EU to ramp up retaliation plans as US tariff deal prospects dim

By Philip Blenkinsop

BRUSSELS (Reuters) -The European Union is exploring a broader set of possible counter-measures against the United States as prospects for an acceptable trade agreement with Washington fade, according to EU diplomats.

An increasing number of EU members, including Germany, are now considering using wide-ranging "anti-coercion" measures which would let the bloc target U.S. services and other sectors in the absence of a deal, diplomats say.

The European Commission, which negotiates trade agreements on behalf of the 27-member bloc, had appeared on course for a agreement in which the EU would still have faced a 10% U.S. tariff on most of its exports, with some concessions.

Such hopes now seem dashed after President Donald Trump's threat to impose a 30% tariff by August 1, and following talks between EU Trade Commissioner Maros Sefcovic and U.S. counterparts in Washington last week.

Sefcovic, who has said a 30% tariff would "practically prohibit" transatlantic trade, delivered a sober report on the current state of play to EU envoys on Friday, diplomats told Reuters.

U.S. counterparts had come up with diverging solutions during his meetings, including a baseline rate that could be well above 10%, the EU diplomats added.

"Each interlocutor seemed to have different ideas. No one can tell (Sefcovic) what would actually fly with Trump," one diplomat said.

Prospects of easing or removing 50% U.S. tariffs on steel and aluminium and 25% on cars and car parts appear limited.

'NUCLEAR OPTION'

Washington has also rejected the EU's demand for a "standstill" arrangement, whereby no further tariffs would be imposed after a deal is struck. The rationale, according to diplomats, is that Trump's hands cannot be tied on national security, the basis of Section 232 trade investigations into pharmaceuticals, semiconductors and timber.

Accordingly, the mood has pivoted among EU countries, EU diplomats say, and they are more ready to react, even though a negotiated solution is their preferred option.

The EU has one package of tariffs on 21 billion euros ($24.5 billion) of U.S. goods that is currently suspended until August 6. The bloc must still decide on a further set of countermeasures on 72 billion euros of U.S. exports.

Discussions have also increased on using the EU's wide-ranging "anti-coercion" instrument (ACI) that allows the bloc to retaliate against third countries that put economic pressure on member states to change their policies.

Brought in more with China in mind, it would allow the bloc to target U.S. services, limit U.S. companies' access to public procurement or financial services markets or restrict U.S. investment. 

France has consistently advocated using the ACI, but others have baulked at what some see as a nuclear option. Trump has warned he will retaliate if other countries take action against the United States.

European Commission President Ursula von der Leyen said a week ago that the ACI was created for extraordinary situations, adding: "We are not there yet."

The Commission would need a qualified majority of 15 countries making up 65% of the EU population to invoke it. It would not do so unless it was confident of passing it, but there are now growing signs of support building, with Germany among the countries saying it should be considered, EU diplomats say.  ($1 = 0.8590 euros)

(Reporting by Philip Blenkinsop and Andrew Gray; Editing by Andrew Heavens)