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March 22, 2021

The US and the EU: Time for a New “Transatlantic moment”?

On January 20, Joe Biden was sworn in as the 46th president of the United States. According to a survey by the European Council on Foreign Relations (ECFR)  as of January 2021, a majority of Europeans are happy about the election victory, but 32 percent say that the Americans can no longer be trusted after the four years of President Trump.

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The revival of Atlanticism

Biden is a multilateralist and as such, he will want to re-establish the responsible leadership role of the United States on the world stage. And this is not just rhetoric: he already returned the Unites States to the Paris Climate Agreement and the World Health Organization (WHO)—two important fields for cooperation with the EU. He also ended the U.S. block  on appointing a new Director General at the World Trade Organization (WTO), endorsing the Nigerian candidate Ngozi Okonjo-Iweala, thus resolving the leadership crisis at the organization. Biden is an internationalist and a transatlanticist. This also applies to trade policy. He brings along many personal contacts with European leaders due to his experiences as Vice President during the Obama administration. And after four years of Trump, Biden now wants to revive the transatlantic relationship and is looking for a strong dialogue with the EU. That both sides are showing good-will is underlined by recent developments in the long-standing Airbus-Boeing subsidies conflict. For years, the transatlantic partners have accused each other of providing subsidies to their respective aviation industries in violation of WTO rules. The WTO ruled in favor of both and allowed retaliatory measures. In October 2019, the United States began imposing tariffs on a wide range of imported goods from the EU. In 2020, the EU followed suit. At the beginning of March 2021, the EU and the United States agreed to suspend their respective tariffs on aircraft and non-aircraft products for four months. Both sides now want to work together on a solution regarding future and outstanding support measures, monitoring, and enforcement. In addition, they want to deal with the trade-distortive measures of non-market economies like China in this sector. This is a major step forward for the transatlantic trade relationship.

Biden’s  trade policy priorities

But not all might be rosy in transatlantic trade relations. Biden wants to make a foreign and trade policy for the middle class. That is why he also wants to show that he, too, is "tough on trade." His top priority is to strengthen and restructure the U.S. economy. Under the motto "build back better" he wants to boost the U.S. industrial base and invest in education and infrastructure. His "Made in All of America" plan aims to create at least 5 million American jobs in the industrial sector. In the automotive industry alone, he wants to create 1 million new jobs. Biden quickly followed up his words with action. One of the president's first executive orders, "Ensuring the Future Is Made in All of America by All of America's Workers," aims to tighten Buy American regulations on government procurement. In the future, the government is "to maximize the use of goods, products, and materials produced in, and services offered in, the United States.”

Tariffs will also continue to be part of the U.S. trade policy arsenal. Unlike Trump, Biden admittedly does not want to use tariffs "to feign toughness". Where necessary, however, he will not shy away from tariffs and can be assured of broad support among the population and the unions. It fits the picture that Joe Biden has not yet abolished the 232 tariffs on steel and aluminum, which were also directed at the EU. On the contrary, in early February he reinstated the 10 percent tariff on aluminum imports from the United Arab Emirates, which Donald Trump had lifted just one day before leaving office. This suggests that President Biden, like his predecessor, will link trade and security.

Other transatlantic conflicts relate to the French and possible European digital taxes and the potential introduction of carbon border adjustment measures (CBAM) by the EU. The EU Commission intends to present a legislative proposal for a CBAM in 2021 in order to create an international level playing field for European companies that are subject to stricter climate protection requirements than their competitors abroad. The idea of a European CBAM has met with much positive response from U.S. environmental groups and trade unions. However, members of the U.S. Senate already warned that this would be seen as a protective measure by the EU, which would be challenged. Biden does not have the necessary clear majorities in Congress for a comprehensive climate legislation. Should he attempt to introduce a CBAM by executive order, it is highly likely that it will be challenged in U.S. courts.

Plenty of room for cooperation with the EU

There might be more room for cooperation on a digital tax. How to tax big tech companies such as Google and Microsoft has been a point of strong contention over the past four years. In summer 2020, the United States pulled out of the international talks at the OECD on a digital tax, also initiating a probe into whether the measures being adopted by France amounted to an unfair trade practice. However, in January 2021, Biden’s Treasury Secretary, Janet Yellen, indicated her support for international cooperation, raising hopes for a revitalized OECD process.

The transatlantic partners need to use the positive momentum not only to resolve long-standing trade conflicts but to enhance transatlantic cooperation on a variety of trade issues. This is in the interest of both the United States and the EU, as bilateral trade and investment are an important pillar of economic success on both sides of the Atlantic: for jobs, innovation, and economic growth. In addition, both sides also share the same values. Therefore, the EU and the United States must strive for a positive bilateral trade agenda. An ambitious project such as the Transatlantic Trade and Investment Partnership (TTIP) is out of the question. But smaller transatlantic agreements, which also could serve as incubators for plurilateral initiatives, could be concluded for this purpose. This involves the potential elimination of tariffs on industrial goods (an offer the EU already made under the Trump administration). This could also include new agreements on the mutual recognition of standards and norms: The Mutual Recognition Agreement (MRA) on pharmaceuticals could be expanded, and there could be new MRAs on safety regulations for cars. In addition, both sides could strive to achieve closer regulatory cooperation in the development of standards for new technologies (Tech Council).

These bilateral projects could be flanked by enhanced transatlantic cooperation on the multilateral level of WTO reform, particularly on new trade issues such as e-commerce or environmental goods (EGA). After all, digital trade is important both for the EU and the United States. Among other things, the e-commerce negotiations are about reducing trade barriers on electronic transmissions, protecting personal data, and improving market access commitments for telecommunications and computer services. A revival of the plurilateral EGA negotiations could also have a positive impact on the WTO. The goal was an agreement that would remove tariffs on goods that make a positive contribution to environmental protection. During Trump's time in office, the negotiations were on hold. Climate protection is high on Biden's agenda and as such, the revival of the EGA initiative would be a worthwhile transatlantic endeavor.

Biden also wants to ensure fairer international competition for US companies. Dealing with foreign state-owned enterprises and subsidies is likely to remain an important issue. However, the WTO's rules on subsidies are weak. The United States, as part of the Trilateral Initiative – an initiative of the EU, US, and Japan – had therefore tabled proposals on how to reform the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement) in January 2020. For example, the three partners advocate for a broader definition of subsidies, coverage of additional types of subsidies, stricter reporting requirements and sanction mechanisms. A revival and possibly expansion of the Trilateral Initiative would be another worthwhile transatlantic goal.

There is a window of opportunity to “build back better” in the transatlantic relationship. But it will not be easy, even under the Biden administration, and will require a lot of effort on both sides of the Atlantic. As they say: it takes two to tango.

Read and download the full report here.

 

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This text was first published on March 18, 2021, by ISPI (Instituto per gli studi di politica internazionale)

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