US-EU Announces Trade Framework Agreement

On Aug. 21, the U.S. and European Union (EU) released a long-awaited joint statement outlining a framework for an Agreement on Reciprocal, Fair, and Balanced Trade. This release follows somewhat conflicting information issued after the July 27 handshake agreement between President Trump and Commission President von der Leyen. Both sides stress that this framework is a starting point, not a final deal. The framework is also not legally binding, as binding commitments would require the EU to secure approvals from its Council and Parliament. The U.S. has already implemented some tariff measures via executive action, including a 15% cap on most EU exports. Further steps depend on reciprocal action from the EU.

A week later, the U.S. Court of Appeals ruled that the President lacks authority under the International Emergency Economic Powers Act to impose reciprocal and fentanyl-related tariffs. The court said the ruling would not take effect until Oct. 14, keeping current tariffs in place while the Administration appeals to the Supreme Court (SCOTUS). The Administration is requesting an expedited ruling. If SCOTUS takes up the case, tariffs will stay in effect pending a final decision. The Administration’s more immediate concern is that it may have to return $96 billion in revenue generated by the tariffs to date.

Specific to pharmaceuticals, the Section 232 National Security Investigation of Imports of Pharmaceuticals and Pharmaceutical Ingredients initiated in April is ongoing and may lead to higher or more broad-based tariffs on pharmaceuticals. Once the Section 232 investigation concludes, EU-origin brand-name pharmaceuticals may face a combined tariff of up to 15%. Until then, only the 0% Most Favored Nation (MFN) rate applies. (In trade negotiations, MFN is “term of art,” and is unrelated to the similarly named drug pricing policy). For EU-origin generic drugs and their ingredients, the U.S will apply only the 0% MFN rate and will not add extra reciprocal tariffs.