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EU negotiating success in Washington

26 Jul 2018 10:36|Marcin Lipka

"The expectations of economists and observers of the global political scene before the Trump-Juncker meeting in the United States capital were extremely low. All the more, the agreements made between the U.S. and EU leaders should be regarded as positive information for both economies. It is also worth noting that it was the Union that benefited chiefly from Wednesday’s talks. Why?" asks Marcin Lipka, Conotoxia Senior Analyst.

A few hours before the start of trade negotiations between the members of the EU and U.S. administration, the editors at Washington Post, citing three people who were acquainted with the matter, predicted that President Donald Trump was planning to introduce 25% customs duty on car imports worth 200 billion USD a year.

According to the Department of Commerce data, in 2017, the United States imported passenger cars worth 191 billion USD (including 42 billion from the EU). The Washington Post reports therefore suggested that all car imports into the U.S. (including from the EU) would be subject to 25% customs duty. This would mean a tenfold increase in duty (currently 2.5%) on German cars, among others.

A positive surprise after the joint statement

Of course, in addition to media reports, concerns about trade relations between Washington and Brussels were serious due to a series of tweets from President Donald Trump expressing dissatisfaction with current EU-US trade relations and reports after the recent G7 and G20 summits, where it was even difficult to formulate a laconic message.

It was therefore more surprising that yesterday evening (Polish time), a joint press conference between Jean-Claude Juncker, the President of the European Commission and President Donald Trump, provided optimistic information. These included greater economic cooperation, the desire to reform the World Trade Organisation, and the opening of negotiations to reduce most of the customs and non-tariff restrictions.

But also so much acting

It is worth noting, however, that it is Juncker rather than Trump who may feel like the winner. The U.S. President perceived the prospect of a significant increase in liquefied petroleum gas (LNG) exports to the EU as his negotiating success. However, this process is already taking place and it's not the result of the talks over the last few hours, but of the U.S. energy revolution from the last few years.

According to the U.S. Energy Information Administration (EIA), LNG exports from the U.S. have increased forty-fold in three years. In just one year (the difference between 2016 and 2017), exports to Spain grew 10-fold and 5-fold to Portugal. Poland also started importing LNG from the U.S. in 2017. EIA estimates also show that LNG terminal export capacity in the U.S. is expected to be 10 times higher (almost 10 billion cubic feet per day) by the end of next year, than it was at the beginning of 2016.

The same applies to the issue of soya beans imported by EU countries. The U.S. Department of Agriculture (USDA) data shows that the share of U.S. soybean in EU imports is steadily increasing. In the 2012/2013 season it was about 3 million tonnes, and in 2016/2017 it was almost 5 million tonnes. American soya beans are more competitive for Europeans than those from Brazil, this trend is likely to continue regardless of Wednesday’s declarations.

EU success

For the Union, the most important issue was to prevent the imposition of additional duties on passenger cars. This goal was achieved by the the Head of the European Commission's team. Jean-Claude Juncker stated that "no other duties will be imposed during the negotiations".

This is the key point of the conference on Wednesday. It should ensure that the current conditions for the European car industry in the U.S. are maintained. The negotiations referred to by Juncker will concern the reduction of customs duty to zero, the removal of non-tariff barriers to trade and the abolition of subsidies to industry (except for cars). However, these negotiations can last for years and few will elaborate on them extensively. The most important thing, therefore, was that they were launched, as they guarantee the Union (as far as possible under the current conditions) access to the U.S. automotive market on the current terms.

Failure of China?

In addition to the EU success, the withdrawal from the dangerous ideas from the U.S., one could have an impression that China’s position for negotiating had weakened considerably. This is not only the result of the Brussels-Washington truce, but also of both parties' plans to reform the World Trade Organisation (WTO).

President Trump spoke of the WTO addressing "unfair trade practices" such as "theft of intellectual property, forced technology transfer, subsidies to industry, disturbances created by state-owned enterprises, and overcapacity". Although China is not directly mentioned in this context, usually, the majority of these allegations are made against the Middle Kingdom.

The result is that the Union has managed to maintain its position as a relatively impartial supporter of free trade and to avoid a wider confrontation with the aggressive U.S. negotiating strategy. Taking the events from recent months into account, it can be concluded that Brussels is currently in the best position and Beijing is probably in the worst.

26 Jul 2018 10:36|Marcin Lipka

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