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Committees Trade

Our Comment on Negotiating Objectives for a US-EU Trade Agreement

Why a US-EU free trade agreement is imperative for the future of the transatlantic economy

Please note: The following comment was submitted to the Office of the United States Trade Representative upon its request for comments on negotiating objectives for a US-European Union trade agreement on January, 2019.

The successful meeting between European Commission President Juncker and US President Donald Trump, held in July 2018, and the resulting establishment of a high-level EU-US Executive Working Group (EWG) has shown that both parties are serious about negotiating a trade agreement to the benefit of all and advancing opportunities for enhanced transatlantic cooperation.

A number of areas have already been identified where progress can be made in the short term, including cooperation in the automotive, chemical, energy, pharmaceutical, medical devices, and emerging technologies sectors. Several of these short-term goals have already been set into motion since the talks in July 2018, especially concerning regulatory convergence in the automotive sector. Long-term goals between the EU and US include removing all tariff and non-tariff barriers between the US and EU, enhancing regulatory cooperation, and reforming global, multilateral trading organizations such as the WTO.

AmCham Germany is a proponent of free and rules-based trade. We consider ourselves to be the voice of transatlantic business, representing both American business interests in Germany and German business interests in the US. Through our 2,500 members, our association is in a unique situation, understanding both the American and European points of view. As talks between the EU and US commence, we encourage both sides to consider the following points while negotiating.

The US-EU economic relationship is the largest in the world, responsible for 1/3 of world GDP and directly supporting 15 million jobs (and millions more when considering supply chains). The trade relationship between the US and Germany is very strong: Germany is the US's largest European trading partner and sixth largest in the world; the US is Germany's largest export country.

For the aforementioned reasons it is in the best interest of both the US and Europe to put together an agreement that benefits both economies in the short and long-term. History has shown that free trade and economic openness are in our best interest, both economically speaking and for societies as a whole. Due to a reduction in trade costs and the liberalization of markets, sectoral productivity increases, GDP goes up and local communities gain faster access to new technologies and sustainable solutions. Furthermore, trade among partners results in shared growth, shared prosperity, and shared success.

The EU and US are among the most economically attractive places in the world to do business. Recent developments of protectionist measures on both sides of the Atlantic are worrying, as these decrease the willingness to invest, which in turn hinders growth and innovation. In a recent survey of our members, AmCham Germany found that almost 20% of German member companies are less willing to invest in USA after recent tariffs. Moreover, for 42% of German member companies, the US has become less attractive as a place of doing business. It is essential that both the EU and US continue to promote open investment markets and provide fair access to each other's markets. This will ensure both economies are competitive, thereby accelerating innovation and growth. As a CEO of a major chemical company noted at our recent Transatlantic Business Conference, "Fair, trade-based competition is not only useful - it is necessary for our continued and shared growth. It makes good companies better and more efficient, and it renders inefficient companies obsolete."

Future trade agreements should not only encourage free and rules-based trade, but address issues of equality. It is no secret that the effects of trade have been difficult for a number of communities in both the US and EU, especially in rural areas. Dislocation, or fear of dislocation, has associated trade with job loss and the feeling of being "left behind" for certain groups of society. In discussing the framework for a future transatlantic trade agreement it may be prudent to consider programs that increase skills and education, increase labor mobility, and improve employability.

Projections show that global growth is happening outside of Europe and the US, especially in the next decade. The economic giants of tomorrow will be bringing new norms, rules and regulations into the global economy that may not align with the values and standards that govern the international economy today. For this reason, the trade relationships between the US, EU and other like-minded countries should be protected and strengthened. The time has come for the EU and US to lay the groundwork to help shape the global economy in the upcoming years, by enhancing common rules and setting global standards.

We would also like to draw attention to the German viewpoint, particularly concerning the automotive sector. AmCham Germany has many member companies on both sides of the Atlantic that are highly engaged in this sector (both directly and indirectly) and would be greatly affected by automotive tariffs. AmCham Germany already provided comment (DOC-2018-0002) regarding Section 232 in June 2018. As these points remain relevant to date, we would hereby like to briefly address them again.

US-based German automobile manufacturers contribute to a strong US economy

Germany is among the leading contributors of automotive foreign direct investment in the United States. Since 2013, production by German auto manufacturers in the US has risen by over 20% to over 800,000 vehicles. This shows the commitment of German auto manufacturers and suppliers to the US marketplace and to strengthening their presence in the U.S. The production of German cars in the United States also contributes to the US tax base.

US-based German automobile manufacturers are job creators

President Trump has made job creation a priority of his administration. US-based German automobile manufacturers alone employ 36,500 persons in the United States. When including automotive suppliers, the number rises to 116,000 jobs. These figures merely refer to the direct employment. The indirect employment numbers are much larger.

The tariffs currently under consideration would lead to higher production costs for car manufacturers and thus to lay-offs. A conservative estimate has put the number of American jobs lost due to the tariffs at 195,000 over the next one to three years. This does not include potential in-kind retaliatory tariffs that could lead to further job loss in the US. Moreover, the implementation of tariffs could dissuade foreign automobile manufacturers and suppliers from further investment in the US, which in turn reduces the potential job creation.

US-based German automobile manufacturers invest in workforce training and education

Beyond investment and job creation, US-based German auto manufacturers and suppliers also invest heavily in the education and training of their workforce. They contribute to preparing a highly skilled workforce that is needed in today's modern automotive industry thus further strengthening the US economy.

Competition spurs innovation

As the Department of Commerce stated, "[a]utomobile manufacturing has long been a significant source of American technological innovation". The incentive created through competition with foreign automobile manufacturers spurs innovation and technological advances and helps make US automobile manufacturers competitive in the global market. If US automobile manufacturers are sheltered through higher tariffs on imported vehicles, this incentive will be lost.

Tariffs on imports of automobiles and automotive parts would also hurt US manufacturers and disrupt supply chains

In today's highly interconnected economy, higher tariffs on automotive parts would also impact US auto manufacturers and lead to higher production costs, lay-offs and higher consumer prices. They would also disrupt the intricate network of international supply chains, further hampering or delaying production. The negative effect on American and foreign automobile manufacturers alike would lead to an erosion of the gains made by the Tax Cuts and Jobs Act and lower the amount of funds that the manufacturers could use to invest in additional manufacturing capacities and in training and hiring employees.

Risk of countermeasures would worsen economic impact

As mentioned in the second point, European auto makers employ thousands of workers in the US, both directly and indirectly. Imposing tariffs on European auto parts would directly and swiftly impact these jobs. Furthermore, the implementation of tariffs on European automotive parts and autos could lead to countermeasures from the EU, which would further worsen the economic impact.

AmCham Germany Recommends

As talks on a trade agreement between the EU and US commence, AmCham Germany encourages both trading partners to focus on short and long-term goals, providing a framework for a sustainable, rules-based and equitable trade agreement. The agreement should deliver real trade value - removing key barriers so companies can add value to local communities and economies. A trade agreement should benefit both the US and European economies and lead to growth and stability, while remembering that trade among partner's results in shared success, growth and prosperity. From a business perspective, the EU and US are one common market. A strong business climate will lead to increased investments and bolster both economies. Furthermore, a strong transatlantic relationship can influence the global economy and ensure that our shared business values remain relevant on the global economic stage.