolve the ongoing Boeing-Airbus dispute and are having constructive discussions to address the real problem of overcapacity in the steel and aluminum sectors coming primarily from China.  These talks will take time, but I believe a resolution is possible and worth pursuing.”)

The EU and the U.S. have also been imposing tariffs on each other following the U.S. Section 232 investigation on steel and aluminum with the U.S. imposing tariffs on steel and aluminum products from many countries, including the EU to address national security concerns and the EU imposing duties on a range of products on the theory that the U.S. action was in effect a safeguard measure and the EU could take such action automatically on products where there hadn’t been absolute volume increases to the U.S. with broader tariffs available to it after three years of U.S. tariffs if not removed by then. The EU is among the WTO Members who have challenged the U.S. 232 action, and the U.S. has challenged the tariffs applied by the EU and others as contrary to their WTO obligations. Panel reports in the disputes are expected to be released at the earliest in the second half of 2021. See United States – Certain Measures on Steel and Aluminum Products, WT/DS548/17, 8 February 2021; European Union – Additional Duties on Certain Products from the United States, WT/DS559/5, 16 December 2020

The U.S. and the EU released a joint statement today, May 17, 2021 indicating that they would jointly work on addressing the underlying excess capacity problem (caused largely by Chinese actions) with a goal of finding solutions by the end of 2021. During that time, the EU and U.S. agreed not to change the level of tariffs imposed on each other. See USTR press release, Joint United States-European Union Statement on Addressing Global Steel and Aluminum Excess Capacity, May 17, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/may/joint-united-states-european-union-statement-addressing-global-steel-and-aluminum-excess-capacity. The joint statement is copied below.

“United States Trade Representative Katherine Tai, U.S. Secretary of Commerce Gina M. Raimondo, and European Commission Executive Vice President Valdis Dombrovskis today announced the start of discussions to address global steel and aluminum excess capacity. During a virtual meeting last week, the leaders acknowledged the need for effective solutions that preserve our critical industries, and agreed to chart a path that ends the WTO disputes following the U.S. application of tariffs on imports from the EU under section 232.

“Ambassador Tai, Secretary Raimondo, and Executive Vice President Dombrovskis acknowledged the impact on their industries stemming from global excess capacity driven largely by third parties.  The distortions that result from this excess capacity pose a serious threat to the market-oriented EU and U.S. steel and aluminum industries and the workers in those industries.  They agreed that, as the United States and EU Member States are allies and partners, sharing similar national security interests as democratic, market economies, they can partner to promote high standards, address shared concerns, and hold countries like China that support trade-distorting policies to account.  

“They agreed to enter into discussions on the mutual resolution of concerns in this area that addresses steel and aluminum excess capacity and the deployment of effective solutions, including appropriate trade measures, to preserve our critical industries.  To ensure the most constructive environment for these joint efforts, they agreed to avoid changes on these issues that negatively affect bilateral trade.   They committed to engaging in these discussions expeditiously to find solutions before the end of the year that will demonstrate how the U.S. and EU can address excess capacity, ensure the long-term viability of our steel and aluminum industries, and strengthen our democratic alliance.”

One of the consequences of efforts to improve relations is the EU postponing raising tariffs on June 1, 2021. Both the EU and the United States are under internal pressures to either see the 232 tariffs eliminated (EU) or maintained (U.S.). While EC Executive Vice President Valdis Dombrovskis had made a suggestion to suspend tariffs for six months as reported in the press back in April, the outcome of consultations seems to be to maintain but not modify existing tariff rates while the effort to find a resolution to the excess capacity problem is pursued. The problem is a creature largely of Chinese policies and subsidies to the steel and aluminum sectors. See Fastmarkets, EU retaliation may convince Biden to revise Section 232, April 14, 2021, https://www.fastmarkets.com/article/3984128/eu-retaliation-may-convince-biden-to-revise-section-232 (“There is some question, however, about whether the EU’s tariff increase will occur in June after EU trade chief, Valdis Dombrovskis, suggested than the bloc and the US suspend tariffs for six months.”); Financial Times, EU signals US trade detente by shelving planned tariffs increase, 17 May 2021, https://www.ft.com/content/603c83bc-0c0e-4bd9-9fb3-0f5ea5b264c0. Considering the efforts the United States has been making to reboot the transatlantic relationship, the action by the EU is a practical step that lets parties focus on the underlying concern versus dealing with the political fallout of increased retaliatory tariffs.

Finding a solution to the global excess capacity problem will be challenging. Both the U.S. and EU have attempted to achieve progress through the OECD with little to no meaningful progress. The U.S., EU and Japan have been engaged in trilateral discussions for the last 3 1/2 years following the 11th WTO Ministerial Conference in Buenos Aires about addressing industrial subsidies, state-owned enterprises, forced technology transfer and the creation of global excess capacity but have not yet reached out to the broader WTO membership for a road forward to addressing the trade distorting practices that define too much of international trade today. And, of course, the problem flows from the different economic system used by China and some other countries, an economic system not compatible with WTO norms and not addressed under existing WTO rules. While plurilateral negotiations seem possible, it is hard to imagine modified WTO rules since China can block consensus.

The Biden-Harris Administration has demonstrated to date that it would prefer to negotiate resolution of longstanding issues with allies if possible versus increasing tariffs or maintaining disputes. Both the U.S. and EU seem interested in recalibrating the transatlantic relationship. There is greater alignment on some major issues like climate change and ending the pandemic. Both parties want to see WTO reform, though there are undoubtedly areas of difference as well as areas of agreement. The U.S. and EU will need creativity and sustained good will to resolve the bilateral trade disputes where negotiations are underway or soon will be.