Austria threatens to blow up EU trade deal with South America

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A committee in Vienna’s lower house adopted a motion that obliges the Austrian government to veto ratification of the EU-Mercosur agreement | Thomas Kronsteiner/Getty Images

The lower house in Vienna says it will not ratify Brussels’ accord with Mercosur.

Austria’s parliament has emerged as a key threat to the EU trade agenda by threatening not to ratify an accord with South American nations that Brussels agreed in June.

Only 10 days before Austria’s election, a committee in Vienna’s lower house on Wednesday adopted a motion that obliges the Austrian government to veto ratification of the EU-Mercosur accord in the Council of the EU, which is expected in the second half of 2020 at the earliest. The committee vote is binding and does not need further confirmation in plenary.

Vienna’s move heaps more trade-related pressure on incoming European Commission President Ursula von der Leyen, who is already facing an impending tariff war with U.S. President Donald Trump. It also revives the specter of 2016 when the regional Walloon parliament in southern Belgium almost scuppered Europe’s trade deal with Canada.

If Austria sticks to its guns, its veto would sound the death knell for the agreement because EU countries decided last year that the Mercosur deal would have to be ratified as a “mixed agreement,” requiring unanimity in the Council. The accord also needs to pass a vote in the European Parliament and in about 40 national parliaments across Europe.

“The Austrian parliament is not alone in this,” Bernd Lange, chair of the European Parliament’s trade committee, tweeted on Thursday. “We must not conclude any agreement if it is clear from the outset that the contracting parties will not comply with important elements and that there is no means for effective enforcement of the provisions of the agreement.”

The EU and Mercosur concluded their landmark trade deal on June 28, after 20 years of negotiations. However, the agreement came under attack from European agriculture powerhouses such as Ireland, which fear that imports of beef, sugar and other commodities from the South American bloc (which is comprised of Argentina, Brazil, Paraguay and Uruguay) will harm their farmers.

Devastating fires in the Amazon rainforest (and Brazil’s much-criticized response) led to intensified criticism of the trade accord, and France last month also threatened to veto the deal if Brazil does not respect its environmental commitments under the Paris climate agreement, such as fighting deforestation.

Commission President-elect von der Leyen has come out in favor of the trade accord, which opens a giant market to EU auto and machinery producers as well as services and construction companies, but stressed that she was ready to quit the deal if Mercosur countries did not live up to their environmental commitments.

Cecilia Malmström, the EU’s outgoing trade chief, has touted the deal as a job creator by opening “a market of almost 300 million people to us,” which is “effectively closed to our competitors.”

Phil Hogan, the nominee to become the next EU trade commissioner, has endorsed the agreement, which he himself negotiated in his current role as agriculture commissioner, as a “balanced” deal.

The EU and Mercosur just this week launched a legal review of the treaty, which is an important step before the final text can be submitted to the Council and parliaments for ratification.

South American officials were taken aback by the Austrian vote: “I was really shocked,” said a senior Mercosur official.

However, the official urged calm: “The agreement is not dead in our eyes — let’s wait for things to cool down … The Austrians could vote again.”

Austria’s impending election is hardening the position of political parties toward the trade deal, which is hugely unpopular in farming areas in Austria.

The Austrian lower house could potentially reverse its vote at a later stage.

The European Parliament’s trade committee chief Lange also said that the veto might not be final: “If there is an opportunity to change the Brazilian government’s stance through a clear negotiating position, it should also be used,” he wrote on Twitter. “Trade with a compass of values can make globalization more sustainable and fairer.”

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