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03.12.2019

TRADE WITH TRUMP: ALL HOPES ON HOGAN

Phil Hogan has spent the past five years flying under the radar of industry as the EU Commissioner for Agriculture and Rural Development. In his new job as Trade Commissioner, the Irishman now faces a bigger challenge: saving free trade in the era of Trump.

By Holger Kunze and Niels Karssen

Phil Hogan is a man who is not easily shaken. Standing 1.95 meters tall, the Irishman is an impressive figure based on appearance alone, while Politico, once labeled Hogan the "Irish bruiser" because of his politic style. The 59-year-old Hogan was known for his, at times, frank communication methods, and for his ability to push through tough decisions if needed, was the conclusion the portrait by Politico came to.

And Phil Hogan will certainly need these traits over the next five years. As the new EU Commissioner for Trade, the briefing for his equally important and difficult mission is clear: To save free and rule-based world trade in an era of rising protectionism and one where Trump is US President. Hogan's relation to the US Administration will be a decisive cornerstone for the tasks to come: reforming (and thereby saving) the World Trade Organisation (WTO), avoiding new tariffs or even a trade war with the USA, and, if possible, concluding transatlantic agreements covering the elimination of tariffs for industrial goods and facilitating conformity assessments.

A complicated relationship turning worse

The mechanical engineering industry will watch Hogan's struggle with vested interest. For European companies, the US is by far the biggest market outside the EU, with an export volume of 26 billion euros in the first six months of 2019 (accounting for one fifth of all exports from the EU mechanical engineering industry to third countries). Particularly in economically challenging times in Europe, open markets elsewhere in the world are decisive for domestic industry companies. In short: the mechanical engineering industry is counting on Hogan to deliver. Complicated relationship turning worse.

However, the circumstances for the new trade Commissioner and talks with the US have further deteriorated recently. In October, the WTO ruled that past subsidies to European aircraft company Airbus were not compliant to the rules of the World Trade Organisation. This allows Trump to maintain retaliatory tariffs worth almost 7.5 billion US dollars per year, and indeed, US authorities published a list of products subject to additional customs duties shortly after the ruling was passed.

The recent list also directly affects the mechanical engineering industry. It includes certain types of construction vehicles, pneumatic, hydraulic or motor-driven hand tools, machines and parts for soldering or welding, as well es microwave ovens. This list might change in the future, as the US has reserved the right to change the product selection at any time. In turn, the case involving subsidies for the US company Boeing is still in the hands of the WTO.

Even worse, Trump does not seem to regard the incoming of Hogan and his colleagues of the new EU Commission as a fresh start for a dialogue with Europe. "We had hoped that the new EU Commission, with President von der Leyen, would offer an opportunity to improve trade relations," says Ulrich Ackermann, Head of the VDMA Foreign Trade Department. "Unfortunately, it doesn't look like the tension will now be eased."

Besides the recent Airbus episode, old problems remain unsolved. In general, the US President seems to primarily be a supporter of case-by-case deals, rather than of general rules for world trade. VDMA, in contrast, regards the WTO and its rulebook as the basis for a successful global trade policy.

Lots of homework for Hogan

Hogan, however, stresses the few positive aspects of the past years regarding trade with the US. During his confirmation hearing, which is similar to a job interview conducted by EU Parliamentarians, Hogan set the goal to build on the joint agreement Jean-Claude Juncker reached with Trump last July. Back then, the Commission’s President and Trump negotiated an emergency deal that prevented immediate automotive tariffs. "The key is to relentlessly focus on the positive dimensions", Hogan explained his view during the hearing.

Unfortunately, this is easier said than done. Hogan's predecessor, Swede Cecilia Malmström, was arguably one of the heavyweights in the past Commission and boasted an impressive track record of advancing trade agreements. However, her attempts to approach the US with the TTIP agreement failed in 2017, mainly because of resistance from Europeans. Malmström once called the TTIP negotiations "an opportunity the EU cannot afford to miss". The current state of trade relations with the US proves her right.

Accordingly, Hogan's new boss, Ms von der Leyen, publicly refrains from excessively high expectations. In her "Mission Letter" to Hogan, a sort of target agreement for Commissioners, Ms von der Leyen formulates that she expects him to "work towards a positive, balanced and mutually beneficial trading partnership with the United States". VDMA, however, calls for more ambitious goals. "The mechanical engineering industry has long been calling for a lean free trade agreement with the USA, which would dismantle all industrial tariffs and ease non-tariff barriers to trade", said VDMA Executive director Thilo Brodtmann earlier this year.

Trump only one of several problems

Regardless the degree of ambition concerning the US, Hogan is facing a busy first period in his new job. Apart from Trump's protectionism, EU trade policy also faces many challenges these days. One of these is certainly China and the European answer to subsidized or state-owned enterprises competing with EU companies on the world market and increasingly within the single market. Another challenge will be the trade relations with the United Kingdom once Brexit has been completed.

A further issue is the enduring high level of skepticism towards free trade among parts of the society and the European Parliament, which recently led to discussions on the trade agreement with the Mercosur states. Related to this is the question as to whether trade policy can play a role in exporting European values and societal objectives to third countries, such as the need for climate protection or worker's rights.

Hogan's most urgent problem, however, will remain the US, and how to build a workable relation with the Trump Administration. In the event this turns out to be difficult, the Irishman has already announced that he will live up to his reputation, and not shy away from conflict if it is unavoidable. During his hearing in Parliament, Hogan made it clear that he would be ready to hit back in the tariff domain even against Trump and the United States: "Europe has to stand up for itself", Hogan said.

Further Information

VDMA European Office

© VDMA
Contact
Holger Kunze, VDMA European Office.
Niels Karssen, VDMA European Office.