Transcript:

Justin: Welcome back to Disputes and Perspectives. My name is Justin Angati, and I'm an international trade and national security attorney here in Washington, DC, and joined today by my colleague Philip, who's a partner in our Brussels office, to talk a little bit about the EU's response the Supreme Court's recent decision in validating President tariffs under the International Emergency Economic Powers Act. So I guess to kick us off, Philip, Tell us a little bit about what the immediate reaction has been in Europe.

Philippe: first of all, thanks so much for having me, Justin. It's be discussing this topic with you, of course, from from more European side of things. I think the immediate reaction from Europe, that is the political level, I guess, was a typical European reaction in the sense that we first saw a few of the leaders of different countries respond. Chancellor Mertz, President Macron had their own views on things which generally reflected a sentiment of rule of law and a certain happiness with the fact these tariffs which they have deemed to be unlawful are now struck down by the Supreme Court. But at the same time, I think there was also a realization that there would be something in view of what existed. was the immediate reaction. We then saw the European Commission come especially once the US administration started talking about Section 122 tariffs and a replacement for what was struck a firm statement, at least according to European Commission standards. saying that a deal is a deal and they didn't want to see or don't want to see any increased tariffs on EU origin goods. so that was, as I said, a balanced response, a usual response. First the Member States, then the Commission, stating that they definitely don't want to see a step back from what was already there before the ruling, but at the same time also welcoming the ruling from a rule of law perspective.

Justin: Well, and Philip, on that point on the Turnberry deal, right? I the U.S. heralded this agreement with the EU last summer that effectively gave EU origin goods a somewhat favorable treatment under the reciprocal tariff regime. And you sort of capped out at an all-in tariff rate, general duty plus the reciprocal tariff at 15%. And that came with a number of commitments from the EU. The U.S. side of that deal doesn't have anything to give right And so where does that leave us from an EU perspective?

Philippe: Yeah, very good question. And I think that's also the most asked question by our clients. leaves us in a position where we have a trade deal, which is currently but not formally ratified. And we see that the immediate political reaction has been to put that deal on ice, at least from a European Parliament perspective. At the same time, again, I said before the European Commission did want to make sure that the EU is not worse off under a replacement for the IE Patars. So on the one hand, a deal is a deal and they want to make sure that we're not getting above the 15 % that was committed to by the US administration. But on the other hand, you're totally right. ⁓ In a sense, the legal basis or the balance that was there is no longer there. And in a sense, that deal is now somewhere in the twilight zone it's unclear whether it's going to ⁓ longer term.

Justin: What, and guess as a practical matter, in some ways, depending on what you import from the EU, you might be better off now than you were before the Supreme Court's ruling, general duty rate on lots of things coming into the US is The sort of weighted duty rate, if you think about volume of imports, pre-Trump 2.0 tariffs was sitting at like 2%. So in some ways, what's the, you know, some European exporters may be in a at a better spot because 12 is lower than 15.

Philippe: that's right. That's right. And I think it's, it's heavily dependent on the business and the specific goods that are being imported in the And so I think the ultimate goal for the European Union is to create certainty. And so in that sense, this ruling isn't welcomed that much because we're we're away from a balance and we're now in a at a point where there's a lot of un-clarity and so also if you look at the reaction that's come from business more broadly and industry federations, there's been different ways to look at the situation, right? And so I think the broader narrative has been let's make sure that businesses are acting consistently when exporting goods to the US and importing them in the US. so if they choose to push for that lower tariff under the Section 122 do that consistently and don't share a pick and say like, one time we're applying a 10 plus MFN tariff, which lands as 10%. And the other time we're applying a max 15 tariff, 15 % tariff under the under the deal. So consistency is key. But at the same time, there's there's currently no clarity on what's the appropriate way to do things.

Justin: Right, sort of the Supreme Court's ruling is potentially a legal win that has just created some of the same uncertainty and chaos that we had last April. How does this work? When will it change? And ultimately, what does that mean for companies trying to manage a business? So I guess on that particular point, what is European industry thinking about, at least in the short term, and how you navigate this uncertainty?

Philippe: I think there's a few points, right? mean, obviously there's the lane between the EU or broader Europe and the US, so to speak. been a lot of voices in Brussels on how to react to the ruling and making sure that the EU is not acting too quickly. in that whole discussion from a political standpoint, but at the same time focusing on providing clarity to businesses. ⁓ Businesses don't have that clarity today. So they need to manage the uncertainty as they did before. I think most of the businesses that have been preparing for say the last year for tariff changes are applying the same methods now, right? Assessing What volumes are going to the US? How are they impacted by the Supreme Court ruling? Is there a need to change supplies? Is there a need to change warehousing in the US pricing structures? Is there an impact on contracts? I mean, they're not going through that entire review again, right? But it's on a continuous basis that they try to understand the impacts on their operations and processes. At the same time, I think that's a ⁓ less discussed or less debated part of this balance, there's the lanes coming into the EU, not from the US, right, but from the entire world. And what you often see after changes in the tariff space is that businesses, acting globally, start diverting trade. to other jurisdictions where it's more favorable to trade, right? And so I think that's part of the picture where EU companies are now looking whether the Supreme Court ruling, which impacts tariffs in the US, will also have an impact on inbound flows in the EU and whether that's affecting EU At the same time, if we also look at the political level, we see that the EU is not just looking at the US relationship, but trying to manage a better business environment from a terrorist perspective with other countries, right? We had a trade deal with India. We had a trade deal with Merckeser. We're probably headed towards a trade deal with Australia. those open up new markets for businesses in the EU and allow businesses to diversify in terms of their marketing. And so you see that it's becoming very quickly a more economic business management topic. where initially we're looking at, what's the impact of the ruling, legally speaking? Do we need to apply for refunds? What is the relationship with our customers in the US? that quickly pivots to, okay, do we need to expand our horizon in terms of markets where we're looking the EU is actively weighing on that debate from what they can do in terms of trade deals and working with third countries to improve the business position. I think the last element I want to add to that, again, this is a very diverse picture or very fragmented picture, so you that the EU has an arsenal of for the US, right? And they haven't, well, as always, the EU is quite slow to respond. has a quite heavy process to get to a legal response to whatever is happening outside of the EU. And so at the start of 2025, once we saw the first tariff activity coming from the EU has worked on a response to those tariffs, right? In the form of retaliation, tariff measures that are currently, again, put on ice, but they can pretty easily be defrosted. And there has been discussion on other measures in terms of addressing tech firms from the US with digital taxes and trying to retaliate of sorts. I believe it's not very likely that there's going to be lots of activities on that front soon, even though you never know in the current environment. But what you do see is that the EU is stepping up their game in terms of forming or completing the single market, trying to be better at acting as one, strengthening enforcement at the external border. And you see that the initial activity, which was tariff focused and which was a numbers game, is now very much becoming a mind shift at the EU level, right? And where you see that enforcement is picking up There's a new customs reform that's coming up which will lead to more enforcement, better enforcement at the border, not just of tariffs, but also and actually most importantly, product compliance legislation, EU standards that businesses need to abide by.

Justin: Well, and on that point, Philip, it's right. The EU, although maybe slower than President Trump under the under the reciprocal tariff regime, certainly moved comparatively quickly to put countermeasures in place. We've got sort of a tariff rate quota regime that's been proposed on the steel side to replace safeguards that are going to expire in the middle of this year. ⁓ And so maybe unlike or maybe only akin to China and the UK, the EU has been one of the trading partners who was able, ⁓ like Canada as well, able to sort of put something in place that pushed back on the administration. And I guess a lesson learned from the lead up to the Supreme Court's decision here, which is that when the EU feels like it needs to either to pressure a better deal or to protect its interests or a little of both, it can't. and that was seemingly effective in reaching the Turnberry deal, was it wasn't just a one-sided, the US power to tariff, but there were countermeasures that seemingly softened the administration's position. So something for, on the US side to keep in mind is that the uncertainty on our side, I think, is matched a little bit on the EU side with what the government is able to do.

Philippe: Yeah, and I think, mean, there's obviously also an interest for the EU to act in a legally certain stable manner, right? And that's a very vocal point that you hear here in Brussels, right? So the EU wants to position itself as a market where it can do business, and at least you know beforehand how your business is going to be affected by certain measures. At the same time, The EU doesn't always live up to that standard because we've had a discussion on CBAM, on EU deforestation regulation, where the EU was pretty late in adopting, implementing acts or even pushing out regulations. So there's still some work to be done. But I think the EU has done a pretty good job in giving businesses the legal certainty they need in order to operate in a consistent manner. And I think that's also what the EU is intending to do, to position itself next to the to the current ⁓ volatility that we're seeing, either pushed by the US administration because they're targeting certain sectors or as a consequence of, of course, the legal developments like a Supreme Court ruling.

Justin: And I guess sort of a last question maybe for you is, as we think about bringing us back to sort of a level of stability between the two trading partners, is there cause for optimism that we can stabilize the relationship? And a little bit of crystal ball here in light of what has happened in the past couple of days and sort of the world focus now in the Middle East, not only is there opportunity for optimism, but Do we think that comes quickly or do we think that it takes a back burner to events in the Middle East right now and maybe becomes a secondary priority for the EU and the US?

Philippe: Hard to say, hard to say. You're asking difficult questions, Justin. It would be unfair to say that uncertainty is a standard these days. But it's hard to predict, of course, and I don't want to predict necessarily. But if we look at what's happened in hindsight, we've lived in relative stability over the past.

Justin: I want a crystal ball! I want a crystal ball!

Philippe: Yeah or so, right, maybe a bit less, right? Let's say over the past eight, seven, eight months, The Supreme Court ruling comes as an unfortunate event for the US administration and brings a bit of clarity and uncertainty for businesses globally. But it's clear that the EU has an intention to create stability. I believe the US administration by quoting or stating that they want to uphold the deals that were struck has a similar view. And you can debate whether that's a fair position, right? But it's at least

Justin: We want you to give us everything you promised in the deal.

Philippe: It's at least it's at least creating a an outlook that allows us to think that in a couple of weeks from now, we'll know the baseline situation. we have reasons to believe I have reasons to believe that that baseline situation will last hopefully for more than a couple of months this time. At the same time, you know better than I do that section 222 investigations are ongoing. So we're expecting tariff activity and who knows what happens in response to that new activity. But I believe that's going to be more sector specific, sector focused. And so the response would ⁓ likely be sector specific as well, or at least proportionate to ⁓ how the industry is affected. So we can't predict certainty and it would be almost foolish to think that it's going to be certain as of tomorrow. But I do think there's a good outlook that at least a baseline tariff situation will be clear in a few weeks from now and businesses can hopefully go on as usual.

Justin: predictably unpredictable, but with cause for optimism. So thanks, Philip. Appreciate you being with us and for everyone joining us today. Be sure to check back for more episodes on this topic as we continue to and advise on what businesses can be doing.

Outro: Disputes in Perspective is a Reed Smith production. This podcast was produced by Shannon Ryan and edited by Julian Baughman. For more information about Reed Smith's litigation and dispute resolution practice, please email [email protected]. You can find our podcast on podcast streaming platforms, reedsmith.com, and our social media accounts at Reed Smith LLP.

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