Trade

EU stumbles to brink of tariff war with weakened trade chief

Europe is facing the prospect of a new transatlantic trade war with its trade chief muzzled and mired in a potential conflict of interest.

Washington this week walked out of negotiations aimed at striking a global deal over digital taxes, and said it would instead impose tariffs on any country levying such taxes. European leaders, including Bruno Le Maire, the French finance minister, and Paolo Gentiloni, the European economy commissioner, reacted defiantly, saying they would now pursue national or EU-wide digital levies despite the U.S. tariff threat.

But the U.S. move comes at a moment when Brussels is particularly weak in its ability to counter the threat. Its trade chief, Phil Hogan, has just publicly announced his interest in running for the post of chief of the World Trade Organization, a position for which he would require the support of the United States.

Three EU diplomats and several industry officials told POLITICO they were worried about Hogans apparent weakness at a moment when the EU needs to show strength.

“Its an ill-conceived and ill-thought-through plan. The EU needs a strong commissioner on trade and not one that has inflicted self harm on himself and therefore our trade instruments,” said one EU diplomat.

People close to Hogan said he would take a leave of absence from his job as commissioner if he decides to apply for the WTO post.

Brussels muzzled Hogan on Tuesday to prevent him from speaking about his interest in the WTO job. The commissioner should no longer speak publicly if his appearance threatens to “distract” from official EU trade policy, said Commission spokesman Eric Mamer. Any decisions on EU trade policy would now be supervised by Commission Vice President Valdis Dombrovskis, Mamer added.

Despite these concerns, Brussels on Thursday said Hogan is still the EUs point man for trade talks with the Trump administration.

That stoked worries that a compromised commissioner would not be able to defend the EUs interests in a trade war.

“If he fails to secure the [WTO] job because of American or Asian resistance, how will he be a credible negotiating partner,” said the same diplomat. “How is he to discuss lobsters or cars with the very people that rejected him and know hes not in it wholeheartedly?”

Not all trade experts agreed that Hogans muzzle was an immediate problem, however. Bernd Lange, chair of the European Parliaments trade committee, said there was not much of a chance for conflicts to emerge before the U.S. presidential election in November.

“I dont see at the moment any real conflicts of interest, because there is not much to negotiate before the elections,” Lange told POLITICO.

Asked whether Hogan would be able to defend the EU in a trade war, Lange said it was clear the EU would not cave in, but said he did not expect Washington to impose new tariffs in the coming months. “I doubt that Washington will do this before the elections; and after the elections, well have to see,” he said.

That means Hogans muzzle is not an immediate problem. “It is not really necessary — or even helpful — to do sabre rattling from our side as well,” Lange said.

Indeed, it was not clear whether Washington would quickly follow through on its threats.

But there is a risk. Washington is in the midst of a public comment period for investigations into other countries digital tax plans that ends on July 15. After that, its usual procedure would be to make a determination whether the taxes are unfair and discriminatory, announce proposed retaliation lists and then hold another public comment period before actually imposing any tariffs.

U.S. Trade Representative Robert Lighthizer on Wednesday told Congress that the Trump administration had written to four EU countries informing them that Washington is pulling out of the digital tax talks and would instead impose tariffs on any country pursuing such a tax.

Washington “made the decision that rather than have [other countries pursuing digital services taxes] on their own, wed just say were no longer involved in the negotiations,” Lighthizer said.

France reacted strongly. Le Maire on Thursday called Washingtons withdrawal a “provocation” and said his government will apply its own digital levy regardless of threats of retaliation. “There will indeed be, as I have always promised, a digital tax in 2020 in France,” he said.

Robert Lighthizer on Wednesday told Congress that the Trump administration had written to four EU countries | Pool photo by Anna Moneymaker/Getty Images

In 2019, Washington had already threatened to slap tariffs on $2.4 billion of French luxury goods but agreed to postpone such Read More – Source