TSUKUBA, JAPAN – The U.S. and the European Union “haven't really started” talking about how to address President Trump's concerns over auto imports, EU Trade Commissioner Cecilia Malmström said this week in a wide-ranging interview here on the sidelines of the G20 trade ministers' meeting.
“We haven’t really started those talks,” Malmström told Inside U.S. Trade's Isabelle Hoagland. “We have made absolutely clear we are always willing to talk – always. But we reject the notion that our car and car parts are a security threat. European car producers in the U.S. provide 420,000 jobs, so how can that be a security threat? So we reject that notion. And we will not agree to managed trade; voluntary quotas are WTO-incompatible.”
President Trump last month gave EU and U.S. trade negotiators 180 days to work out a deal on auto imports, which he has long considered a threat, and stave off Section 232 tariffs.
“We also offered to take away our tariffs on cars,” Malmström said. “President Trump is annoyed that we have higher tariffs on cars, which we do, but we have said 'Let’s put them aside; this is our offer,' and since then we haven’t really talked. We are always willing to talk, but we are not willing to negotiate anything that means managed trade.”
Malmström discussed the ministerial here in Japan, WTO reform issues and more – including discussions about a possible e-commerce plurilateral deal. “That is one of the positive things lately, that we launched [with] almost 80 countries in Davos in January – the negotiations on e-commerce, and then in parallel there is this Japanese [Data Free Flow with Trust] initiative, which we think could go in parallel,” she said. “They are not conflicting. That was discussed yesterday and I think many of us realized that the digital economy is very much the future, and that is also important that we can engage on [a] global scale setting some basic, joint rules. There are lots of things to do there and this is a positive process.”
Asked if the deal might be completed in time for the next WTO ministerial next year, however, Malmström hedged.
“I’m not sure,” she said. “I know that is the ambition, of course, but to have it totally completed by next summer might be a little bit optimistic. But at least clear progress to report.”
The two-day summit here concluded on Sunday with the issuance of a statement from the G20 chairs as well as a 14-page joint statement signed by all member countries.
Many ministers in Japan expressed concern over slowed trade growth and the use of unilateral action over multilateral rules, in addition to calling on the U.S. to “tango” with other members in addressing how best to reform the World Trade Organization.
A lightly edited transcript of the interview with Malmström follows.
Q: How would you characterize the discussions here? Sunday, as I understand it, was about general trade issues in the morning and WTO reform in the afternoon?
A: Yes, but they are all interlinked in a way. These things are so important to discuss and most of us here have been very concerned about the situation right now with increasing trade tensions, with global trade not being part of the growth that it should be, with the weakening of the multilateral system and unilateral actions and so on. So, it’s raised a worrying situation. In that case it was very useful for us to come together to talk – both in formal meetings and overall in other meetings around. So that is important. And we shouldn’t hide that there are divisions on many of these issues and that will be reflected in the statement as well.
Q: Can you elaborate on those divisions a bit? Were there any interesting exchanges with the U.S.?
A: Well, the U.S. doesn’t have a minister here; most of us do. There is no secret that most of us here have severe differences on the views. We think that trade wars are bad, we think that an escalation of this is dangerous for the whole world and the global economy. I meet with people all the time and every employed worker is worried, worried about their jobs, about what will happen because we are so interlinked to each other and global value chains are so interdependent. We are also increasingly worried about unilateral action taken outside of the WTO, about what we consider as managed trade, and the use of tariffs in a way to impose other changes. So that we are worried about and [on] that, of course, we differ with the U.S.
On the other hand, we are also very worried about China. And here I think we share many of the U.S. concerns about that even if we disagree with the methods. There is clearly a loophole in international rules, in WTO rules when it comes to massive industrial subsidies, forced technology transfer – and the level playing field is not there. And this we need to address. We spoke a lot about this at the global forum on steel that we established a couple of years ago and we feel very strongly that this should continue because there is still, possibly, an increasing overcapacity in steel in China, and we need to talk about these issues and we need to help China to reform.
So these are very much the root causes of the tensions of the system and our answer to that as the European Union – and we were here with six ministers and myself – is that we need more WTO, not less, and that we need better WTO. That is why we are very much engaged in trying to reform, trying to strengthen, to modernize it to make it fit for 2019.
Q: On the WTO and the EU's Appellate Body “backup plan,” which would resort to Article 25 of the Dispute Settlement Understanding: It sounds like that proposal is gaining traction while members wait for the U.S. to get on board, but that’s primarily a temporary solution?
A: It’s not going to be an alternative plan because there is one plan and that is to try to save the Appellate Body. We have put forward a proposal, supported by many others. Other countries have also put forward proposals trying to improve the functioning of the Appellate Body. Trying to listen to some of the concerns that the U.S. has voiced; some of them I think we can address, but it would be very important that they start unblocking their blocking of the appointment of the arbitrators because if that does not happen, [on] the 12th of December the Appellate Body will die. And many of us in the room today are frequent clients of the system and so is the U.S. And the U.S., by the way – I think Bloomberg made an overview last year saying that in the last 15 years, the U.S. has won 86 percent of the cases.
And we will continue to push for reform hoping that the U.S. will engage and listen to our different proposals there. But, of course, if the system collapses it’s not that we are creating something different but we need to look at our interests and that’s why we have said that within the rule book of [the] WTO there are provisions in, as you mentioned, Article 25 that you could maybe use to set up a temporary bilateral mirroring the dispute settlement mechanism between countries who are voluntary. And so we are starting to think about how this could be done – of course in full transparency and so on – and that might have to be a solution that we need to have prepared in case there is no solution in December. But we will keep on pushing for the ordinary system, of course, and this would only be temporary and as a reserve.
Q: During the discussions on Sunday, did the U.S. engage at all on this topic or just sort of maintain its usual stance?
A: No. And that is unfortunate because I think most countries who use the WTO dispute settlement system say ‘Yes, maybe we could make it a bit more efficient and maybe we could look at some of its functioning,’ provided that we maintain that two-step system – and that it is the integrity of the system. But so far, the U.S. has not engaged in being more explicit. It takes two to tango. If you want to reform this, come with us, sit around the table and see how we can explore solutions. So far they haven’t, but it could also have been because the lack of ministerial presence here. Many, many countries in the room expressed their concerns about the physical collapse of the Appellate Body, so it’s not only a European issue.
Q: I understand Saturday's discussions were about digital economy issues, and that may provide a kind of framework that could propel the broader WTO e-commerce plurilateral deal?
A: That is one of the positive things lately, that we launched [with] almost 80 countries in Davos in January – the negotiations on e-commerce, and then in parallel there is this Japanese [“Data Free Flow with Trust”] initiative, which we think could go in parallel. They are not conflicting. That was discussed yesterday and I think many of us realized that the digital economy is very much the future, and that is also important that we can engage on [a] global scale setting some basic, joint rules. There are lots of things to do there and this is a positive process. There is lots happening on the table. The big countries are in but also many small countries, and we are trying to reach out to as many as possible. This is potentially something that could be very positive. It will take time but there are a lot of good ideas floating around the room.
Q: Do you think the deal could be completed by mid-2020 during the next WTO ministerial?
A: I’m not sure. I know that is the ambition, of course, but to have it totally completed by next summer might be a little bit optimistic. But at least clear progress to report.
Q: How did the conversations between developed and developing countries go, specifically India, South Africa etc.? They clearly have a different perspective.
A: They do and that’s unfortunate because we would very much like them to join. I think it could be in their interest to join – other developing countries have joined so it’s not a clear-cut division. I think they think that this is not a prime issue to focus on in their economies, and we very much support that we must discuss development issues and we must discuss issues relevant for them as well, but this is something that could actually be very beneficial for small rural companies in Africa, for instance. If we achieved joint rules on e-contracts or on e-signatures with small companies – some of them run by women sitting in the far, isolated areas – this could actually be a good thing. It would facilitate trade on that small level. So we hope that they will change their mind and we will ensure that we are as transparent as possible – you know, share everything with them so that they can follow the process and maybe at some time they will feel more comfortable joining. But you’re right, for the moment, they are not there. Though I think Nigeria is in, yes.
Q: As members work to modify their e-commerce proposals, what is some common ground that should be focused on? Have you spoken to the U.S. about controversial language in its recent e-commerce proposal?
A: We are not really there yet. This is a moment: First, we have agreed to do this, and then there are a lot of proposals on the table; some of them will be difficult to combine, of course. Some of them are very ambitious, others are a lot more focused on common ground, and this is what we are trying to draft out right now. Our view is that there is a lot we can do and that it has to be an agreement that possibly is flexible. Some countries might want to go a little bit further, but it has to be on most-favored-nation basis and a plurilateral agreement. There will be differences in this, of course, and we have quite strong legislation when it comes to data protection in the European Union, and Japan has as well and other countries. That was raised many times as well. We need to find that balance.
Q: Between data flows and privacy protection?
A: Yes.
Q: I would like to shift to U.S.-EU trade talks. What is their status? You’ve recently said the U.S. might not be ready to move forward, and I’m wondering if a deal solely involving industrial goods is the only way forward despite opposition from USTR over the inclusion of agriculture? Is there any wiggle room here?
A: Despite differences and disagreements with the U.S. we think it is very important to maintain a positive agenda. We are each others’ biggest trading partners so we have everything to win to try to facilitate that trade. Based on the meeting that was held almost a year ago in the White House between President Juncker and President Trump, where there was this statement, there are a variety of issues where we cooperate. There’s the [liquefied natural gas] and that has led to quite a lot of new investments in the European Union, and opening up the infrastructure maybe to also buy from the U.S. We’ve seen increased imports of soybeans and we have started to engage on regulatory cooperation, which as you know is a bit technical but extremely important for our companies. So, here we have explored for quite some time what could be done, for instance on areas like pharmaceuticals, medical devices and so on. And that is an ongoing dialogue that we have.
And then we got these two mandates from the member states. One on conformity assessment, and here we had a meeting where we started to explore what could that mean because we are not going to change each other’s systems, but we can within our systems facilitate for each other. So that we have started to explore. On the industrial goods agreement, we have not started negotiations yet. And here there is a discrepancy on the mandates. But it was very clear at that meeting in the White House in July that from the EU side, we are not going to include agriculture – that was crystal clear. And the U.S. also made clear that they are not going to include items that are normally in a comprehensive agreement, such as public procurement, Buy America, the Jones Act – that would be [an] offensive interest for us.
So what we have said is this will be a limited agreement, but it could be a very easy one. And it’s mutually beneficial. We talk about increased trade – 9, 8 percent, and around 30 million each of getting away with tariffs – and if we decide to do that then that could be a quite easy fix. Immediately you could see the benefits. But now there is no way EU member states will engage on agriculture.
Q: You’ve met with Senate Finance Committee Chairman Chuck Grassley (R-IA) quite a few times.
A: Oh, I’ve met with him many times and I understand the Congress' view on this because this is their traditional template, of course. And I’ve tried to explain our view that we understand this, but this is not a normal situation. This is something that could be a quick thing to restore confidence and to get a domino, positive effect between us. So, we will see. We are ready to negotiate. But in the meantime, we will focus on these other things.
Q: Sounds like there is progress being made on regulatory cooperation and conformity assessments?
A: There is, there is nothing to report like ‘this is done,’ but there is progress – absolutely. And I would say that there is progress on the fourth or fifth strand of that agreement, which is reform [of] the WTO. We met in Paris two weeks ago for the sixth time – me, Ambassador Lighthizer and Japanese Minister Seko, where we have been engaging in writing new rules, updating the WTO rule book. And we are focusing on industrial subsidies and forced technology transfer. We are trying to see, can we get legal text and rules there that we can agree upon so that we can start engaging with the broader membership? It was a very constructive meeting in Paris two weeks ago. And this I think the U.S. has confirmed that they also think this is very positive.
Q: Right. And that joint statement said the ministers of the three countries instructed staff to “finalize trilateral text” with the aim of initiating talks on state-owned enterprises and industrial subsidies with more members. Is that text finished? What are the hold-ups?
A: No, I think we still need the summer to finalize it. So we haven’t decided yet. We talked about meeting just after European summer – September. Hopefully we can finalize by then.
Q: What’s the time frame to conclude a bilateral deal with the U.S. given that a new European Commission will be installed in the fall?
A: There is no time frame because we have to conclude a deal. If we were to sit tomorrow and say ‘OK let’s get this industrial trade deal done,’ we can do it very quickly. It’s a matter of weeks to agree and then it has to be processed and translated. I still think that even now, as the clock starts to tick, that it is still feasible before I leave. I leave the first of November. So it could be done. Then, of course, regulatory cooperation – that’s an ongoing, organic process. As soon as we find something that we can do, we will do it. And then we continue, so that will go on. And our teams will stay, of course, so on that we are not losing time. If all goes as planned there will be a new Commission on the first of November, with a new trade commissioner of course. So that will change. But those dialogues have been ongoing with our teams, and from our part it’s DG Trade – they are staying.
Q: Do you have any thoughts on how the outcome of the recent elections in Europe will impact trans-Atlantic trade relations?
A: It is very hard to say yet. I think overall the European Parliament is now in a formative phase – the groups, the different committees, and so on. So it’s hard to say. They are formally sworn in the second of July. So this is very much the weeks where they appoint their committees, their committee chairs and so on. Before that we don’t really know. There are forces that are clearly more critical to trade that [have] been elected, but also the liberal group, which is generally the most pro-trade group, increased. So it’s hard to say.
Q: The EU has been given 180 days to negotiate with the U.S. to address auto imports. How are those talks going? Have they been folded into the broader trade talks or are they being kept separate?
A: We haven’t really started those talks. We have made absolutely clear we are always willing to talk – always. But we reject the notion that our car and car parts are a security threat. European car producers in the U.S. provide 420,000 jobs, so how can that be a security threat? So we reject that notion. And we will not agree to managed trade; voluntary quotas are WTO-incompatible. We also offered to take away our tariffs on cars. President Trump is annoyed that we have higher tariffs on cars, which we do, but we have said 'Let’s put them aside; this is our offer,' and since then we haven’t really talked. We are always willing to talk, but we are not willing to negotiate anything that means managed trade. Cars can be included in the industrial goods agreement.
