Trump & Trade: Also EU companies affected by US elections

The US presidential election could – judging from the statements in President-elect Trump’s election campaign – have far-reaching effects also for European companies. According to the new President’s election campaign, his political priorities include, on the one hand, the dismantling of the Joint Comprehensive Deal of Action (JCPOA) with Iran which he has called a “disaster” and, on the other hand, a substantial increase of tariffs on imports in order to promote the US economy.

JCPOA

With regard to the JCPOA, it is questionable whether it would be in accordance with public international law for the USA to withdraw from the agreement. Irrespective of this question, it is worth assessing the factual impacts of such a course of action: While according to media reports Iran has already announced that it will act on par with the USA in case they fail to comply with the deal, other commentators expect that Iran will be keen to maintain the JCPOA because of the trade relations with the EU.

While a non-compliance with the JCPOA by Iran could lead to a snap back of the EU sanctions lifted in January 2016, a US withdrawal from the agreement alone would have no immediate effects for the EU: The EU and its Member States (including the United Kingdom as a direct party to the negotiations) would still be bound by the JCPOA’s provisions.

Nevertheless, such a US course of action could put EU companies in a difficult position: If the USA were to withdraw from the JCPOA, they could – by law or executive order or by simply refraining from issuing presidential waivers suspending the currently lifted US sanctions any further – reintroduce all former US sanctions against Iran. It cannot be excluded that the EU might in turn take measures against any sanctions that it considers to be contrary to public international law. This could potentially lead to an extension of the so-called EU Blocking-Regulation in a way that EU companies would be prohibited from complying with these US sanctions. In case of such a broadening of the regulation, EU companies could be placed in a situation in which they would need to decide (i) whether to comply with US sanctions and risk a violation of EU law (punishable by fine) or (ii) whether to act in accordance with EU law and risk prosecution in the United States.

Increase of US tariffs on foreign products

Uncertainties for EU companies as well as for US companies producing outside of the US territory may also arise for a different reason: Should the Trump-administration introduce higher tariffs on goods produced abroad – for which Trump’s recent announcement to renounce the Trans-Pacific Partnership Agreement TTP on his first day in office can be taken as an indication –, this could have far-reaching impacts on the economic relations between European companies of various sectors and the USA.

It is the President-elect’s declared intent to favour US enterprises. If this is done – as feared – inter alia by increasing bound tariffs rates contrary to WTO law, EU companies and industry associations could in that regard lodge a so-called Trade Barriers Regulation complaint to the EU Commission, which – via the WTO dispute settlement procedure and bilateral contacts with the USA – could lead to a removal of the trade barrier. This action is partly effective, but protracted.

BLOMSTEIN will continue to monitor the developments in the USA closely and will provide updates on any significant developments relating to sanctions or trade matters. Please do not hesitate to contact Roland Stein or Pascal Friton if you have any questions.