On July 27, the United States and the European Union announced a trade framework agreement, following a meeting between President Donald Trump and European Commission President Ursula von der Leyen. The deal avoided imposition of a 30% reciprocal U.S. tariff on EU goods that was set to take effect August 1, and a potential EU countermeasure targeting up to €93 billion in U.S. exports, scheduled for August 7 (i.e., Implementing Regulation (EU) 2025/1564).
Although the July 27 agreement defused an immediate tariff spiral, the absence of a binding legal text leaves room for conflicting readings, further negotiations, and opportunities for stakeholder engagement with U.S. and EU officials, as the details of the agreement are finalized. This alert outlines the key elements of the recently announced trade deal, as well as remaining uncertainties regarding its implementation and for the overall U.S.-EU trade relationship.
Core Elements of the Political Agreement
While the full text of the agreement has not been published, key details are available through a White House Fact Sheet and a European Commission Q&A document, as well as official statements. An Executive Order issued by President Trump on July 31 revising reciprocal tariff rates for U.S. trading partners—including the EU—also provided additional insight into the operation of the deal. These sources indicate the following principal components:
- The U.S. will apply a 15% tariff to most imports from the EU. The 15% rate will generally act as an all-inclusive tariff “ceiling,” such that certain other tariffs will not “stack” (or apply simultaneously) with this 15% rate. This distinguishes the EU deal from all others concluded to date by the U.S., which apply reciprocal tariff rates in addition to certain other tariffs—including base (or MFN) tariffs.
- This 15% tariff ceiling will also apply to EU automobiles, semiconductors, and pharmaceuticals, all of which are products that are or are expected to become subject to so-called U.S. “Section 232” tariffs. However, existing Section 232 tariffs of 50% on steel and aluminum will remain in place for the time being, as will reciprocal tariffs on alcoholic beverages, though treatment of these products will be subject to further negotiation.
- U.S. tariffs on EU aircraft and aircraft parts, certain chemicals, certain drug generics, or natural resources will go back to pre-January (duty-free) levels.
- The EU has committed to making U.S. energy purchases worth $750 billion, equating to $250 billion per year for the rest of President Trump’s second term.
- The EU will invest an additional $600 billion in the U.S. economy beyond current investment levels.
- The EU will purchase American military equipment, a commitment President Trump has stated is worth “hundreds of billions of dollars,” though the precise amount is still to be negotiated.
- The EU has also committed to lower U.S.-origin industrial goods tariffs to 0%, including for the automotive sector, and to offer improved market access for certain non-sensitive U.S. agrifood exports.
The political agreement is not legally binding, and each side must now give effect to the political commitments under their own legal processes. On the U.S. side, the Executive Order issued on July 31 implements the 15 % tariff as of August 7 by amending the reciprocal tariffs previously imposed under the International Emergency Economic Powers Act (“IEEPA”). The pathway for implementation of commitments by the EU is markedly more complicated and time-consuming, because the tariff adjustments and investments commitments made by the EU fall partly outside the Commission’s control. Delivering on the political agreement will therefore be procedurally and politically complex, and delays in or dilution of EU commitments could prompt renewed U.S. action under IEEPA or other U.S. trade powers. Indeed, President Trump has already warned that a failure by the EU to follow through on certain investment commitments contained in the deal could trigger increased tariffs.
Uncertainties Ahead—EU Procedural Challenges
WTO-Compliant Tariff Changes
Subjected to limited exceptions, members of the World Trade Organization (WTO) are generally required to apply the same tariffs to all other WTO members, a foundational WTO concept known as the “Most Favoured Nation” or “MFN” principle. EU implementation of a unilateral zero-duty rate limited to U.S. goods would, on its face, raise concerns regarding compliance with this obligation. However, WTO rules do provide certain pathways that may allow preferential tariffs to be implemented, provided appropriate notifications and follow-up steps are taken. As an example, Article XXIV of the WTO General Agreement on Tariffs and Trade (GATT) allows WTO members to derogate from the MFN principle in order to implement preferential trade agreements (including interim agreements), provided such agreements cover “substantially all trade.” While the precise EU approach to implementation remains unconfirmed—and there is debate as to whether the U.S.-EU deal would satisfy applicable WTO conditions—the EU may seek to invoke such legal mechanisms to assert that implementation of its tariff commitments vis-à-vis the U.S. is consistent with WTO rules.
Domestically—EU Tariffs on U.S. Goods
The EU’s proposed tariff reduction for U.S. industrial goods (i.e., potentially down to 0%) would likely proceed as a tariff-only agreement under Articles 207(3) and 218(6)(b) TFEU, requiring adoption by qualified majority vote (QMV) in the Council after consultation of the European Parliament.
- In the Council of the EU, several key Member States (e.g., Germany and Italy) have indicated political alignment with the political agreement, suggesting that a QMV within the Council is within reach.
- The European Parliament would not hold a formal veto under this procedure. That said, excluding the Parliament in this way would be politically challenging for Commission President von der Leyen. Parliament may argue that the measure entails “important budgetary implications” within the meaning of Article 218(6)(a)(iv), in which case its consent (by a simple majority) would be required.
If this agreement goes to a vote before the European Parliament, opponents are unlikely to secure a majority but could present challenges for the European Commission. If the Commission tries to exclude the European Parliament by adopting the Article 218(6)(b) TFEU procedure, the European Parliament may challenge that authority before the Court of Justice of the EU.
Domestically—Energy-purchase pledge ($750 bn) and $600 bn EU investment in the U.S.
Energy policy is a shared competence under Article 194 TFEU, with Member States retaining the right to determine their national energy mix and the conditions for exploiting their energy resources. Accordingly, the European Commission cannot compel companies or governments to purchase U.S. liquefied natural gas or crude oil. At most, it can promote voluntary coordination mechanisms (e.g., the AggregateEU demand aggregation platform), but participation will then remain non-binding.
Similarly, while the Commission may negotiate foreign direct investment (FDI) facilitation frameworks under Article 207 TFEU, it lacks the competence to mandate or guarantee that EU-based enterprises will invest $600 billion in the U.S. economy. Any formal structure to support or incentivize such outbound investment would likely require approval under the Article 207/218 TFEU procedure and depend heavily on private-sector interest. Indeed, reporting suggests that this sum represents what the Commission expects the EU private sector to invest in the U.S. over the relevant period.
The Commission has implicitly acknowledged that it does not have the authority to enforce this portion of the political agreement. It remains unclear how the Commission intends to implement these commitments, which fall largely outside its institutional powers and depend on Member State and market-driven decisions. Meanwhile, President Trump has threatened to impose heightened tariffs against the EU if it fails to meet these commitments.
Uncertainties Ahead—Potential New Demands from the Trump Administration
Section 232 Investigations
The U.S. Commerce Department will soon complete multiple national-security investigations launched earlier this year, which are expected to result in increased U.S. tariffs on imports of semiconductors, pharmaceuticals, timber, trucks, aircraft engines, drones, and polysilicon. The U.S. has already imposed Section 232 tariffs ranging from 25% to 50% on imports of steel, aluminum, cars, auto parts, and copper. Under the terms of the U.S.-EU deal, however, the 15% tariff cap for EU goods would apply in lieu of Section 232 tariffs on autos and auto parts, pharmaceuticals, and semiconductors. Other products not explicitly covered by the cap could still be subject to additional tariffs under the ongoing Section 232 proceedings.
Possible U.S. Trade Actions Targeting EU Tech Rules
The U.S. is closely scrutinizing EU initiatives affecting digital trade and tech, and although President von der Leyen stated on 27 July that EU digital regulations were not part of the political agreement, the issue resurfaced almost immediately. The White House Fact Sheet pledges joint work to “address unjustified digital trade barriers,” explicitly referencing network usage fees and electronic transmissions. Given continued U.S. scrutiny, Brussels could face additional tariff pressure to amend or defer contested measures, potentially reopening a topic the Commission had considered outside the scope of the political agreement.
Additional tariffs pressure by the United States on these issues could take several forms. For instance, under the first Trump Administration, the U.S. Trade Representative (USTR) investigated the digital service tax (DST) policies of the EU and several EU Member States under Section 301 of the Trade Act of 1974, which resulted in the U.S. announcing—but ultimately suspending and then terminating—retaliatory tariffs against Austria, France, Italy, and Spain. USTR continues to monitor DST policies in Europe and could potentially reinstate tariffs under these prior Section 301 actions with little notice. Separately, U.S. criticism of EU digital laws such as the Digital Markets Act (DMA) and the Digital Services Act (DSA) could also prompt new U.S. trade actions, including under Section 301. Initiation of a Section 301 investigation would trigger a public notice and consultation process and could also lead to tariffs.
If the U.S. were to disregard what the EU perceives as the exclusion of EU tech and digital regulation from the agreement, political pressure within the EU could prompt the Commission to retaliate. Policy instruments under consideration include digital services measures (likely via the EU Anti-Coercion Instrument) and reigniting the retaliatory tariff list previously scheduled to take effect on August 7 and now suspended under the EU-U.S. trade framework. While such retaliation in turn risks that framework falling apart, significant internal recriminations faced by the EU regarding its perceived capitulation to the Trump administration’s trade demands mean it will be more difficult for the European Commission to resist such action.
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The team at Covington is well placed to advise you on these policy developments, and how to engage with the relevant decision-makers on both sides of the Atlantic. We can help gather intelligence, analyze legislative initiatives, navigate the complex regulatory environment at the EU and Member State level, and design and execute regulatory and policy engagement strategies to mitigate the risks arising from transatlantic trade tensions.
If you have any questions concerning the material discussed in this client alert, please contact the members of our International Trade and Public Policy practices.
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