The European Parliament Elections and the Future of the Transatlantic Trade Relationship

Once again, turbulent times are ahead for the transatlantic trade relationship. After last summer’s joint statement between President Donald Trump and European Commission President Jean-Claude Juncker temporarily halted an escalation in the trade dispute—set off by the Trump administration’s move to impose Section 232 tariffs on European steel and aluminum imports—preliminary talks have stalled and rhetoric is heating up as President Trump recently threatened to inflict “severe” economic pain via tariffs on the European Union. While the current stalemate in the trade talks is mostly about whether to include agriculture, European reluctance to begin official negotiations is also driven by European politics. Citizens of the European Union will head to the polls to elect a new European Parliament between May 23-26. Although the European Parliament is only indirectly involved in the negotiating process, it is a co-legislator with the European Council, and as such, it wields a final say over the approval of any trade agreement. Amid fears that a trade deal with the United States will provide ammunition to populists and Eurosceptics, some European leaders are hoping to delay the negotiations until after the elections.
 
Q1: What is the European Parliament’s role in the trade agreement negotiating process?
 
A1: On trade policy, EU member states have delegated the responsibility to negotiate external trade agreements to the European Commission. Thus, individual member states cannot strike bilateral trade agreements with the United States. There are three EU institutions involved in the trade policymaking process: the European Council, the European Commission, and the European Parliament.
 
Trade negotiations are initiated by the European Commission—the European Union’s executive body which is headed by the commission president, currently Jean-Claude Juncker. The Commission makes a recommendation on opening trade negotiations with any non-EU country and can submit draft negotiating mandates to the European Council, which consists of the heads of government of all 28 EU member states, the European Council president, and the European Commission president. The Council then votes to approve the negotiating mandate and to authorize the Commission to commence trade talks. Once a mandate is established, the trade commissioner, currently Cecilia Malmström, and her team conduct the negotiations with the partner country, regularly consulting with the Council.
 
While the European Parliament is not directly involved in the negotiating process, the 2007 Treaty of Lisbon extended the Parliament’s authority on trade policy. The Parliament has both a right to be regularly informed by the Commission about the negotiations, and it can issue resolutions to convey recommendations on the mandate and throughout the negotiating process. Finally, both the Council and the Parliament must approve the final text of the agreement before it can be implemented. This gives the Parliament considerable clout in the negotiating process, as it can essentially veto any deal.  
 
Q2: Where do things stand currently?
 
A2: In the trade negotiations with the United States, the European Union is currently stuck in the first stage of the process: approving a negotiating mandate. The Commission submitted two draft mandates to the Council in January; however, an official mandate has not yet been adopted. The draft mandates would allow the Commission to negotiate two agreements with the United States, one exclusively focused on removing tariffs on industrial goods, and one exclusively on conformity assessments that would seek to remove non-tariff barriers regarding product regulatory compliance. Both agreements are in line with the July 2018 Trump-Juncker statement.
 
On February 19, 2019, the European Parliament’s Committee on International Trade (INTA) voted 21 to 17 to issue a recommendation to support the Commission’s draft mandate. INTA set several conditions for negotiating and approving an agreement, including that the United States remove existing tariffs on steel and aluminum and that no additional tariffs are levied. However, in a March 14 plenary session, the recommendation was amended to call on the Commission not to open trade talks. The amendments were introduced and largely supported by a coalition of the Greens-European Free Alliance parties (Greens/EFA), the Eurosceptic Europe for Freedom and Direct Democracy (EFDD) group, the European United Left/Nordic Green Left parliamentary group (GUE/NGL), and the social democrats (S&D). The final resolution was defeated 223 to 198, which means the Parliament has adopted no official position on the mandate.
 
While the Parliament’s recommendation would have been non-binding, its failure reveals the internal rifts in the European Union over the prospect of a trade deal with the United States. Commissioner Malmström initially had signaled she wanted to wait until the Parliament held its vote before moving on in the negotiating process—now, she indicated EU leaders could approve the Commission’s mandate in April.
 
Q3: What is the current impasse in the trade negotiations, and what do the upcoming European Parliament elections have to do with it?
 
A3: The European Union and the United States have been unable to agree on beginning formal negotiations because the negotiating mandates published by the European Commission and the negotiating objectives published by the Office of the United States Trade Representative directly contradict each other on several important points. Among the substantive issues, the biggest argument is over agriculture: The European Union wants to exclude agriculture from the negotiations, claiming that it was not part of the Trump-Juncker statement, which the Europeans see as the basis for current trade talks; the United States contends that any trade deal excluding agriculture would not be passed by Congress.
 
The European Union’s resistance to including agriculture in trade negotiations is nothing new—it caused significant disagreements in the negotiations for the Transatlantic Trade and Investment Partnership (TTIP). Asides from arguments over agriculture, the TTIP negotiations were also derailed by widespread public backlash across Europe against the agreement over fears it would lead to the erosion of product safety standards and increase the economic influence of multinationals. But domestic political pressures that have historically made trade agreements a contentious issue in the EU are being further amplified as the European Parliament elections approach. This is particularly true in France, which is spearheading the resistance to the trade talks. France is the largest agricultural producer in the European Union and receives the greatest amount of subsidies under the EU’s Common Agricultural Policy. The French farm lobby is powerful, and farmers are already protesting against beef access the European Union is offering Mercosur countries in trade negotiations. President Emmanuel Macron of France is also busy fending off riots from the gilets jaunes—or yellow vests—largely fueled by economic grievances. The last thing he wants to do right now is provoke French farmers ahead of the European Parliament elections, where his La République En Marche (LREM) party is nearly tied in the polls with Marine Le Pen’s far-right populist Rassemblement National.
 
In addition, the European Union has repeatedly stated that it will not negotiate under threat, and President Trump’s decision on whether to impose Section 232 tariffs on automobiles and parts looms over the ongoing trade talks. While Germany, the largest exporter of European cars bound to the United States, is hoping to reach a trade deal quickly to head off potential automobile tariffs, last week’s decision by the Parliament was a clear rebuke of Trump’s attack on multilateral institutions and “bullying-thy-neighbor” tactics.
 
Q4: How will the outcome of the election affect the future of the transatlantic trade relationship? 
 
A4: The European Parliament elections are likely to impact the transatlantic trade relationship in several ways. First, the elections will result in further fragmentation of the Parliament. The center-right European People’s Party (EPP) and the center-left S&D are expected to lose their combined majority, according to the latest polls; meanwhile, the populist and nationalist Europe of Nations and Freedom (ENF) party is projected to gain around 9% of the vote, while the Eurosceptic European Conservatives and Reformists (ECR), the Greens, and the Left parties will retain their share of seats. Additionally, the exact makeup of the parliamentary groups remains unclear amid uncertainty over the cohesion of the Eurosceptic EFDD group, the allegiance of Italy’s Five-Star Movement, and Hungarian Fidesz’s future in the EPP. A more fragmented parliament will hamper the general decision-making ability of the European Union. Given that the Parliament votes on and can veto the appointment of the next European Commission and its president, the selection process of the next Commission, the primary trade negotiating body, could also be delayed or influenced.
 
Along with a more fragmented and Eurosceptic Parliament, the elections could also shift the Parliament’s views on trade policy. While VoteWatch Europe predicted that the overall number of pro-trade members of the European Parliament (MEPs) would slightly increase, they also found that the percentage of MEPs strongly opposed to free trade would increase from 11 percent to 16 percent, based on predictions from September 2018. New polling data suggests that the share of the “core protectionists Greens-GUE/NGL,” which along with populists opposed the TTIP negotiations, remained steady, while the projected seats for the “pro-trade EPP-ECR-ALDE” increased since their analysis. The bump for the latter was driven by Macron’s LREM announcing an alliance with the Alliance of Liberals and Democrats for Europe (ALDE) party group; however, LREM has not officially joined ALDE and recent reports suggest the partnership might be in jeopardy. And while generally pro-trade, LREM is unlikely to support a broad free trade agreement with the United States that opens up French markets to U.S. agricultural imports.
 
Lastly, there is the question of whether the United Kingdom will leave the European Union prior to the election or whether it will field candidates for the European Parliament. As it stands, the Parliament is set to decrease its total seats from 751 to 701, with 27 of the United Kingdom’s seats being reallocated among the EU27. Not only would the United States lose its biggest pro-trade and low-regulation ally in the European Union, but half of the reallocated seats would go to France (+5), Spain (+5), and Italy (+3). Those represent three of the four largest agricultural producers in the EU, and neither Italy nor Spain is likely to be major U.S. allies on trade: Italy’s current populist government threatened to derail the EU-Canada trade agreement last year, and Spain is at the center of a World Trade Organization dispute over U.S. tariffs on black olives.
 
At this point, the conclusion of an EU-U.S. trade agreement of any kind prior to the European Parliament elections seems highly unlikely. Even if the European Commission receives an official negotiating mandate and both sides were to suddenly resolve the impasse on agriculture, it would likely take more than two months until any agreement is finalized. At that point, a new European Parliament will be in place. It will likely be less transatlantic-friendly and perhaps less pro-trade. Most certainly, the new Parliament will be more fragmented and less agile in its decision-making ability, including on trade policy. And by the time the new European Commission takes over in November, that Commission’s priorities might have shifted and the United States will be more and more occupied with the 2020 presidential election, which might make a transatlantic trade deal less of a priority.
 
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Jonas Heering is an intern with the CSIS Scholl Chair.
 
Critical Questions are produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
 
© 2019 by the Center for Strategic and International Studies. All rights reserved.

 

Jonas Heering

Intern, CSIS Scholl Chair in International Business