‘We Are Not Negotiating With a Gun to Our Head’

BY KEITH JOHNSON

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The European Union, like everybody else, is trying to come to grips with a tumultuous era for global trade, with trade wars and tariffs threatening an economic order decades in the making. Foreign Policy spoke to EU Trade Commissioner Cecilia Malmström about upcoming talks with the United States, never-ending U.S. tariff threats, and how to deal with China’s challenge to the global trading order.

Foreign Policy: I wanted to start with trade talks between the EU and the United States, where the big sticking point is agriculture. The United States insists agriculture must be part of a deal, and the EU insists it not be. Is there any chance for a change in the EU stance? And since many U.S. lawmakers say that without agreement on agriculture, it’s dead in Congress, what’s the point of the talks?

Cecilia Malmström: Well, the EU has adopted our two negotiating mandates, on industrial goods and product conformity, so we are ready to negotiate. But it was clear from the very beginning what we were discussing. When European Commission President Jean-Claude Juncker was in the White House last summer with President Donald Trump, as a way to, despite our differences, see if we could find a positive agenda to focus on, this was what was discussed. It was very clear from the European Union side that we were not going to do agriculture at this stage, and not in the foreseeable future as well, so that’s where we are. Agriculture is not in the mandate—member states will not agree to that.

And why? We have long experience, having done the Transatlantic Trade and Investment Partnership, which was supposed to be a very far-reaching and comprehensive trade agreement. But the circumstances have changed. It was difficult enough to do back then. So the intention was, let’s see if we can rebuild some of that trust by doing something that is quite quick and deliverable. It’s a win-win for both of us if we take away industrial tariffs. It’s not nothing—it’s important. Who knows what the future brings? But this is where we are for the moment.

FP: Are there other member state concerns that could scupper the talks? France wants to do deals only with countries still in the Paris climate accord, and Spain has cold feet after Washington levied extraterritorial sanctions on Europe via the Helms-Burton Act [which covers U.S. sanctions on foreign investments in Cuba].

CM: We have issues with the American administration on a variety of issues. On Helms-Burton, we have made our point very clearly. We haven’t started negotiations yet, but in the end, member states will have to say yes to an eventual deal, and that could come up.

On the Paris agreement, that is not really a law, but it is an understanding that we seek trade agreements only with countries that are in the Paris agreement. Now, all countries in the world are, for the moment, in the Paris agreement, except Nicaragua, and the United States has announced that it is leaving, but it has not left yet. That is also one reason why it would be very difficult for us to have a comprehensive trade agreement. But what’s on the table is not a full free trade agreement—it is a limited one—and that’s why member states at some stage, including France, said that this is something we could live with for the moment.

FP: There’s another thing hanging over talks, and that’s tariffs. The United States still has steel and aluminum tariffs on Europe. It has the specter of tariffs and retaliation in the Boeing-Airbus fight. And looming over it all, the threat of tariffs on cars and car parts. Is the EU, as many leaders warned last year, negotiating with a gun to its head?

CM: No, absolutely not. We are very firm in what we have said we are ready to do and what we are not ready to do. And it says very clearly in the mandate, before talks can be successfully completed, we expect the Americans to take away the steel and aluminum tariffs. It has also been said if there are any other tariffs under U.S. Section 232 [the national security justification for tariffs], such as cars or car parts, then negotiations should be interrupted.

On the Boeing and Airbus case, that’s an old saga. The Americans have published a prospective tariff list, and we have also published a list. We should, of course, try to avoid putting those tariffs into practice, but at least they are compatible with the World Trade Organization (WTO). This is something you can do. You can take these correctional measures. We have said to the Americans that we would rather not do this but rather sit down and see if we can find a way to not impose them on each other and find a way to a negotiated outcome.

But it’s true, we have a long list of issues in the trade area where we have disagreements with the U.S. administration. So we are not negotiating with a gun to our head. We have very clear red lines, very clear conditions, but we are also determined to say that the EU and U.S. are natural friends and allies—we should have a common agenda.

FP: Canada and Mexico were also told tariffs would be lifted if they negotiated a new North American Free Trade Agreement. They did, and the tariffs weren’t. Why should you believe the administration?

CM: Well, they haven’t said that they will lift tariffs for us. What has been said and promised between the United States and Canada and Mexico, I don’t have the full picture. But we have said very clearly that we think these are a mistake and also that the basis for imposing these tariffs under Section 232, which implies that the EU and its member states, almost all of which are members of NATO, are a security threat—we don’t accept those premises. So we can start negotiating, but before concluding and accepting a possible outcome, they will have to lift them.

FP: Just to get in the weeds for a second: The WTO just ruled, for the first time, on that national security excuse for tariffs in a Russia-Ukraine dispute. And it doesn’t look good for the U.S. justification for its own tariffs. Do you take heart from that?

CM: I think we need to really analyze in detail the ruling on the Russia-Ukraine dispute from a couple of weeks ago, but we have had that argument ever since the beginning—that you cannot impose these tariffs under the idea that there is a security threat. So this case tends to confirm that view. But there is still some time to go before the WTO will judge on the case that we [and nearly a dozen other countries] have brought against the United States.

FP: Last question on tariffs. Trump calls himself “Tariff Man” and slaps them with giddy abandon on friends and foes alike. Yet he sometimes says he wants a zero-tariff world. Do you take him at his word?

CM: Well, I mean, obviously the European Union is busy in negotiating trade agreements with basically the whole world. We are the most ambitious trade negotiator right now. So we do think tariffs should be done away with to a large extent. Of course, it has to be done on a reciprocal basis, and it has to be negotiated, and every country has their sensitivities.

We know that Trump has voiced concerns on our car tariffs, and we have said that we are willing to take away our tariffs on cars and car parts, and the whole motor vehicle sector, to include them in the industrial goods agreement, so if he thinks that is important, that is what we are willing to do. But you also have to remember that the United States has quite high tariffs and subsidizes its agriculture, so it’s not like it’s only the EU that does that.

FP: Sticking with the Anglosphere, how do you see the future trading relationship with a post-Brexit Britain, assuming there ever is one? How hard will it be to ensure relatively seamless trade with a big European economy?

CM: Bearing in mind all the ifs and uncertainties right now, if the U.K. leaves fully the EU and becomes a third country, it will still be a European country, it will still be our friend, it will still be an ally and a very important trading partner, so obviously we will have to try to find as comprehensive a trade agreement as possible with that country. But obviously, it will not be 100 percent seamless because they are leaving the common market. Obviously it is in our interest as well as the U.K.’s to have a trade agreement.

FP: Recently you spoke of two urgent challenges facing world trade: unfair competition from China and the threat to the existing order that has been upheld by the WTO. Is the United States a help or a hindrance in dealing with those?

CM: Well, there are several challenges. One of them is China. I think we have all seen that when China joined the WTO in 2001, the hopes and the expectations that we all had at that time were that it was going in the right direction, that it was doing the right reforms.

Now, looking back, it has not, and of course China has not opened up, has not allowed countries to operate in the same conditions in China as they do in the rest of the world, and they do subsidize massively state-owned companies, and we don’t have rules to really deal with that. Here, we share the U.S. analysis and criticism, and we have voiced it loud and clear, and that’s why we are working with them and Japan to write rules that would address these issues.

But exactly what’s going on around the table when the United States and China meet, we don’t really know. It could come up some concessions that are good for the world. But the EU way is not to try to have systemic changes by threatening with tariffs. We have taken measures: We have reformed our trade defense instruments, and for the first time we have legislation on investment screening in Europe. There is a lot of pressure as well.

When it comes to the WTO, we also share U.S. criticism that it needs updating, modernization, and reform. But boycotting or blocking the appointment of arbitrators to the appellate body [as the United States continues to do] and thereby making the whole enforcement system collapse is not the way we would recommend.

FP: There is some concern that the pending U.S.-China trade deal, and their own bilateral enforcement measures, could set up a sort of condominium, leaving the WTO sidelined. Is that a concern for you?

CM: Yes, it is. As is that they agree on what they call “managed trade”—because despite its weaknesses, the multilateral system is there, and the WTO has served us well, and it is only if we have the rules and enforcement in that context that we can make sure that they are global and that they apply to everybody. The WTO has been extremely important to keep global trade open and rules-based. If that collapses, you could force individual concessions temporarily, but you cannot have those big global systemic changes that would benefit the whole world.

FP: What’s killing the WTO? Is it the United States blocking the appellate body and enforcement? China and rampant cheating? Or just inertia after 25 years and massive changes in the global economy? Or a combination?

CM: No, it’s a combination of things. Of course, with the United States blocking the appellate body, that risks having the enforcement system collapse. That would be really bad.

But, of course, the nonreform policies of China [since joining the WTO] have been slowly eroding the system and have made sure that its gigantic economy is playing by its own rules. That is really hurting the global trading system—not only Europe and the United States but also many other countries that try to compete on equal conditions.

The whole world—including big economic powers such as the EU, the United States, and Japan—is putting pressure on China. China has benefited a lot from WTO membership, and I think it is eager for the system to survive. But it needs to cooperate.

This conversation was condensed and edited for publication.