Key Elements of the EU-US Trade Deal: What’s Included and Excluded

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In a significant development for transatlantic relations, the European Union and the United States have formalised a framework trade deal aimed at reducing tariffs and fostering collaboration across various sectors. This agreement, which builds upon the handshake deal struck by EU Commission President Ursula von der Leyen and U.S. President Donald Trump in Scotland, outlines the path forward for implementing trade commitments that could reshape economic interactions between these two economic giants.

With the new framework agreement now in place, EU Trade Commissioner Maroš Šefčovič has emphasised that this is merely the beginning of a complex journey towards more equitable trade relations. The four-page document, while outlining some key victories, notably glosses over several contentious points that could prove critical in future negotiations.

Key Takeaways from the Framework Agreement

One of the most notable provisions within the framework is the commitment from the U.S. to lower its tariffs on cars and automotive parts from 27.5 percent to the baseline 15 percent. This concession, however, is contingent upon the EU reciprocating by eliminating its own tariffs on U.S. industrial goods, including the 10 percent tariff currently imposed on vehicles.

Šefčovič has announced plans to initiate legislative steps to ensure that these tariff reductions take effect retroactively, effective from August 1. This move could significantly benefit the automotive sector on both sides of the Atlantic, although the specifics of the mutual recognition of standards for vehicles remain vague.

Antonio Avenoso, Executive Director of the European Transport Safety Council, has raised concerns about this mutual recognition, suggesting that it could compromise road safety in favour of trade expediency. This highlights the delicate balance that must be struck between enhancing trade efficiency and ensuring the safety of consumers.

Industry Implications

Beyond automobiles, the agreement addresses several key industries, including pharmaceuticals, semiconductors, and steel. The U.S. will cap tariffs on European pharmaceuticals, lumber, and semiconductors at 15 percent, regardless of ongoing investigations under Section 232, which allows the U.S. to restrict imports that threaten national security. However, steel and aluminium imports will continue to face a hefty 50 percent tariff until further cooperation is established to tackle overproduction, particularly from China.

The European pharmaceutical sector has expressed concerns that the outlined trade terms could cost companies up to €18 billion, raising alarms about the future of patients and the industry in Europe. Fortunately, the EU managed to secure an exemption for lower-priced generics, which could mitigate some of the potential negative impacts.

Digital Rules and Big Tech Regulations

In a notable victory for the EU, the framework agreement has kept the contentious issues surrounding digital competition and content moderation out of the trade negotiations. Despite significant pressure from the U.S. administration, which has labelled EU regulations as unfair and censorial, the EU has maintained that its ability to regulate Big Tech firms is not up for negotiation.

Šefčovič confirmed that digital competition rules were excluded from the current talks, although he did not rule out their potential inclusion in future discussions. The European Parliament has also reiterated that tech legislation and tariffs should remain distinct issues, reflecting the ongoing challenges in aligning regulatory frameworks across the Atlantic.

Wines, Spirits, and Sectoral Challenges

In a setback for European exporters, wines and spirits will not be exempted from tariffs, remaining subject to a 15 percent U.S. tariff despite the EU’s efforts to secure relief for this sector, which has been adversely affected by global trade tensions. Šefčovič acknowledged the disappointment but assured that the EU’s fight for fair treatment in this area is not over.

Environmental Commitments and Green Regulations

In line with the ongoing global focus on sustainability, the EU has made vague commitments to address U.S. concerns regarding its regulations on mandatory sustainability reporting and supply chain oversight. While the EU aims to ensure that its rules do not pose undue restrictions on transatlantic trade, many of these proposals remain in the early stages and await approval from EU countries and lawmakers.

Moreover, the EU has acknowledged that U.S. commodities production poses a negligible risk to global deforestation, which could facilitate future cooperation on environmental issues.

Aviation and Defence Industries

In a significant concession, Washington has agreed to exempt aircraft and parts from higher tariffs, applying minimal duties to this crucial sector. This decision has been welcomed by Irish lobbyists, as the aviation industry plays a pivotal role in Ireland’s economy, particularly in aircraft leasing.

On the defence front, the EU has pledged to increase its procurement of military equipment from the U.S., a move that could impact the European defence industry, particularly in light of ongoing initiatives aimed at bolstering joint procurement within Europe.

Investment Opportunities

Looking ahead, the EU intends to procure $750 billion worth of U.S. energy products, including liquefied natural gas and oil, through 2028. Additionally, it aims to invest at least $40 billion in U.S. artificial intelligence chips, addressing Europe’s reliance on U.S. suppliers in this critical sector. Furthermore, European companies are expected to invest an additional $600 billion across strategic sectors in the U.S. by 2028, signalling a robust commitment to fostering bilateral economic ties.

As the dust settles on this agreement, it is clear that while the framework provides a foundation for future collaboration, significant challenges remain. Both parties must navigate complex regulatory landscapes, industry-specific concerns, and geopolitical considerations to ensure that the promise of enhanced trade translates into tangible benefits for their economies.

The road ahead may be fraught with hurdles, but the formalisation of this trade deal marks an important step towards a more balanced and reciprocal trading relationship between the EU and the U.S. As we move forward, the focus must remain on ensuring that economic growth is sustainable, equitable, and beneficial for all stakeholders involved.

Stay tuned to Net Zero News for further updates and insights into the implications of this agreement and its impact on global trade dynamics.