EU Prepares to Retaliate Over Car Tariffs Before Trump Talks

(Bloomberg) -- The European Union is preparing a new list of American goods to hit with protective measures if a mission to Washington next week fails to persuade U.S. President Donald Trump not to raise levies on car imports.

The bloc may target American goods worth about 20 percent of the U.S. action, according to two officials with knowledge of the deliberations. The level of the EU’s retaliatory tariffs would probably match the U.S. levels, said the officials, who asked not to be identified because the preparations are private.

“If the U.S. would impose these car tariffs that would be very unfortunate but we are preparing together with our member states a list of rebalancing measures as well,” EU trade chief Cecilia Malmstrom said on Thursday.

When Commission President Jean-Claude Juncker meets with Trump on July 25, he’ll bring two main negotiating proposals in an effort to tamp down the escalating trade tensions: an offer to discuss the reduction of levies on cars and car parts among all major auto-exporting countries in a so-called plurilateral deal; and the possibility of broaching a limited free-trade agreement, according to a separate official with knowledge of the EU’s thinking.

The U.S. is in the midst of a probe into whether car imports damage national security, which could trigger the 20 percent tariff on autos that Trump has threatened. Washington has already hit the EU with duties on its steel and aluminum exports using the same national-security justification, which led to European levies on 2.8 billion euros ($3.3 billion) of American goods.

The U.S. imported about 294 billion euros ($341 billion) of cars and car parts in 2017, 58 billion euros of that originated in the 28-nation bloc, according to an internal EU memo seen by Bloomberg.

The U.S. expressed optimism that the two sides may come to an agreement, with White House Economic Adviser Larry Kudlow saying on Wednesday that the commission president “is bringing a very important free-trade offer.”

The EU isn’t allowed under global rules to reduce its 10 percent tariff on American cars unless it either does so for all WTO members or reaches a bilateral accord with the U.S. that covers “substantially all” two-way trade. A plurilateral deal modeled after the Information Technology Agreement, which abolished tariffs on some IT products traded between its signatories, is allowed under WTO rules.

Plurilateral accords involve a group of like-minded countries that are typically limited to specific sectors of goods or services. The WTO permits these types of negotiations as long as the benefits are provided to all WTO members on a most-favored nation basis. It is faster and less burdensome to negotiate these accords rather than multilateral deals because they don’t require the approval of all 164 WTO members.

A plurilateral deal is one of several ideas the commission is considering, according to Malmstrom, who expressed skepticism that such an accord could work. “It’s one idea of many,” she said. “I don’t know if it would work at all.”

‘Deescalate the Situation’

“The aim of President Juncker’s visit is to try to establish a good relation, try to see how we can deescalate the situation and avoid it from going further and see if there is a forum where we can discuss these issues,” Malmstrom said in Brussels.

EU member states are divided on the next course of action, according to a separate official. Germany, which shipped 640,000 cars to the U.S. last year, is eager to negotiate a solution with the U.S. administration.

The French are less enthusiastic and consider the new auto tariffs a foregone conclusion, according to another official. They want Juncker to approach the Trump meeting with options, but say now isn’t the time to negotiate.

“We now have to avoid escalation,” French Economy Minister Bruno Le Maire said in Paris earlier this month. “That is in the hands of the U.S. and Donald Trump. Attacking allies and breaking international laws is not the right way.”

--With assistance from Nikos Chrysoloras.

To contact the reporters on this story: Viktoria Dendrinou in Brussels at vdendrinou@bloomberg.net;Alexander Weber in Brussels at aweber45@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net, Richard Bravo, Ben Sills

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