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Tuesday, November 5, 2019 - 03:30

MNI POLICY: Trump May Extend EU Auto Tariff Probe For Leverage


Wider Trade Talks With EU Complicated By Aircraft Subsidies

WASHINGTON (MNI) - U.S. President Donald Trump will miss a deadline next week on the investigation of cars imported from the European Union to keep his leverage in broader trade talks, former officials told MNI.

Trump has until Nov. 13 to respond to results of the Commerce Department's automobile probe under a clause known as Section 232 covering national security.

The White House is "jockeying for position" and the statute's hazy language allows the president to take any actions deemed necessary, said Bernd Janzen, a former attorney in the Office of the Chief Counsel for Import Administration. That could allow Trump to call for an extended review following the deadline.

"It may be more powerful to keep the card of the threat of tariffs than to actually use it," said Janzen, now a partner at Washington-based law firm Akin Gump specializing in Section 232. "So long as there is the threat of tariffs, the EU is going to be nervous about what might happen, and I think that translates into leverage for the White House."

Originally designed as a Cold War safeguard, Section 232 of the Trade Expansion Act of 1962 has served alternative purposes including economic ones. Although a statutory timeline exists for investigations, the scope of the inquiries and the executive branch's interpretation of security can be broad. Trump used the clause to put tariffs on steel and aluminum from longtime military ally Canada and Mexico when renegotiating NAFTA.

--'SIGNIFICANT BARRIERS'

After receiving the results of the investigation in February, Trump wrote in a presidential proclamation in May that foreign markets impose "significant barriers to automotive imports from the United States," referencing the EU and Japan.

But the proclamation was drafted before the U.S. struck a preliminary deal with Japan, the USMCA was signed and KORUS was renegotiated. That likely places Japan, Mexico, Canada and Korea outside the investigation.

"Section 232 is becoming a U.S.-EU issue," said Jeremie Cohen-Setton, a research fellow at the Peterson Institute for International Economics.

Cohen-Setton said the trade relationship between the U.S. and Europe is often "underemphasized" by the Trump administration, which has focused more on China.

"There are already many obstacles toward reaching a deal with the EU," the lawyer Janzen said, noting considerable discord over agriculture. "Without the 232 auto investigation, I'm skeptical that there can be any broader trade deal with the EU reached quickly."

--AIRCRAFT DISPUTE

The U.S. also imposed $7.5 billion of tariffs on European imports last month, following a ruling on a 15-year-old World Trade Organization dispute over the EU's illegal subsidies to aircraft supplier Airbus.

EU trade chief Cecilia Malmstrom said the EU will move forward with tariffs when the WTO decides on a similar dispute over U.S. subsidies to Boeing. European Commission President Jean-Claude Juncker said last year the EU would "respond in kind" if the U.S. imposed car tariffs.

Cohen-Setton doesn't see the EU responding ahead of the president's 232 decision, no matter how long that may take. "It's in a wait-and-see mode until a decision is made on autos," he said.

The EU shouldn't hold its breath, according to Gary Hufbauer, a former U.S. Treasury official and trade expert at the Peterson Institute for International Economics.

--ELECTION FOOTBALL

Hufbauer said the president will likely "keep the tariff option alive" into 2020 as the U.S. enters a presidential election year.

"An election year is always an inauspicious time for an agreement," he said. "And the complexities of the U.S. political situation are not favorable to an agreement."

U.S. Secretary of Commerce Wilbur Ross said Sunday during an interview with Bloomberg Television the administration has held conversations with individual European, Japanese and Korean automakers which should determine the nature of the president's decision.

He said the administration's "hope" is those negotiations will "bear enough fruit" for the U.S. to abandon or only partially enforce Section 232 tariffs on imported automobiles and parts.

--MNI Washington Bureau; +1 202 371 2121; email: brooke.migdon@marketnews.com

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