US-EU Summit: Prospects dim for trade deals, with focus on crises in Middle East, Ukraine

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Prospects dimmed on Thursday for agreements ending long-running disputes between the US and European Union over Trump-era tariffs and US green subsidies after negotiators failed to make any breakthroughs before a White House summit.

European Commission chief Ursula von der Leyen said the Israel-Gaza crisis and efforts to ensure continued support for Ukraine were set to dominate her White House meeting with US President Joe Biden and European Council President Charles Michel, suggesting trade issues would be on the back burner.

US, EU talk tariffs, green subsidies, electric vehicles

US and European trade negotiators met throughout the day, but were unlikely to reach an agreement on the steel tariffs or a way to lessen the impact on Europe of new US tax breaks to buy electric vehicles (EVs) assembled in North America, two sources familiar with the matter said.

Michel suggested no deal was imminent when he told reporters the two sides needed to find “mutually beneficial” solutions.

Michel and von der Leyen had hoped to seal agreements with the United States to end the Trump-era tariffs and ease the impact of US green subsidies, but the push was eclipsed by the escalating violence in the Middle East, along with worries about eroding support for Ukraine.

US Trade Representative Katherine Tai met with European Commission Executive Vice President Valdis Dombrovskis on Thursday, a third source told Reuters.

Michel told reporters it was a critical time for the US and the EU to “stick together” on their shared values and commitment to democracy given the Israel crisis.

He declined to predict if the issues at hand could be resolved before the White House meeting on Friday, saying negotiations were “ongoing.”

The US has suspended import tariffs on EU steel and aluminium imposed by then-President Donald Trump in 2018, but on condition that both sides agree by the end of this month on measures to address overcapacity in non-market economies, such as China, and promote greener steel. Negotiators now aim to wrap up a deal by the end of the year.

The transatlantic partners are struggling, with Washington keen that the EU apply the metal tariffs to imports from China and Brussels replying it could not do so before a year-long investigation to comply with World Trade Organization rules.

Bernd Lange, chair of the trade committee of the European Parliament, which may need to approve an agreement, said potential measures to tackle excess capacity should be “based on objective investigations and not on political considerations”.

Tariff-free steel club

It is still to be seen if this will end the US tariffs threat or just see an extended suspension.

On sustainable steel, the two sides are trying to reconcile the EU’s carbon border tariff system with a US approach to promote a greening of its economy through subsidies.

The US has proposed forming a largely tariff-free green steel club that would also be open to other allies but with rules on state-owned enterprises that would make it impossible for China to join.

One EU official said the discussions were “fluid”. Another described them as “hard”. One source in Washington described the EU’s position as “unhelpful”, and said it was unclear whether a compromise could be reached before Friday’s summit, which begins at 11 am (1500 GMT).

Also elusive appeared a deal to lessen the hit from the US Inflation Reduction Act, which offers consumers tax breaks to buy electric vehicles (EVs) assembled in North America.

One of the sources said the two sides had made some progress on an agreement that would allow EVs with EU-sourced critical materials – cobalt, graphite, lithium, manganese and nickel – to qualify for partial tax breaks, but were unlikely to finalise an agreement in time.

Given the EU needs such materials itself for its green transition, the positive impact for the bloc may be limited.