Correct!v | 21 February 2016
Tariffs dropped to zero
by Justus von Daniels & Marta Orosz
The EU had offered to eliminate most of the tariff lines entirely during the trade negotiations with the US. CORRECTIV has now published a confidential document: the detailed list of the tariff offer. It shows which products could become cheaper for consumers – some industries on the other hand fear competition from cheaper US goods. Some firms will profit from continued protective tariffs.
The TTIP negotiations entered a decisive phase on October 15, 2015. That’s when US and EU negotiators laid their cards on the table, exchanging offers for tariff reductions. Up until then, the US had only broached hypothetical reductions; now they were openly offering to remove 87.5 percent of tariffs completely.
That was more than the EU expected. European negotiators had to come up with a better offer or risk derailing the deal. A week later, they came up with a new deal: reductions in 97 percent of tariff categories.
The EU’s secret offer, which CORRECTIV has seen in its entirety, is made up of 181 pages of densely-printed text and can be found online at correctiv.org. It’s got almost 8,000 categories: Every species of fish, every chemical has its own tariff category. Importing a parka? Wool, or polyester?
Trade deals are like poker games. Europe’s big offer comes with a big hope: That the US will open up its public bidding process to European firms. That way, European construction companies like Hochtief could bid on contracts to build US highways, or BMW could sell cop cars to American sheriffs. They also indicated in the document that the reduction on certain agricultural products depends on the acceptance of the extension of Geographical Indications by the US side.
For the first time, the tariff offer makes clear what TTIP might do for consumers. Remove duties, and prices tend to drop. With tariffs on parts gone, cars could get cheaper. Per part, tariffs add just a few cents on the euro, but altogether European car manufacturers could save a billion Euro each year, according to German Association of the Automotive Industry calculations. Manufacturers could then pass the savings on to consumers.
Farmers are worried
Some duties are levied on foodstuffs. Right now, peppers from the US have up to 14 percent import tariff. Fish caught on US coastlines are charged up to 25 percent; raspberries 9 percent. Take those away, and it could make economic sense for American food producers to export to the EU – putting domestic farmers under pressure.
Grain and meat, on the other hand, are largely left out of the cuts for now. “The meat industry would definitely loose,” says Pekka Pesonen, general secretary of the European Farmers Association (COPA-COGECA). Animal feed is produced much more cheaply in the US than in the EU. And for products like meat, “there are a lot of reasons it’s complicated to fully liberalize trade,” Pesonen says – animal welfare is more regulated in Europe, and using growth hormones is forbidden.
Opening the agricultural market completely would be difficult for Europe’s small family farms in particular, as they already struggle to compete against industrial-scale farms. That means the back-and-forth over grain and meat is likely to continue.
But the EU has to make a few offers here, too, because the US is eager to see the European agricultural market open up a bit. Pork or seed corn, for example, could be offered up for tariff cuts. The EU has yet to decide when the tariff cuts come into effect. The process is alarming for farmers, who aren’t eager to have their products used as negotiation tools.
Butter vs. Electronics
Both sides have placed conditions on their offers. There are 19 pages of tariffs on clothing, for everything from parkas to shoes, coveralls and yarn. Tariffs hover between 9 and 12 percent, but the EU is offering total cuts, with an “R” for “reciprocity.” In other words, we’ll cut ours only if you cut yours. The US, on the other hand, has made clear that cuts on textiles depend on opening a discussion over country-of-origin labels.
For example, if a shirt is sewn in Vietnam but packaged in the US, is it “Made in Vietnam” or “Made in the USA”? Once that’s worked out, it’ll be possible to discuss whether the new duties apply to that shirt or not.
Take a look at the EU’s confidential offer and it’s clear some industries have been privileged. Next to the many zeroes on the list are phase-in periods of three or seven years. Some aluminum products, for example, won’t be allowed into the EU duty-free for seven years. Hydraulic motors, too, have a grace period. Duties on LCD monitors won’t go down immediately; consumers will have to wait seven years for import duties to drop. That, in theory, will give these industries time to adjust to competition. It has to be seen if these lines are still being negotiated.
Thus far, access to the specifics of the TTIP deal was limited to a small circle: Negotiators, government officials, the US Congress, the EU Parliament and 600-odd “trade advisors” in the US. Publishing the tariff schedule lets citizens and the representatives of small industry associations or companies without lobbyists in Brussels or Washington see what will change for them – or at least what the EU has proposed. That’s fair for everyone.
The tariff offer is a milestone for TTIP. Without concrete tariff reductions, concluding a trade deal would be impossible. In theory, such arrangements have to be handled by the World Trade Organization (WTO); bilateral deals are, technically, forbidden by the WTO. Other states could file to have the deal overturned.
But there’s an exception in the WTO rules: Article 24 of the General Agreement on Trade and Tariffs (GATT) states that a deal like TTIP is allowed when both sides drop their tariffs substantially and show that they’re making trade easier. Both the EU and the US have just done that.
The EU is now waiting for the US to offer a substantial deal on public procurement. In a September 15 report obtained by CORRECTIV, the EU Commission says “it definitely expects that the US will offer to open public procurement at a future point in time, in exchange for the revised tariff offer.”
That report also indicated that the US “promised to make a proposal regarding public procurement for the first time” when the EU and US put forth their symmetrical tariff reductions, eliminating 97 percent of all tariffs.
Public bids are a major TTIP sticking point. The EU wants the US to finally open its markets to allow firms like Hochtief or BMW to compete when cities put out a call for bids on a new building or fleet of cars. The US is less than eager, because that would subject domestic companies – which are already allowed to bid on projects in the EU – to increased competition.
Four days before the next negotiation round starts, the EU Commission has now indicated that they don’t expect a comprehensive offer from the US side. Sources said, that the US haven’t sent their offer yet and that talks about public procurement will be held after the official negotiation week. The 12th round of negotiations started this Monday in Brussels.
Note on the document:
The tariff offer contains two documents. The main offer of the EU and the revised offer on chemicals. We publish a transcript of the original document in order to protect the sources. There are certain details missing which couldn’t be read. We welcome support for completing the few missing parts.