Explained: U.S.-EU Trade Relations

Bilateral trade and investment ties between the United States and the European Union (EU) are long-standing and extensive, but some tariff and non-tariff barriers remain. Successive U.S. Administrations have sought to address barriers that restrict U.S. firms’ access to EU markets and to further liberalize bilateral trade and investment ties, enhance regulatory cooperation, and cooperate on global trade and economic issues of joint interest. Over the past decades, the United States and the EU have engaged on these issues through various bilateral dialogues, summits, and trade agreement negotiations. These include negotiations on a proposed Transatlantic Trade and Investment Partnership (T-TIP), which, along with other U.S.-EU efforts, have not yielded a comprehensive, final trade agreement, to date. The partners also have engaged on these issues multilaterally, such as in the World Trade Organization (WTO) and other multi-party negotiating fora. Congress has a broad, enduring interest in understanding U.S.-EU trade relations and the issues underpinning them, given the magnitude of U.S.-EU trade and investment ties, their significance to the U.S. economy overall and specific constituent interests, and their significance to the global marketplace, such as for setting and shaping international rules and standards.

While U.S. and EU trade policies are aligned in many areas, frictions can emerge between the partners due to the high level of bilateral commercial activity and different policy approaches on some specific issues. U.S.-EU trade ties were fraught during the Trump Administration. President Biden has “underscored his support for the [EU] and his commitment to repair and revitalize the U.S.-EU partnership.” In 2021, the partners addressed specific frictions (such as on the WTO Boeing-Airbus subsidies dispute, digital service taxes, and U.S. “Section 232” steel and aluminum tariffs) and launched new modes of cooperation—notably the U.S.-EU Trade and Technology Council (TTC). Currently, the TTC is prominent in U.S.-EU engagement on bilateral trade and economic issues, and is playing a significant role in joint responses to global challenges. Other issues of U.S.-EU contention remain, such as EU regulatory barriers to U.S. agricultural trade, and new differences have emerged on certain approaches to the digital economy.

The Biden Administration has not indicated any plans to revive broader trade agreement negotiations with the EU. Under the Trump Administration, such talks stalled, but the two sides reached limited market-opening and regulatory cooperation commitments. Many Members of Congress supported U.S.-EU efforts to negotiate a T-TIP free trade agreement (FTA) during the Obama Administration. In the wake of Russia’s invasion of Ukraine and interest among policymakers to deepen U.S.-EU ties, some observers have called for the United States and the EU to renew efforts to negotiate a bilateral trade deal.

The withdrawal of the United Kingdom (UK) from the EU (“Brexit”) on January 31, 2020, could shape dynamics in any future U.S.-EU FTA negotiations or in other aspects of the U.S.-EU trade relationship. The UK historically has been a leading voice, alongside the United States, for trade liberalization, and previously accounted for a significant share of U.S.- EU trade and investment ties.

Multilaterally, the United States and the EU aim to continue cooperating on WTO reform and other global trade issues, including on the challenges posed by China and other nonmarket economies (NMEs) and on a WTO response to the Coronavirus Disease 2019 (COVID-19) pandemic. More recently, a pressing concern has been cooperation on imposing trade consequences and other measures in response to Russia’s war on Ukraine.

U.S.-EU trade relations present a number of oversight and legislative issues. Congress may conduct hearings on U.S.-EU trade and economic issues. If U.S.-EU trade negotiations take place, Congress could actively monitor and shape them, and consider implementing the necessary legislation for a potential comprehensive trade agreement to enter into force. Congress also may consider setting objectives for such negotiations through a potential renewal of Trade Promotion Authority (TPA), which expired in July 2021. Other issues for Congress regarding U.S.-EU relations include prospects for further resolution of trade frictions, cooperation on global trade challenges of shared interest, and standards-setting cooperation and competition.

The United States and the 27-member European Union (EU) share a highly integrated trade and economic relationship. In 2021, the United States and the EU remained each other’s largest overall trade and investment partner, despite recent major economic and other developments that have affected such ties, including the economic challenges and shifts in global activity arising from the ongoing Coronavirus Disease 2019 (COVID-19) pandemic; “Brexit,” the departure from the EU of the United Kingdom (UK); and the rise of China as a major bilateral trading partner for both. Their ties are of global consequence, as the United States and the EU bloc are the world’s two largest economies, comprising 43% of global gross domestic product (GDP) in 2020.

Given the scope and magnitude of U.S.-EU trade and investment ties, efforts to strengthen and expand them by addressing remaining and new barriers to trade and investment historically have been a key part of U.S. trade policy. Over the past several decades, the United States and the EU have engaged on these issues through various bilateral dialogues and negotiations, such as on a proposed Transatlantic Trade and Investment Partnership (T-TIP)—though T-TIP and other U.S.- EU efforts have not yielded a comprehensive, bilateral free trade agreement (FTA). They also have worked to address these issues multilaterally in the World Trade Organization (WTO). The United States engages with the European Commission (the EU’s executive) on trade policy matters, as trade policy is an area of exclusive EU competency.

Bilateral trade relations were especially fraught during the Trump Administration. President Joe Biden has “underscored his support for the [EU] and his commitment to repair and revitalize the U.S.-EU partnership.” Developments during the Biden Administration include new means of cooperation, progress toward resolving certain bilateral trade irritants, and cooperation to address pressing global trade challenges. Nevertheless, diverging views and frictions remain. The 117th Congress may examine U.S. trade policy with respect to the EU in terms of resolving current trade frictions, deepening bilateral trade engagement and pursuing further trade liberalization, cooperating on global trade issues, and setting international rules and standards.

U.S.-EU Trade and Investment Ties

Total Trade

U.S.-EU total trade in goods and services grew on average by about 5% annually from 2010 through 2019. During this time, the UK, then a member of the EU, accounted for roughly one-fifth of total U.S.-EU goods and services trade. In 2020, U.S.-EU total trade in goods and services decreased by about 30%. This drop reflected global trade and economic trends associated with the COVID-19 pandemic, as well as the UK’s departure from the EU Single Market and Customs Union, after the end of the post-Brexit transition period, among other factors. In 2021, U.S.-EU total trade increased by 17%, reflecting some global economic recovery. The EU bloc remained the United States’ largest overall trading partner in 2021, although U.S. trade with Canada and Mexico combined was 36% larger.

Goods

In 2021, the EU accounted for almost one-fifth of total U.S. goods trade. It was the United States’ third largest goods export destination, after Canada and Mexico; and its second largest supplier of goods, after China. Total goods trade grew by 18% in 2021, after contracting by 24% in 2020. The U.S. goods trade deficit with the EU has increased over time.

In addition to conducting trade of products that belong to different industries (“inter-industry trade”), the United States and the EU, as highly advanced economies, trade heavily in similar goods within the same industry (“intra-industry trade”). The latter often consists of trade in components or intermediate goods used to produce complex products such as cars and machinery, allowing firms to specialize and benefit from economies of scale by focusing on different parts of the supply chain. Intermediate goods often are traded across the Atlantic between multinational enterprises (MNEs) and their affiliates (e.g., BMW in Germany trading with BMW in South Carolina). The UK formerly comprised around 15% of total U.S.-EU goods trade. Currently, U.S. top goods trading partners within the EU are Germany, the Netherlands, and France.

Services

The United States and the EU have the world’s two largest services economies, which are highly integrated, reflecting the presence of supply chains, affiliate activity, and cross-border data flows. In 2021, the EU accounted for one-quarter of total U.S. services trade. While significant, U.S.-EU services trade flows in 2021 were 33% lower, compared to 2019. For many years, the United States has had a services trade surplus with the EU, but it has not been enough to offset the goods trade deficit. The UK formerly comprised about one-third of U.S.-EU services trade, and it was the United States’ top services trading partner within the EU. Presently, Ireland and Germany are the top U.S. services trading partners within the EU.

Agriculture

U.S.-EU food and agricultural trade accounts for less than 1% of the value of overall U.S. goods and services trade. Yet the EU continues to be a leading market for U.S. agricultural exports, accounting for about 7% of the value of all U.S. exports and ranking as the fifth-largest market for U.S. food and farm exports in 2021—after China, Canada, Mexico, and Japan. Growth in U.S. agricultural exports to the EU, however, has not kept pace with growth in trade to other U.S. markets, and EU food and agricultural imports to the United States exceed U.S. exports to the EU. In 2021, U.S. exports of agricultural and related products to the EU totaled $12.7 billion, and U.S. imports of agricultural and related products from the EU totaled $36.7 billion, resulting in a U.S. trade deficit of $24.0 billion. Leading U.S. agricultural exports to the EU include corn and soybeans, tree nuts, distilled spirits, fish products, wine, beer, planting seeds, and processed foods. Leading U.S. imports from the EU include wine, spirits, beer, drinking waters, olive oil, cheese, and processed foods.

Investment

U.S.-EU foreign direct investment (FDI) ties are significant given their size and interdependent nature, and these ties are a key driver of trade. While the UK previously held a significant share of these ties—accounting for roughly 20%-25% of U.S inbound and outbound FDI with the EU in recent years, the United States and the EU remained each other’s largest FDI partners in 2020. The magnitude of FDI reflects the partners’ overall investment-friendly business climates and some firms’ preference to reach customers through local presence. In 2020, U.S. FDI stock in the EU declined by about 23%, and the EU direct investment stock in the United States declined by about 15%, consistent with global contraction in FDI flows.

Key Recent U.S.-EU Trade Developments

Trade and Technology Council

The Trade and Technology Council (TTC) is a new high-level mechanism that aims to enhance wide-ranging cooperation between the United States and the EU and to promote their prosperity and competitiveness. The partners announced the TTC at their June 2021 Summit, at which they committed, among other things, to work together to strengthen their trade, investment, and technological cooperation. The TTC is led on the U.S. side by the U.S. Trade Representative (USTR), the Secretary of Commerce, and the Secretary of State; and on the EU side by the Commissioners for Trade and Competition of the European Commission.

At the inaugural TTC ministerial meeting in September 2021, the partners established ten working groups on various topics, including standards cooperation on emerging technologies, data governance and technology platforms, and export controls (see text box). These working groups are to engage on coordination and cooperation approaches, best practices, technical consultations, information exchange, and outreach, among other activities.9 An initial TTC priority is to address semiconductor supply chain vulnerabilities.

The TTC has emerged as a key tool in U.S.-EU cooperation to address global challenges, such as export controls, in response to Russia’s war on Ukraine. It also may have ongoing significance in U.S.-EU cooperation to address major concerns presented by China’s state-led model and trade practices and those of other non-market economies (NMEs).

Members of the Transatlantic Legislators Dialogue (TLD), a mode of bilateral engagement between Members of Congress and the European Parliament, welcomed the first TTC meeting. Business groups on both sides of the Atlantic have voiced support about the TTC’s potential to deepen U.S.-EU trade ties, and some have also expressed their priorities for it.

A second TTC meeting is planned for May 15-16, 2022, at which the United States and the EU may focus heavily on ongoing cooperation to respond to Russia. The partners reportedly also may announce at the second meeting a number of other new joint initiatives, such as an artificial intelligence (AI) sub-working group; a work stream on secure information and communications technology (ICT) financing; a policy dialogue on disinformation; and a Trade and Labor Dialogue, among others.

Resolution of Certain Trade Frictions

Boeing-Airbus Subsidy Dispute and Related Tariff Actions

The United States and the EU each have long claimed that the other either directly or indirectly subsidizes its domestic large civil aircraft (LCA) industries. The United States has claimed that the EU and certain states—France, Germany, Spain, and the UK (then as a EU member)—have provided, over the years, financing and other subsidies to their respective Airbus-affiliated companies to support LCA development, production, and marketing. The EU, on the other hand, has claimed that Boeing benefits from U.S. government support, mainly in the form of research and development (R&D) funds, as well as subsidies and infrastructure support.

From the 1970s to the 1990s, the United States and the EU negotiated bilaterally and multilaterally to address their respective concerns. These efforts failed and, in 2004, the United States resorted to WTO dispute settlement proceedings against the EU. The EU, in turn, initiated a WTO case against the United States. After nearly 15 years of litigation at the WTO, in October 2019, the WTO issued its final ruling on countermeasures in the U.S. case against the EU.

The WTO determined that the EU (including the UK) had not complied with a WTO ruling recommending the withdrawal of WTO-inconsistent subsidies on LCA manufacturing. As a result, the United States began imposing additional tariffs, under “Section 301” (Title III of the Trade Act of 1974), on $7.5 billion worth of U.S. imports from the EU (about 1.5% of all U.S. goods imports from the EU in 2018), effective October 2019. The action, consistent with the WTO finding on the appropriate level of countermeasures, aimed to pressure the EU into ending the subsidies or negotiating an agreement with the United States. The U.S. tariff list targeted mainly U.S. imports from the countries responsible for the illegal subsidies (France, Germany, Spain, and the UK), but was not limited to the aircraft industry.

In the parallel dispute case, the EU also received WTO authorization to take countermeasures against the United States for failing to abide by WTO subsidies rules with regard to U.S. support for Boeing. In November 2020, the EU began imposing additional tariffs on approximately $4.0 billion worth of EU (and UK) imports from the United States. The USTR asserted no valid basis existed for the EU’s retaliation due to full U.S. implementation of the WTO’s recommendations as of early 2020.

In March 2021, the United States and the EU announced a four-month tariff moratorium to ease the economic burden on their respective LCA industries and workers, and to allow both sides to works towards a preliminary agreement. Then, in June 2021, they announced an “Understanding on a Cooperative Framework for Large Civil Aircraft,” under which they committed to suspend their countermeasures (i.e., tariffs) for five years and address long-standing disagreements and prevent new ones from arising. They also expressed their aim to offer any financing to Boeing and Airbus for LCA production and development on market terms and to provide LCA-related R&D funding through an open and transparent process. Both sides agreed to cooperate on addressing the challenge posed by NMEs to the U.S. and EU LCA sectors—including by sharing information and developing common approaches to screening inward and outward investments.

Digital Services Taxes

The United States and the EU have worked to reduce tensions over the EU’s proposal and some EU members’ measures to tax revenues that certain companies generate from providing digital services, measures commonly referred to as digital services taxes (DSTs). In October 2021, the United States reached a “political agreement” with Austria, France, Italy, and Spain on each of these countries’ treatment of its DST. Per the political agreement, each country agreed to transition from its DST to a new global tax framework under the Organisation for Economic Co- operation (OECD)/Group of Twenty (G-20). Expected to come into effect in 2023, the framework aims to address digital economy taxation issues and update the global tax system. MNEs would face a minimum 15% tax rate from 2023. Countries would need to take domestic procedures to implement the framework. The USTR, in conjunction with the U.S. Department of the Treasury, is monitoring DST-related implementation of the political agreement.

Per the political agreements, the Biden Administration cancelled additional U.S. duties on certain goods of the EU member states; the USTR had previously suspended the duties temporarily to allow time for the international tax negotiations to finish. The duties stemmed from past Section 301 investigations initiated by the Trump Administration, which concluded that the DSTs discriminated unfairly against U.S. firms and were inconsistent with prevailing international tax policy principles.

The Biden Administration previously ceased a Section 301 investigation of the EU’s proposed DST. In an effort to support the negotiations on the global tax deal, the EU had not implemented a DST, which affected procedural time limits for the Section 301 investigations. U.S.-EU cooperation to ease tensions over the EU’s proposed DST measure reportedly was central to reaching a deal on the global tax framework.

Section 232 Steel and Aluminum Tariffs and Retaliatory Tariffs

In 2018, President Trump used authority under Section 232 of the Trade Expansion Act of 1962 to apply new tariffs on certain steel and aluminum imports after determining that they “threaten to impair” national security. The EU strongly objected to the tariffs, especially on the national security grounds the United States used to apply them. The EU imposed retaliatory tariffs of 10- 25%, covering $1.3 billion in U.S. trade (2020 trade data), targeting sectors viewed by many as “iconic” in U.S. trade (e.g., Harley-Davidson motorcycles, Kentucky bourbon, Levi’s jeans). In October 2021, the United States and the EU announced a multifaceted agreement to address the tariffs on EU exports and EU retaliatory tariffs on certain U.S. exports. The deal established a new TRQ system with specific conditions to replace the original Section 232 tariffs. The parties also agreed to suspend their related WTO disputes.

The agreement created a forum to strengthen U.S.-EU cooperation to address global overcapacity (e.g., with China), ensure market-oriented conditions, and reduce carbon intensity in these industries. The United States and the EU aim to establish a “Global Arrangement on Sustainable Steel and Aluminum” to tackle both overcapacity and greenhouse gas (GHG) emissions. They plan to invite partners to the arrangement who meet certain qualifications, such as supporting lowering carbon intensity and ensuring market-oriented conditions, and willingness to restrict market access to nonparticipants who do not meet such conditions.

Selected Trade Issues

Tariffs

After successive rounds of multilateral trade liberalization, average U.S. and EU tariffs are relatively low. In 2020, the simple average most-favored-nation (MFN) applied tariff rate was 3.4% for the United States and 5.1% for the EU. For each side, over 60% of bilateral merchandise flows and 40%-45% of agricultural trade are duty free. The tariffs that remain make imports more expensive. The USTR has highlighted, for instance, EU tariff rates of up to 26% for fish and seafood, 22% for trucks, 14% for bicycles, 10% for passenger vehicles, 10% for processed wood products, and 6.5% for fertilizers and plastics.34 USDA reports a calculated average EU tariff rate of 30% across all agricultural products, including products imported under an applied tariff and products imported under a tariff rate quota (TRQ). In recent years, due to certain trade actions, the United States imposed higher tariffs on certain products that it imports from the EU, and the EU raised tariffs on certain products that it imports from the United States; each has eliminated or replaced some of these tariffs with less restrictive arrangements (see “Resolution of Certain Trade Frictions”).

Additional U.S. and EU tariff liberalization could have significant economic impact for the transatlantic economy, given the magnitude of commercial ties. Tariff reduction and elimination were a focus of past U.S.-EU trade agreement negotiations, but faced challenges, particularly in terms of sensitivities over agricultural tariffs.

Investment

The United States and the EU’s generally favorable investment policies and overall business environments have helped to facilitate extensive transatlantic FDI and bilateral economic integration, although certain investment barriers remain, largely at the EU member-state level. The USTR cites, for instance, some EU members’ foreign ownership limits, corruption, weak law enforcement, and unpredictable judicial processes as of concern for U.S. investors.

In launching the TTC, the United States and the EU stated they view openness to foreign investment as important to economic growth and innovation, and that they face common challenges in addressing related risks to national security. In recent years, both partners have adopted regulations to strengthen their respective reviews of the potential national security implications of inbound foreign investment transactions. Both have faced growing concerns in this area due to the more assertive role of China and its state-led firms in the global economy, and both seek to focus more on the exchange of information regarding proposed foreign investments. The U.S. investment review mechanism, the Committee on Foreign Investment in the United States (CFIUS), dates to 1975, and Congress gave it additional authorities in 2018. The EU’s mechanism, which became fully operational in October 2020, aims to harmonize and coordinate varying member state-level investment review mechanisms.

In the past T-TIP negotiations (see “Bilateral Trade Agreement Negotiations”), both sides sought to include investment market access and investor protections, but they disagreed on whether to include investor-state dispute settlement (ISDS). While historically a core part of U.S. and European investment agreements with other countries, ISDS has been the subject of past active debates among U.S. and European policymakers and various stakeholders, particularly regarding the level of investor protection and related provisions to preserve governments’ ability to regulate in pursuit of national public policy objectives. In the T-TIP negotiations, the EU proposed to replace ISDS with a new bilateral Investment Court System (ICS)—which it has secured in some of its other trade agreements—that would include a standing body of judges and an appellate tribunal. The Obama Administration and U.S. industry opposed the EU’s proposal, preferring to retain ISDS, while some civil society groups asserted that the proposed ICS would not resolve their concerns about ISDS.

Debate over ISDS could re-emerge in any future U.S.-EU trade agreement negotiations. One policy question is what precedence the curtailment of ISDS in the United States-Mexico-Canada Agreement (USMCA) during the Trump Administration might have for potential future U.S. investment agreements and whether it may affect any gaps in future U.S. and EU positions on ISDS. The EU, meanwhile, continues to pursue ICS, securing its inclusion in bilateral trade agreements with Canada, Mexico, Singapore, and Vietnam. The EU also has called for a Multilateral Investment Court (MIC) in international settings.

China and Other Non-market Economies

Under the Biden Administration, the United States and the EU have committed to intensifying cooperation on the strategic and economic challenges posed by China and other NMEs. Several measures announced at the June 2021 U.S.-EU summit aim to foster collaboration to counter China’s growing influence, especially in relation to trade and technology. For example, the Administration has characterized the TTC, launched at the summit, as a key component of U.S.- EU cooperation to address common challenges with respect to non-market policies and practices, including combatting economic coercion (see “Trade and Technology Council”). While the TTC statement does not explicitly mention any country in its objectives or work streams, a number of the TTC working groups are expected to focus on China-related issues. In November 2021, the United States, the EU, and Japan also renewed a trilateral partnership initiated by the Trump Administration to address the global challenges posed by NMEs, including under WTO rules.

At the same time, the EU has approached the U.S.-China trade tensions with caution. Such tensions took on a new level of focus under the Trump Administration’s unilateral tariff actions against China—actions that remain in effect under President Biden—and increasingly focus on U.S.-China strategic competition. Some U.S. commentators hold that EU policymakers view China’s economic growth as potential opportunities for EU firms and are reluctant to challenge a major economic partner. The EU has indicated a need to cooperate with China on common global concerns, such as climate change, health security, arms control, and nonproliferation. These are areas in which the United States seeks to work with China to varying degrees as well. Different views or approaches among EU member states with respect to the extent of their economic ties with China could make the formulation of an EU-wide position more difficult and potentially hinder efforts to promote closer U.S.-EU policy alignment toward China.

Bilateral Trade Agreement Negotiations

The United States and the EU have overlapping networks of FTAs (see text box), but no FTA with each other. Successive U.S. Administrations have sought to address remaining barriers to U.S.-EU trade and expand ties, including through trade liberalization negotiations. The most extensive of these efforts was during the Obama Administration on a proposed T-TIP to boost U.S.-EU economic growth and jobs, respond to increased competition from emerging markets, and develop globally relevant trade rules. In the T-TIP negotiations, launched in 2013, the partners sought to address remaining U.S.-EU barriers to trade and investment in goods, services, and agriculture through: reducing and eliminating tariffs; further opening services and public procurement markets; enhancing cooperation and transparency in regulations and standards- setting; and strengthening rules in areas such as IPR, investment, digital trade, the environment, worker rights, and SOEs.

After 15 rounds, T-TIP negotiations stalled in 2016 over key differences—some of which persist—in U.S. and EU positions on certain issues. U.S. concerns included EU regulatory measures that limit the use of growth hormones and pathogen reduction treatments (e.g., chlorine washes) in meat production; treatment of GIs; and approach to ISDS. Talks on digital trade faced complications due to EU engagement on parallel issues in its internal market and EU concerns over U.S. government surveillance. Other sensitivities included agricultural tariff reductions and access to sub-central public procurement markets.

The Trump Administration and the EU Commission did not renew the stalled T-TIP negotiations. U.S.-EU trade relations faced heightened tensions largely related to the Administration’s criticism of “unfair” EU trade practices and U.S. unilateral tariff measures. After a July 2018 visit by the President of the European Commission to the White House, the partners sought to deescalate trade tensions by working to address remaining trade barriers and expand trade. In October 2018, the Trump Administration notified Congress under the 2015 TPA (P.L. 114-26, now expired) of a potential U.S. trade agreement negotiation with the EU. In comparison to the U.S. interest in addressing tariffs and NTBs, the EU sought limited negotiations on industrial tariffs (i.e., non- agricultural) and regulatory issues (via a conformity assessment agreement)—reportedly to defuse bilateral trade tensions. The EU’s desire to exclude agriculture from the negotiations was a key sticking point for many Members. Potential U.S. Section 232 auto tariffs and Brexit-related uncertainty added complications.

The talks stalled in 2019, but the two sides reached a limited tariff agreement in August 2020 under which the EU eliminated tariffs on certain lobster products and the United States reduced by 50% tariffs on certain products (e.g., certain prepared meals, certain glassware, surface preparations, propellant powders, cigarette lighters and parts)—both on an MFN basis. They expressed an aim for this “package[ … ] to mark just the beginning of a process that will lead to additional agreements that create more free, fair, and reciprocal transatlantic trade.”

The Biden Administration has not indicated interest in taking up the previous U.S.-EU negotiations. The EU also has not appeared to push for a renewal of FTA negotiations, potentially still wary of the T-TIP experience. A European Parliament resolution, however, previously called for building on the momentum from the August 2020, limited tariff deal to work on a broader U.S.-EU trade agenda. More recently, in the wake of Russia’s invasion of Ukraine and interest among policymakers to deepen U.S.-EU ties, some commentators have called for the United States and the EU to renew efforts to negotiate a bilateral trade deal.

Multilateral Cooperation and Frictions

In the post-World War II period, the United States and the EU led in promoting trade liberalization and developing the rules-based international trading system that is underpinned by the WTO. The Trump Administration’s skepticism of the WTO and threats to flout WTO rules deeply concerned EU officials. More broadly, many observers remain concerned that the WTO’s effectiveness has diminished since the collapse of the last round of multilateral trade negotiations and believe the WTO needs to negotiate new rules and adopt reforms. To date, WTO members have not reached consensus for a new comprehensive agreement, though negotiations on discrete topics continue. During the Biden Administration, the United States and the EU have pledged to “uphold and reform” the rules-based multilateral trading system. Divergent trade policy views among many major trading economies within the WTO, however, present challenges to a path forward on negotiations.

The United States and the EU, along with like-minded partners, cooperate on a range of global trade issues, although U.S. and EU views on the approaches differ in some cases. A major joint focus is tackling the challenges posed by China and other NMEs on global overcapacity, subsidies, SOEs, forced technology transfer, and global supply chains—issues for which both sides view current WTO rules as insufficient. A recent area of cooperation is on responses to Russia’s war on Ukraine. In April 2022, Congress passed legislation (P.L. 117-110) to suspend permanent normal trade relations status with Russia; permanent normal trade relations status provides unconditional, nondiscriminatory, MFN treatment by the United States to goods and services trade with the trading partner. The EU also has moved to revoke Russia’s MFN status. The partners are cooperating on imposing export controls against Russia as well. Within the WTO, other priority issues for cooperation include ongoing WTO negotiations on fisheries subsidies, and developing a trade response to the COVID-19 pandemic.

The WTO dispute settlement mechanism (DSM) has been a vehicle for U.S. and EU efforts to resolve disagreements on some trade matters, including China-related concerns. The United States and the EU have also used the DSM to address trade disputes against each other—a classic example being the long-running Boeing-Airbus subsidies disputes (see “Boeing-Airbus Subsidy Dispute and Related Tariff Actions”).

The WTO DSM is also the subject of ongoing reform efforts by WTO members. A key EU concern is the U.S. practice under successive Administrations of blocking new appointments to the WTO Appellate Body (AB, which reviews appeals of dispute panel findings). The United States justifies its actions by citing concerns about perceived judicial overreach in the AB. Due to U.S. actions, since December 2019, the AB has lacked a quorum and has been unable to hear new cases. Thus far, the United States has rejected proposed reforms by the EU and others to address U.S. concerns. In 2020, over 20 WTO members led by the EU put into effect an ad hoc arbitration arrangement to hear appeals on cases amongst themselves. Some European officials have expressed frustration with what they describe as a mismatch between U.S. rhetoric to support WTO reform and a lack of U.S. willingness to address some issues, such as the AB.

The United States and the EU also engage on bilateral and global trade issues in other international economic bodies. In some cases, this engagement has helped to resolve ongoing bilateral tensions. For example, the OECD/G-20 global tax framework facilitated political agreements between the United States and several EU member states regarding their DSTs, previously an area of U.S.-EU friction (see “Digital Services Taxes”). However, bilateral trade frictions remain on certain issues under these bodies. For instance, the USTR notes U.S. concerns over EU efforts to pursue enhanced disciplines for GIs in the World Intellectual Property Organization (WIPO).

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