3.5 United States and European Union

3.4 EU and China Comprehensive Agreement on Investment

3.5 United States and European Union Tariff Agreement

The cumulative EU foreign direct investment (FDI) flows from the EU to China over the last 20 years have reached more than €140 billion. For Chinese FDI into the EU the figure is almost €120 billion. EU FDI in China remains relatively modest with respect to the size and the potential of the Chinese economy.

In August 2020 the EU and the US announced an agreement on a package of tariff reductions that will increase market access for hundreds of millions of dollars in US and EU exports. These tariff reductions are the first US and EU negotiated reductions in duties in more than two decades.

Under the agreement, the EU will eliminate tariffs on imports of US live and frozen lobster products. US exports of these products to the EU were over $111 million in 2017. The EU will eliminate these tariffs on a Most Favored Nation (MFN) basis, retroactive to begin August 1st, 2020.

As regards investment, the EU-China Comprehensive Agreement on Investment (CAI) agreed on the 30th of December 2020 will ensure that EU investors achieve better access to a fast growing 1.4 billion consumer market, and that they compete on a better level playing field in China. This is important for EU global competitiveness and the future growth of European industry. In addition, China has made Commitments to respect core International Labour Organisation (ILO) principles and to effectively implement the ratified ILO Conventions. Including a specific commitment on the ratification on ILO fundamental Conventions on forced labour. In the area of the environment, a commitment has been made by China under the CAI to effectively implement the Paris Climate Agreement.

The EU tariffs will be eliminated for a period of five years and the European Commission will promptly initiate procedures aimed at making the tariff changes permanent. The United States will reduce by 50% its tariff rates on certain products exported by the EU worth an average annual trade value of $160 million, including certain prepared meals and certain crystal glassware. The US tariff reductions will also be made on an MFN basis and retroactive to begin August 1st, 2020.

A number of trade related disputes and actions between the EU and US remained to be resolved during 2020 and into 2021. Both the EU and the US have been found at fault by the WTO for providing certain subsidies to their commercial aircraft manufacturers, Airbus and Boeing respectively. These long running trade disputes came to a head in October 2019 when the US were authorised to apply ‘retaliatory measures’ to the value of $7.5 billion against the EU. In this regard, the US imposed significant tariffs on aircraft and non-aircraft products initially to an aggregate value of approx. $2billion. For Ireland, sensitive food products were included, such as butter, cheese and cream liqueur. Despite not being involved in subsidising Airbus, Ireland was impacted significantly given the strong bilateral trade and investment relationship between Ireland and the US – e.g. on a per capita basis Ireland was the most impacted within the EU. In November 2020, the EU were authorised to apply ‘retaliatory measures’ to the value of $3.9 billion against the US in the “Boeing” dispute and imposed tariffs on US imports, proportionately mirroring the US measures. Importantly, the EU also proposed a mutual suspension of tariffs while a solution is worked out and this came to fruition on 5th March 2021.

The CAI makes the conditions of market access for EU companies clear and independent of China’s internal policies. It also allows the EU to resort to the dispute resolution mechanism in CAI in case of breach of commitments.

In addition, the EU has negotiated further and new market access openings and commitments such as the elimination of quantitative restrictions, equity caps or joint venture requirements in a number of sectors. These are restrictions that severely hamper the activities of EU companies in China. The overall package is far more ambitious than what China has committed to before.

On the EU side, the market is already open and largely committed for services sectors under the General Agreement on Trade in Services (GATS). EU sensitivities, such as in the field of energy, agriculture, fisheries, audio-visual, public services, etc. are all preserved in CAI.

In relation to steel and aluminium tariffs, on the 31st May 2018, the US announced the imposition of tariffs on imports of EU steel and aluminium products, following an investigation by the Department of Commerce that found the imports were a threat to US national security. The EU has rejected the notion that its exports represent such a threat and is clear that these tariffs are in conflict with WTO rules. Moreover, the import duties in place are proving ineffective, while burdening industry and consumers with unnecessary barriers and costs.

In response, on 22nd June 2018, the EU introduced rebalancing tariffs on US imports, while making it clear that it is ready to remove its measures immediately provided the US lifts theirs. A case was also launched at the WTO challenging the measures as incompatible with WTO rules. No progress was made on this particular trade dispute in 2020 and there is a 50% increase in these tariffs due in mid-2021 with the EU renewing our proposal for a mutual suspension of tariffs to the new US Administration to facilitate a negotiated outcome.