Three years after signing a free trade agreement, the European Union and Mercosur – a commercial bloc formed by Brazil, Argentina, Paraguay and Uruguay – are still trying to overcome the remaining disagreements to finally build a new commercial alliance. Last week, the President of the European Union, Ursula von der Leyen, visited South America to advocate for the new trade relationship.
Launched in 1999, the talks on the EU-Mecosur agreement were suspended between 2004 and 2010 and halted altogether several years later, largely due to worsening deforestation rates in the Amazon rainforest during the tenure of Brazil’s former President, Jair Bolsonaro.
Von der Leyen advocates speedy enforcement
During the latest meetings with the Presidents of Brazil and Argentina, Ursula Von der Leyen positioned herself as an intermediary who is willing to put an end to the current issues. The process is expected to reach a positive conclusion by the end of the year.
According to Von der Leyen, this deadline was discussed with the Brazilian President, Luiz Inácio Lula da Silva.
“Now we are finally close to the road, so it is time to cross that barrier. With President Lula, we commit ourselves to conclude the agreement on how much before, but no later than the end of the year. This agreement traces benefits, it will give the companies opportunities for expansion,” she asserted.
While in Argentina, Ursula Von der Leyen said that European countries need to expand their markets and that South America is the number one objective for new trade relations.
“The EU is Argentina’s largest investor: it represents around 40% of foreign direct investment. And with the EU-Mercosur agreement we could achieve much more. In addition, by removing trade barriers, the agreement will help us integrate and strengthen our value chains,” she said.
The potential agreement between Mercosur and the European Union could open a “window of opportunity” of US$100 billion (about R$522 billion) in exports from Mercosur to the European bloc, according to a study by Apex.
Although these numbers appear to be advantageous, several European countries, along with Brazil, have expressed reservations about the agreement, arguing that certain clauses disproportionately favor European nations while leaving Mercosur countries at a disadvantage.
Environmental concerns
European countries, including France, Ireland, and Austria, have voiced strong opposition to the current terms of the agreement with the primary concerns revolving around environmental sustainability and deforestation.
Critics argue that the agreement lacks sufficient safeguards against environmental degradation and fails to address the deforestation crisis in the Amazon rainforest, which is predominantly located in Brazil.
Against this background, last March the European Union sent Mercosur an additional protocol containing new environment-related conditions. The main fear is that increased trade could exacerbate the destruction of the Amazon, undermining global climate goals and the commitments of the Paris Agreement.
Additionally, European farmers fear that the lower standards and production costs in some Mercosur nations could undercut European agricultural products and negatively impact local farming communities.
Ireland, for example, believes that its exports could suffer a major impact if the agreement is signed because they see Argentine and Brazilian cattle, with lower costs, gaining space among European countries.
On their part, Mecosur have viewed the new requests by the EU as “unbalanced” and “punitive” and noted that relations between the two sides have changed since the launch of the negotiations on the agreement.
“Things have changed. Imagine that when we started negotiating the agreement, Brazilian exports were 45% to Europe, now they are 18%. And they continue to position themselves as ‘rulers’ — that is, ‘rulers’ of the world”, said Caio Carvalho, Brazilian Agribusiness Association (Abag).
The Brazilian Minister of Foreign Affairs, Mauro Vieira, said that the document, as it stands, will not be ratified by Brazil and its Mercosur partners.
“The European Union, without direct criticism of the group, of any of the countries directly, has a very protectionist bias. And we are re-evaluating the agreement. This document [the new demands] is extremely hard and difficult, creating a series of barriers and possibilities, including retaliation, sanctions,” he said.
What are the next steps?
In the first months of his government, Brazil’s President Lula visited Spain and met with Prime Minister Pedro Sanchez. The Spanish government, which will take over the presidency of the European Union from July 1, is backing the agreement
The ambition of the Brazilian government is to announce the agreement during the summit between the European Union and the Community of Latin American and Caribbean States (Celac), scheduled for July 17 and 18, in Brussels.
“There is a willingness to make this agreement happen on both sides, each with their own views of the world. From the Brazilian point of view, Europe cannot charge an extreme position in the environment of a country that has been set back in the last four years, but which has been committing to zero deforestation by 2030, in a very short period of time,” assessed Vinicius Vieira, international relations analyst.
Meanwhile, on June 13th, the National Assembly of France approved a resolution against the ratification of the free trade agreement between the blocs although this does not have the power of law.
The lawmakers say that French producers will be the victims of unfair competition and criticize the use by Mercosur countries of pesticides and antibiotics that are banned in the European Union. They call for imported products to be required to meet the same health and environmental requirements as in Europe. One of the concerns is the high level of protective products and pesticides used on crops in Argentina and Brazil.
President Lula spoke about the vote in the French Senate and asked for rationality and changes in practices from Brazilian producers.
“We need to be aware of the rationality that must prevail in our international policy. The French Senate, the French parliament said it will not vote on the Mercosur-EU agreement because of the amount of pesticides used in Brazilian agricultural products. So, we have to take into account that being rational and taking care of good quality agriculture is a competitive need for Brazil with China and France”.
French President Emmanuel Macron will meet President Lula this week in Paris.
Experts have noted that France seems to be in a hurry. Exports from the automobile industry, French wines and cheeses would benefit greatly from the opening of markets in Mercosur countries.
“Currently, EU exporters of goods and services pay 4 billion euros annually in customs duties in Mercosur. Eliminating or reducing these rights would make life easier for many people in France and Europe,” explained Luiz Felipe de Alencastro, Professor of the São Paulo School of Economics.
On the other side, Brazil’s President Lula is expected to claim that the terms of the deal heavily favor European countries, placing undue burdens on Mercosur nations while offering limited benefits.
