U.S. and EU Nearing Landmark Deal on Non-Tariff Trade Irritants, Tariff Fate Remains Unclear

 June 21, 2025 – The United States and the European Union appear to be on the verge of a significant agreement addressing a wide array of non-tariff trade irritants, even as the fate of looming tariffs by both sides remains unresolved. A draft "agreement on reciprocal trade," circulated by the U.S. Trade Representative’s (USTR) office on Friday, outlines tentative deals on numerous long-standing economic disputes, according to sources familiar with the text.

The draft agreement, described as close to final but subject to change, touches upon a litany of complex issues that go beyond traditional customs duties. These include:

• Digital Markets Act (DMA): The U.S. and EU would enter into a dialogue on the implementation of Europe’s stringent tech-competition law. Crucially, the draft proposes that U.S. companies would be exempted from DMA enforcement during these talks. This provision, if finalized, would significantly "defang" one of the EU’s signature digital laws, which has already resulted in fines against American giants like Apple and Meta Platforms.
• Deforestation Regulation: The EU would delay the implementation of its deforestation regulation for one year. This timing change aligns with an earlier EU decision from late last year, made after companies expressed needing more time to comply.
• Carbon Border Adjustment Mechanism (CBAM): The draft agreement proposes that the U.S. and EU would coordinate on Europe’s design and implementation of its carbon-based border tariffs. Under this, U.S. products would be exempted from the CBAM for a year after the policy is put in place.
• Methane Rules: U.S. energy exports to Europe would also be exempted from EU methane regulations.
• Shipbuilding and Shipping: The EU would consider measures to encourage shipbuilding and shipping from market economies, mirroring recent U.S. government proposals for penalties and fees on Chinese cargo ships.
• Defense Procurement and Critical Minerals: The U.S. and EU would also coordinate on these crucial sectors, among other provisions.

Tariffs Remain a Sticking Point:

Despite progress on non-tariff barriers, the draft text does not specifically address any of the tariffs President Trump has threatened or imposed on the EU. This includes the 20% reciprocal tariff paused in April, or higher duties on specific industries like automobiles and steel. Similarly, the EU’s proposed retaliatory tariffs, set to begin on July 14 if no deal is struck, are also not detailed in this draft.

It remains uncertain whether tariff issues will be tackled in a separate deal, if those talks are at an impasse, or if the two sides will agree to extend negotiations beyond Trump’s July 9 tariff deadline. Furthermore, it is not yet clear if the EU is fully on board with all the provisions of this specific draft agreement.

Behind the Negotiations:

The draft agreement emerged after weeks of intense discussions and exchanges of documents between U.S. and EU officials, all in an effort to reach a broader accord ahead of the July 9 tariff deadline. U.S. Trade Representative Jamieson Greer had, in early June, called an earlier EU proposal "a credible starting point" for discussions that were advancing quickly. That EU proposal had reportedly covered tariffs, non-tariff barriers, and ways for the EU to purchase more U.S. goods, including liquefied natural gas.

However, the USTR's circulated draft appears to focus solely on concessions from the EU regarding non-tariff barriers. This raises questions about what, if anything, the U.S. might be willing to offer in return, as European officials have stressed they would not accept a deal based on unilateral concessions, fearing rejection by European voters. Some European officials also reportedly believe they may not be able to negotiate away Trump's baseline 10% tariff, given his emphasis on tariffs generating revenue.

While the agreement on non-tariff irritants represents a significant step towards de-escalating transatlantic trade tensions, the unresolved tariff issue continues to cast a shadow over the overall trade relationship.