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Info Service on WTO and Trade Issues (Aug25/13) The FA contains several best-endeavour provisions in both implementing tariffs and investment pronouncements, leaving uncertainty about how things will evolve given the difficulties in reaching decisions within the EU, said people familiar with the developments. After weeks of intense negotiations following an earlier agreement reached at the Turnberry golf course last month, the US and the EU unveiled a Joint Statement outlining the Framework Agreement on Thursday. While the EU secured a reduction in US tariffs on its car and auto exports — from a peak of 27.5% (comprising the US bound tariff of 2.5% plus a sectoral 25% tariff) to 15% — it failed to obtain favourable treatment for wines, a key demand from Italy and France. The EU succeeded in securing a 15% tariff rate on pharmaceutical and semiconductor exports, including advanced lithography equipment from the Netherlands-based ASML. EU Trade Commissioner Maroš Šefčovič said on Thursday: “Tariffs on cars and car parts will drop to 15%, effective August 1, helping our automotive industry remain globally competitive.” The US duty reductions are retroactive, he noted. In return, the EU is required to grant extensive market access to American farm and seafood products, with most entering at zero or preferential tariff rates. Observers noted that it remains to be seen how China will respond to the high tariffs imposed by the Trump administration on its goods, especially in light of this transatlantic trade deal. Onerous commitments The burdensome commitments placed on the EU in the Agreement suggest that Europe will bear the brunt of implementation, while US industrial, agricultural, and energy products gain deeper access to EU markets at minimal tariff levels. To secure greater defence-related cooperation for Ukraine, the EU now faces a difficult task in convincing its member states to comply with the Framework Agreement’s extensive obligations. “This Framework Agreement will put our trade and investment relationship — one of the largest in the world — on a solid footing and will reinvigorate our economies’ reindustrialization,” the Joint Statement declared. The US claimed the FA “reflects the European Union’s acknowledgment of US concerns and our joint determination to resolve trade imbalances and unleash the full potential of our combined economic power.” In 2023, the EU exported €531.6 billion in goods to the US, while importing €333.4 billion — resulting in a trade surplus of €198.2 billion. The two sides described the FA as a “first step in a process that can be expanded over time to cover additional areas and further improve market access, enhancing their trade and investment relationship.” Effectively, the EU appears poised to bear the heavier burden of compliance in the coming months and years, particularly during the second term of the Trump administration, which is set to conclude in 2029. Key terms of the Framework Agreement The FA covers multiple areas, including trade in goods, services, and non-tariff barriers. The EU has committed to: •
Eliminate tariffs on all US industrial goods. Additionally, the EU will immediately extend the Joint Statement on a Tariff Agreement originally announced on August 21, 2020, concerning lobster — which expired on July 31, 2025 — and expand its scope to include processed lobster. “This is a major concession by the EU, which has long protected its market for these products through regulatory and tariff barriers,” said a trade analyst who requested anonymity. In return, the US has committed to apply the higher of either its Most Favoured Nation (MFN) tariff rate or a 15% tariff (comprising the MFN rate plus a reciprocal tariff) on originating goods from the EU. Effective September 1, 2025, the US will apply only the MFN tariff to the following EU-originating products: •
Unavailable natural resources (including cork) The US and the EU also agreed to consider including additional sectors and products important to their economies and value chains in this MFN-only category. Washington further committed to ensuring that the combined tariff rate — including the MFN rate and any Section 232 tariffs — on EU-originating pharmaceuticals, semiconductors, and lumber does not exceed 15%, granting these sectors preferential treatment. Automotive tariff reductions The Joint Statement outlines that once the US formally introduces the necessary legislative proposal to implement the tariff reductions in Section 1 of the FA: •
No Section 232 tariffs will apply to EU-originating automobiles
and auto parts with an MFN tariff of 15% or higher. Effectively, the US has rolled back the controversial 25% Section 232 tariff on EU cars and parts, capping the total at 15% — a move consistent with previous bilateral agreements with South Korea and Japan. These reductions are contingent on timing: they are expected to take effect on the first day of the same month in which the EU introduces its legislative proposal. The US emphasized that all legislative actions must be consistent with the Framework Agreement and enacted by the appropriate bodies. It also stressed that modifications to Section 232 tariffs will be carried out in a manner that upholds US national security interests. However, the US maintained the Section 232 tariffs on steel, aluminium, and derivative products — currently set at 50% — despite EU calls for their removal. Instead, the two sides agreed to explore cooperation on ring-fencing their domestic markets from global overcapacity, including through tariff-rate quota solutions, while ensuring secure bilateral supply chains. Rules of origin On the complex issue of rules of origin, the Joint Statement affirms that both parties will negotiate terms ensuring that the benefits of the Reciprocal Trade Agreement accrue predominantly to the US and the EU — effectively limiting third-country exploitation of the deal. Energy supplies The US and the EU committed to cooperate on ensuring secure, reliable, and diversified energy supplies, including by addressing non-tariff barriers that could hinder bilateral energy trade — a move expected to reduce reliance on Russian liquefied natural gas (LNG) in some EU member states. The EU has committed to procuring US LNG, oil, and nuclear energy products with an expected offtake valued at $750 billion by 2028. However, questions remain about the feasibility of this commitment, as individual EU member states retain sovereign control over their energy import decisions. Technology and defence cooperation The EU has agreed to purchase at least $40 billion worth of US-made AI chips for its computing centres and to align its technology security standards with those of the US — a move aimed at preventing technology leakage to countries of concern, including China and Russia, according to sources. In a bid to strengthen transatlantic ties, European companies are expected to invest an additional $600 billion in strategic sectors across the US by 2028. To support Ukraine’s defence, the EU plans to substantially increase procurement of US military and defence equipment, including Patriot missile defence systems, with logistical and political support from the US government. “This commitment reflects a shared strategic priority to deepen transatlantic defense industrial cooperation, strengthen NATO interoperability, and ensure European allies are equipped with the most advanced and reliable defense technologies available,” the Joint Statement said. Non-tariff barriers (NTBs) To reduce non-tariff barriers in the automotive sector, the US and the EU intend to accept and mutually recognize each other’s technical standards — a move seen as aimed at restricting the influx of Chinese electric vehicles and auto parts into both markets. “Cooperation on standards plays a crucial role in enhancing the transatlantic marketplace,” the statement noted. Both sides also pledged to address NTBs in food and agricultural trade, including streamlining sanitary certificate requirements for pork and dairy — areas where the EU has historically maintained strict phytosanitary rules. Deforestation and CBAM Acknowledging that US forest products pose negligible risk to global deforestation, the EU committed to addressing US concerns regarding its Deforestation Regulation, aiming to avoid undue disruption to US-EU trade. This alignment could raise barriers for forest and agricultural products from developing nations such as Brazil and Indonesia, observers noted. On the Carbon Border Adjustment Mechanism (CBAM) — a policy criticized by US small and medium enterprises — the two sides agreed to provide additional flexibilities in implementation. It remains unclear whether such flexibilities will extend to developing countries, sources added. Brussels also agreed to work on US concerns about the Corporate Sustainability Due Diligence Directive (CSDDD), particularly its extraterritorial application to non-EU firms with high-quality domestic regulations. Telecommunications and cybersecurity On telecommunications and cybersecurity, the US and the EU will negotiate a mutual recognition agreement under the Radio Equipment Directive (2014/53/EU), covering essential cybersecurity requirements. Both parties committed to strengthen cooperation on export restrictions imposed by third countries on critical minerals and related resources. Intellectual property and labour standards The FA includes provisions to raise the bar on intellectual property rights (IPR) protection and enforcement, a development with significant implications for developing countries. Additionally, the US and the EU pledged to uphold strong protections for internationally recognized labour rights, including eliminating forced labour in global supply chains — a clause widely interpreted as targeting China. Digital trade barriers The EU and the US have long clashed over digital services, particularly the EU’s push to impose network usage fees on foreign digital platforms like Netflix, Amazon, Google, and Meta. In the FA, the EU confirmed it will not adopt or maintain such fees, resolving a major point of contention. Customs duties on electronic transmissions Although both the US and the EU supported the termination of the World Trade Organization (WTO) moratorium on customs duties on electronic transmissions by March 2026 at last year’s 13th WTO Ministerial Conference in Abu Dhabi, the FA signals their intent to violate that commitment. Instead, they stated their intention to continue supporting the multilateral moratorium and to seek a permanent, binding commitment at the WTO. Furthermore, the EU agreed to consult with the US and American traders on the digitalization of trade procedures and the implementation of proposed EU Customs Reform legislation. Economic security and third-country practices Finally, the US and the EU agreed to strengthen economic security alignment to enhance supply chain resilience and innovation. This includes complementary actions on: •
Addressing non-market policies of third countries In a clear signal directed at China, the two sides committed to addressing non-market practices, unfair competition, and lack of reciprocity in public procurement with respect to third countries. They concluded by announcing that, “in line with their respective internal procedures,” they will promptly formalize the Agreement on Reciprocal, Fair, and Balanced Trade to implement the Framework Agreement.
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