The European Union (EU) is committed to securing retroactive application of lower US tariffs on its car exports, effective from August 1. This follows the announcement of the details of a framework trade agreement reached in July.
In a joint statement, the two parties outlined that 15 per cent US tariffs will apply to most EU imports, highlighting key commitments, including the EU's pledge to remove tariffs on US industrial goods and provide preferential market access for various US seafood and agricultural products.
Washington to reduce tariffs
Washington is set to reduce the current 27.5 per cent US tariffs on cars and auto parts, which have long been a heavy burden for European carmakers. However, this reduction will only take effect once Brussels introduces the necessary legislation to implement the promised tariff cuts on US goods. According to the statement, the US tariff relief on autos and auto parts will be activated on the first day of the month in which the EU enacts the legislation.
The EU Trade Commissioner, Maros Sefcovic, mentioned that the European Commission plans to present the necessary proposals by the end of this month (August). Once the EU introduces the legislation to implement the promised tariff cuts on US goods, the US tariff reduction will take effect from the first day of the month in which the legislation is enacted (August 1).
This means the reduction is still contingent on the EU's legislative process. A senior official from the Trump administration, speaking anonymously, expressed hope that European carmakers could see relief from the US tariffs in a matter of weeks.
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On July 27, US President Donald Trump and European Commission President Ursula von der Leyen unveiled a major trade deal at Trump's luxurious Turnberry golf course in Scotland, following months of intense negotiations. The two leaders came together again this week, not only to discuss the deal but also as part of ongoing talks to end Russia's war in Ukraine.
Both Trump and von der Leyen hailed their trade framework as a historic achievement, setting the stage for future growth. The joint statement revealed that the agreement has the potential to expand, with plans to explore new areas and further enhance market access over time.
Why was the joint statement crafted?
The joint statement was crafted as a way to "hold each other accountable" and ensure that both parties follow through on the commitments made last month, according to a US official. Ryan Majerus, a former US Commerce Department official now with the King & Spalding law firm, suggested that the statement "could serve as a model" for similar agreements with Japan and South Korea.
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These two key US trading partners have also negotiated reductions in Trump's automotive tariffs, though they're still awaiting implementation. The EU and US have expressed their intention to recognise each other's automotive safety and other standards mutually. However, industry insiders noted that the language on this matter was less specific than initially expected.
The joint statement highlighted that the US will apply pre-existing Most Favoured Nation tariffs of less than 15 per cent on EU aircraft and parts, generic pharmaceuticals and ingredients, chemical precursors, and specific unavailable natural resources, including cork, starting September 1. However, this exemption does not extend to wine or spirits, an important EU request. Nevertheless, both sides agreed to continue discussions about expanding the exemption to include other sectors and products.
EU’s commitment to US energy & technology
The US-EU statement reaffirmed the EU's commitment to purchase USD 750 billion in US liquefied natural gas, oil, and nuclear energy products, along with an additional USD 40 billion worth of US-made artificial intelligence chips. It also outlined plans for EU companies to invest another USD 600 billion in US strategic sectors by 2028. Both sides agreed to tackle "unjustified digital trade barriers," with the EU promising not to introduce network usage fees.
Additionally, they will negotiate rules of origin to ensure both partners benefit equally from the deal. However, the statement confirmed that the 50 per cent US national security tariff on EU-produced steel, aluminium, and related goods remains unchanged, despite being extended this week to include hundreds of new products.
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The joint statement, however, left room for the possibility of a future tariff rate quota for the EU, as both sides continue discussions on "ring-fencing" their domestic markets from overcapacity, particularly in reference to Chinese production. Peter Navarro praised the Trump administration's deal with the EU as a "magnificent achievement" for both sides of the Atlantic, urging that US courts should not criticise it.
A federal appeals court is expected to rule soon on a legal challenge that could potentially dismantle a significant portion of Trump's tariffs, particularly those imposed under the International Emergency Economic Powers Act.
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