On Monday April 15th the European Council approved negotiating mandates for two potential trade agreements between the European Union and the United States. This is a procedural but important step in the process, as it signifies that the leaders of all 28 EU Member States have given their approval for the European Commission to act on their behalf to formally launch negotiations with the U.S. on two potential trade agreements – one on conformity assessment, and the other on eliminating tariffs on industrial goods. Launching these negotiations is a direct outcome of the meeting between President Trump and European Commission President Jean-Claude Juncker last July, as articulated in the Joint Statement.
While this is certainly a significant development in transatlantic relations, it’s important to note that the mandates are narrowly drawn, intended to achieve what EU Trade Commissioner Cecilia Malmström described as “two targeted agreements that will bring tangible benefits for people and economies on both sides of the Atlantic”. The mandate for an agreement on the elimination of tariffs on industrial goods, for example, explicitly excludes agricultural products, a key interest of the U.S. and a hard-line for the EU.
Another area excluded from the mandates is specific reference to digital trade. While it is feasible that any final agreement may have bearing on digital trade, such an objective is not stated in the official negotiating mandate from the European Council. We think that is a shame and a missed opportunity to signal the importance of digitally enabled trade to economies on both sides of the Atlantic, as well as the shared commitment to combating unfair global trading practices by agreeing to baseline rules. SIIA’s views on what a trade agreement with the EU should include can be found here.
Promoting digitally enabled trade is in and of itself an important objective for both the U.S. and EU. Although it is difficult to quantify the impact of cross-border data flows and value of digitally delivered services, a 2014 Brookings study found that the U.S. and EU exports of digitally deliverable services represent a majority of total services exports between the two partners — over 72 percent for the U.S. and 60 percent for the EU. Given the $1 trillion bilateral trade relationship between the U.S. and EU, the economic importance of cross-border data flows cannot be understated.
Furthermore, as the world’s two largest economies, any agreement that the U.S. and EU can reach on rules for digitally enabled trade will have global implications. In an increasingly polarized digital world, it is critical to stand with allies, and the more we can write favorable digital trade rules, such as the USMCA’s Chapter 19 on digital trade which provides for a binding cross-border data flow obligation and prohibition against data localization, the better we will stand in competition with more mercantilist adversaries. The joint-statement from President Trump and President Juncker included a commitment “to join forces to protect American and European companies better from unfair global trade practices” including intellectual property theft and forced technology transfer. We welcomed this statement and would have liked to have seen that reiterated in the negotiating mandate.
It is worth mentioning that both the U.S. and EU are motivated to conclude an agreement quickly. In the EU, European Parliament elections will be held in May 2019 which will lead to the formation of a new European Commission. This new Commission is not likely to take seat until the Fall at which time they will be occupied defining their policy objectives, so there is pressure to make significant headway while the current Commission is in place. For their part, the Trump Administration is keen to reach an agreement that they can be showcased as a win in the run-up to the 2020 Presidential Election.
That said we remain supportive of EU-U.S. trade negotiations and will continue to advocate for a positive agreement being concluded that promotes fair trading practices and strengthens economic activity, including within the digital sector, on both sides of the Atlantic.