As retaliation, the U.S. will impose an additional 10 percent duty on airplanes from France, Germany, Spain, and the United Kingdom, as well as an additional 25 percent duty on certain goods including single malt Irish and Scotch whiskies, coffee from Germany, cheeses from several countries, and certain garments from the United Kingdom. The retaliatory tariffs will likely take effect on October 18, 2019 and will be “continually re-evaluate{d}. . . based on {U.S.} discussions with the EU.” In selecting the goods that will be affected by the retaliatory tariffs, the Office of the U.S. Trade Representative explained that the tariffs are intended to most heavily impact imports from France, Germany, Spain, and the United Kingdom, the Member States that provided Airbus with the disputed subsidies.

Meanwhile, tariff threats also loom over the U.S. in a parallel WTO case regarding the illegal subsidization of Boeing in the U.S. The global trade regulator is expected within six-to-eight months to authorize the EU to impose its own retaliatory tariffs on U.S. goods. In April, the EU published a preliminary list of U.S. products to be considered for countermeasures. Ahead of the WTO’s ruling on its case regarding the subsidization of Boeing, the EU might choose to revoke prior settlements with the U.S. in other WTO cases, which would effectively create tariffs on approximately $4 billion worth of U.S. imports into the EU.

Despite this, EU officials publicly claim to have little appetite for the mutual imposition of countermeasures, and emphasize that countermeasures strain transatlantic trade relations and inflict damage on citizens and businesses. The timing of the new tariffs is politically sensitive given the recent global imposition of national security tariffs by the U.S. on steel and aluminum, as well as the potential addition of global national security tariffs on automobiles and parts. Last June, the EU also imposed “rebalancing” tariffs on about $3 billion worth of U.S. steel, agricultural, and other products.

While EU countermeasures remain a possibility, EU Trade Commissioner Cecilia Malmström, accompanied by several other EU leaders, and U.S. Trade Representative Lighthizer have voiced their intent to reach a negotiated settlement in the aircraft cases. Malmström’s soon-to-be successor, Phil Hogan, also stated during his confirmation hearing on Monday at the European Parliament that he is committed to engage politically with the U.S. to resolve trade tensions.

While both the EU and the U.S. are open to negotiating a settlement of the long-standing aircraft disputes, the devil will likely be in the details. Malmström has voiced concern that the U.S. is unwilling to engage, and has not acted on a settlement proposed by the EU in July. Ambassador Lighthizer, however, is publicly open to “negotiations with the European Union aimed at resolving this issue in a way that will benefit American workers.”

The EU-Canada interim appeal arbitration arrangement is grounded in Article 25 of the WTO’s Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), which contains rules for resolving disputes arising under WTO agreements. Article 25 DSU provides for “expeditious arbitration within the WTO as an alternative means of dispute settlement […] of certain disputes that concern issues that are clearly defined by both parties.” Under Article 25 DSU, parties agree in advance the procedures to be followed. The EU-Canada interim appeal arbitration arrangement thus provides in disputes between Canada and the EU for either party to appeal WTO panel reports to three arbitrators, which are chosen by the WTO’s Director-General from a pool of available former Appellate Body judges. The arrangement further specifies that the arbitration be governed by the provisions of the DSU and other rules and procedures applicable to WTO Appellate Review, and that a single arbitration panel should be formed to hear appeals filed by other WTO members on the same matter. Finally, the EU-Canada appeal arbitration procedure applies only if, and so long as, the WTO Appellate Body is unable to hear appeals.

The EU and Canada’s preferred course would be to unblock the WTO Appellate Body selection process. Work on WTO reforms to this end is ongoing. Reform leading to the re-establishment of the dispute settlement system remains critical in light of the fact that the U.S. might boycott any Article 25 DSU arbitration procedure. Furthermore, buy-in to the EU-Canada approach by other WTO members is uncertain. By activating the provision in Article 25 DSU, the EU and Canada nevertheless offer a way for WTO members to work around the impasse over WTO Appellate Body nominations. The two countries’ interim appeal arbitration arrangement can serve as template for similar arrangements, including a plurilateral arbitration agreement, should the WTO’s Appellate Body’s seats become vacant later this year.

Should negotiations fail in the short term, however, prospects for the new Commission may be better under the leadership of Ursula von der Leyen. Commission President-elect von der Leyen was elected in a vote in Parliament on 16 July following her nomination by the EU Council. Her next task is to select a team of Commissioners which must be approved by Parliament and the Council. The new European Commission will take office on 1 November 2019.

Commission President-elect von der Leyen is considered a staunch “transatlantist” whose agenda includes crafting a trade agreement with the U.S. Von der Leyen’s Commission will put forward a “strong, open and fair trade” plan and aim to reinforce a “balanced and mutually beneficial trading partnership” with the U.S. Further, von der Leyen has cultivated important relationships with politicians and business leaders in the U.S., which may facilitate trade discussions. A former German Defense Minister, she champions the EU’s development of its own security and defense forces and sharing more of the burden and expenses with the U.S. over NATO. This may bode well for the Trump Administration and heighten EU influence and stature in the U.S.

Von der Leyen’s background, policies and leadership selection of the new Commission may indeed give her leverage to strike a deal with the U.S. and it appears that she will be better positioned than her predecessors to bring a deal to fruition. Undoubtedly, the divergence between EU and U.S. climate policies, her proposed regulation of U.S. tech companies operating in the EU, and conflicting strategies concerning Brexit and Iran, will create some challenges. Nevertheless, improvements in trade relations between the two blocks may be just around the corner and that can only increase the chances of a deal.

In an attempt to create a majority in the UK Parliament to ratify the withdrawal agreement she negotiated with the EU, Prime Minister May intended to made certain concessions. Among them was the idea of negotiating a new and separate customs union with the EU that would take effect when the UK is no longer part of the EU internal market. The Brexit Party rejects this proposal and it may not be tenable for the next Conservative Party leader. Nevertheless, pressure to avoid a hemorrhaging hard Brexit, may yet result in further consideration of a separate customs union with the EU. It is useful then to consider what a customs union without single market access and EU membership might look like and how it could affect business.

The main arguments for an EU-UK customs union are that it guarantees reciprocal tariff- and quota-free access for goods, as well as avoids customs and rules of origin checks and costs. This would significantly reduce red tape for companies and helps to keep supply chains intact. Whether this would be possible from a position outside the EU internal market is questionable. The EU would most likely require single market membership to ensure regulatory alignment to rule out border checks between the UK and the EU.

Even if possible to negotiate a separate EU-UK customs union as a third country outside the internal market, there are potential drawbacks. First, an EU-UK post-Brexit customs union is unlikely to be as far-reaching as the internal EU customs union, which covers all goods. The EU-Turkey customs union, for instance, covers trade in industrial goods but not most agricultural products, steel and coal products, public procurement, and services. Thus, depending on the nature of any future EU-UK customs union, some goods might not be covered and would be traded between the EU and the UK on WTO terms, which involve higher tariffs. The EU and UK could negotiate separate bilateral preferential agreements in those areas not covered by a customs union, e.g. services, but this could take several years of negotiation and businesses in the meantime would lack visibility on what might be agreed at the political level. Additionally, a customs union does not guarantee frictionless trade as it is the UK’s current membership of the single market which ensures harmonization of safety and quality standards and avoids delays due to border checks. Businesses should therefore be prepared for some trade disruption even in an EU-UK customs union scenario.

Second, as the UK leaves the EU, it will no longer be able to participate as a Member State in free trade agreements (FTAs) between the EU and third countries. This is significant as the EU has in place, or is negotiating, trade agreements with several global economic heavyweights, including Japan, Canada, Singapore, MERCOSUR, Mexico, and Australia. Benefits granted through EU-third country FTAs, including duty-free access to EU partner markets, will not automatically apply to the UK. The UK would need to negotiate its own trade agreements with third countries to gain preferential access to their respective markets post-Brexit. Depending on the terms of any EU-UK customs union, states may lack incentive to strike wide-ranging individual trade deals with the UK. Businesses may accordingly need to consider disruptions to their market access and supply chains even if a post-Brexit EU-UK customs union is agreed.

Third, under any EU-UK customs union, the UK would be required to apply the bloc’s external tariffs and, so, would not be able to formulate independent trade policy. This is significant because goods from EU trading partners would be able to flow freely into the UK via an EU-UK customs union after entering the EU at reduced or zero tariff rates under EU trade deals. Reciprocal rights would not automatically apply for UK exports to the same countries, however, putting UK businesses at a disadvantage in relation to EU and EU partner country companies. If the UK also has little to offer potential trade partners on the goods side in terms of trade concessions, bilateral UK-third country trade deals may be limited in scope and the UK likely would have reduced bargaining power in negotiations even if it is an attractive market, i.e. with a highly developed and regulated economy. Additionally, an EU-UK customs union for the UK likely would involve significant regulatory alignment with the EU without direct participation in its decision-making mechanisms on trade policy, which again could undermine the UK’s bargaining power in any future trade negotiations. It nevertheless could be argued that the UK remains a prized market and that it has sufficient economic clout to negotiate lucrative trade deals with third countries e.g. on services, regulatory barriers to trade in goods, public procurement, data, and intellectual property.

Should the UK decide that it is in its interest to have a separate custom union with the EU, this would be done as part of future negotiations with the EU. The EU has been crystal clear that the withdrawal agreement already negotiated with May’s Government is not open for re-consideration. Whether or not it wishes to pursue a UK-EU customs union in future, the UK will crash out of the EU on WTO terms on 31 October 2019 unless the UK Parliament ratifies the withdrawal agreement or the EU grants it more time to do so. At this stage, each of these contingencies could not be more uncertain.

In addition to general negotiating objectives across numerous areas – including trade in goods, services, and agriculture; intellectual property; digital trade and cross-border data flows; labor and the environment; trade remedies; anti-corruption; and dispute settlement – TPA also establishes procedures for consultation with Congress and other stakeholders throughout trade agreement negotiations. These procedures include required reports on certain aspects of the agreement prior to signing the agreement; Congressional notification 90 days before signature; release of the final agreement text 60 days before signature; and Congressional notification of expected changes to U.S. law 60-180 days before signature. USTR also engages with public and private sector stakeholders through consultation with various policy- and sector-oriented trade advisory committees and through comment periods and hearings announced in the Federal Register.

The United States began bilateral negotiations with the EU in July 2013 in an effort called the Transatlantic Trade and Investment Partnership (“TTIP”). The last round – the 15^th – of those negotiations took place in New York in early October 2016, during the Obama Administration. While the Trump Administration’s new trade talks with the EU will likely build on some aspects of the prior negotiations, it is unclear at this point how previously agreed upon terms will be treated. Notably, the interests of the United Kingdom, as a member of the EU, were represented in those earlier TTIP negotiations. As a result of the UK’s exit from the European Union, the Administration now intends to enter into a separate trade agreement with the UK. As stated in USTR’s notification letter to Congress, those discussions will begin “as soon as {the UK} is ready after it exits from the European Union on March 29, 2019.” In its Congressional notification letters regarding both the EU and the UK, the USTR cited challenges from multiple tariff and non-tariff barriers, leading to chronic U.S. trade imbalances.

The United States and Japan also have a history of trade negotiations, but in the context of the multilateral Trans-Pacific Partnership (“TPP”) among 12 countries. Although the United States signed a completed TPP agreement in February 2016, that deal was never ratified by the United States, which withdrew from the agreement on January 23, 2017. Japan was instrumental in corralling the remaining 11 countries to sign a modified agreement called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”) in March 2018. Until as recently as September 26^th of this year, Japanese Prime Minister Shinzo Abe had resisted the idea of bilateral talks with the United States, instead favoring the United States’ return to the CPTPP. Recent discussions on the potential for the United States to impose 25 percent tariff on automobile exports from Japan apparently brought Japan to the table. “Japan is an important, but still too often underperforming, market for U.S. exporters of goods,” USTR said in its letter to Congress. “U.S. exporters in key sectors such as automobiles, agriculture, and services have been challenged by multiple tariffs and non-tariff barriers for decades.”

It is not yet clear what effect this initiative will have on EU companies. The current language in the blocking statute allows each EU member state to “determine the sanctions to be imposed in the event of breach of any relevant provisions” as long as such sanctions are “effective, proportional and dissuasive.” This could mean dealing with multiple different approaches in Europe.

In addition to the EU blocking action, on May 14, 2018, the Russian Parliament introduced new legislation in retaliation for U.S. sanctions against Russia. The proposed law would function like a blocking statute, imposing criminal liability for compliance with U.S. and other foreign sanctions against Russian parties. So far, the Duma (the lower house of Russia's parliament) approved the first of three readings of the proposed law. It will also need to be endorsed by the Federation Council (the upper house of parliament) and signed by the Russian president before publication.

While the Office of Foreign Assets Control (OFAC) sometimes works with companies when blocking statutes are in place, the agency has also enforced U.S. sanctions irrespective of another country’s blocking statute. In 2013, for example, OFAC fined American Express over $5 million for apparent violations of the U.S. embargo on Cuba because its foreign branch offices and subsidiaries issued thousands of tickets for travel between Cuba and countries other than the United States. OFAC noted in its decision that many of the tickets were issued to countries in the EU, which had adopted “antidote” measures (i.e., blocking statutes) prohibiting compliance with the U.S. embargo on Cuba.

According to a press release from the EC, the current aim is for the blocking statute to come into force before August 6, 2018 – the date on which the first set of U.S. secondary sanctions on Iran are scheduled to be re-imposed. If the EC implements legislation on this timeline, EU companies will face a difficult choice between complying with local law and risking significant penalties from OFAC. Given the significant uncertainty regarding the snapback of U.S. sanctions and the potential legislation in the EU and Russia, companies with a significant presence in Europe or Russia should monitor developments carefully and develop a plan to deal with potential conflicts.

At a G20 summit in Hamburg on July 7, 2017, European Commission President Jean-Claude Juncker said that the EU is prepared to “react with counter-measures” within “days” if President Trump imposes steel tariffs. According to the Financial Times, because U.S. does not export much steel to Europe, EU officials are targeting U.S. agriculture products and other “politically sensitive” products with bourbon whiskey, orange juice and dairy at the top of the list.

In April 2017, the U.S. Department of Commerce initiated an investigation under Section 232 of the Trade Expansion Act of 1962 to determine whether steel imports are threatening U.S. national security. The investigation is still ongoing and it is possible that the Commerce Department may issue a report before the end of the month with a recommendation to impose tariffs on all steel imports. The EU is concerned that such measures would not only hurt China, but that steel industries in U.S. ally countries, such as Canada, Germany, Japan and South Korea, would likely suffer the biggest impact of any such measure.

The EC is using the threat of retaliation as leverage to convince the Trump Administration to exempt EU steel from the scope of any restrictions on steel. It is not clear what the Administration will do, or whether the EU itself would be violating international trade rules if it retaliates without a finding by the WTO that any steel restrictions by the U.S. were themselves a violation of the United States' WTO obligations. At this point, there is a great deal of political posturing without a timeline for resolution of this potential dispute.

Noise from the UK suggests a strong belief that the UK can leave the EU but maintain trading privileges, including tariff-free and frictionless trade. Not so, says EU Chief Brexit Negotiator Michel Barnier. Barnier has made clear that the UK cannot have its desired legal autonomy without the free movement of EU citizens and the jurisdiction of the European Court of Justice and at the same time continue to enjoy access to the EU market and customs union privileges. Without access to the market and customs union, the UK faces tariffs and customs formalities that mean time and money for UK businesses and exporters. With access to the market and customs privileges, the UK cannot negotiate trade deals with other countries.

Only so many options exist for the future relationship of the UK with the EU. The so-called “Norway” option would mean continuing access to the EU market but without any say by the UK in the applicable rules and would entail customs procedures. The alternative “Turkey” option would mean a customs agreement but with controls to ensure compliance of goods and services with EU rules. In both cases, the UK would get less than it enjoys today and would not achieve its desired regulatory autonomy; moreover, the UK would remain blocked from negotiating free trade arrangements with other countries.

If initial negotiations on the rights of EU citizens, the UK’s financial obligations, and the complex Irish border issue go well, the EU and UK could be discussing the terms of their future relationship as early as the fall of this year. That may be a big “if”.

Canadian Prime Minister Justin Trudeau and EU president Jean-Claude Juncker issued the statement after the G20 Summit on July 8^th. The agreement will be “provisionally” applied until all member states have held ratification votes, but 98% of the deal will go into effect on September 21.

The deal will drop barriers between the economies of the European Union and Canada. Trade between the two sides amounts to more than 60 billion euros ($88 billion Cdn) a year, and the EU expects CETA to boost this by 20 per cent by removing almost all tariffs.

For companies that manufacture and sell in the EU and Canada, CETA is a great opportunity for customs duty savings.

One sticking point has been Japan’s high tariffs – up to 40 percent – on imported cheese. The EU claims about half of the global cheese market, while Japanese dairy farms struggle to survive. Japan had already agreed to limited tariff reductions on selected cheese products in the course of the TPP negotiations, and has signaled it has no interest in going beyond those concessions. Still, negotiators for each side are working hard to overcome these hurdles and have a final agreement in place by the end of 2017.

In January, as President Trump announced the United States’ exit from the Trans-Pacific Partnership negotiations, he also stated his intention to see a bilateral trade agreement with Japan. In May, U.S. Trade Representative Robert Lighthizer met with Japanese Minister for Economy, Trade and Industry, Hiroshige Seko, at the APEC meeting in Hanoi, but downplayed the imminence of bilateral negotiations. Agricultural issues are also critical to the U.S.-Japan trade relationship, particularly for Japanese rice farmers unwilling to open their market to U.S. exports, and for U.S. cattle ranchers struggling with high Japanese tariff rates on imported beef. When USTR Lighthizer and Minister Seko met again just last week to discuss U.S.-Japan trade relations, neither side mentioned a bilateral deal.