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Hopes for a Mercosur-EU trade deal fade yet again as leaders meet in Brazil

Associated Press - Thu Dec 7, 2023
Brazil Mercosur Summit

SAO PAULO (AP) — The heads of state from South America's Mercosur trade bloc gathered Thursday in Rio de Janeiro for a meeting all but certain to once again disappoint members hoping to finalize a long-delayed trade deal with the European Union.

Negotiations with the EU were set to be the main topic, and host Brazil had aimed for a swift conclusion to finalize a deal. However, the outgoing government of Argentina, the bloc's second-biggest economy, has already said it opposes the agreement, although President-elect Javier Milei, who will be sworn in on Sunday and is a libertarian populist, has expressed support.

A joint statement of Mercosur and the EU said that both sides “are engaged in constructive discussions with a view to finalizing the pending issues” towards an agreement. The wording suggested that a deal wasn't imminent.

“Considerable progress has been made in the past months,” the document says. “Both parties hope to promptly achieve an agreement which corresponds to the strategic nature of the ties binding both parties and the crucial contribution they can offer to address the global challenges in areas such as sustainable development, reduction of inequality and multilateralism."

Brazilian President Luiz Inácio Lula da Silva is an advocate of the agreement that has been in the works for two decades. His main partners so far have been Spain, which holds the presidency of the EU, and Germany.

Paraguay and Uruguay are also a part of the bloc and the membership of Bolivia, which has been in the process of joining, was formalized on Thursday afternoon.

“I have as my motto ‘never, ever give up,’ because nothing exists that is impossible to realize, even this attempt for an agreement with the EU that has lasted 23 years, but we have to keep trying,” Lula said in his opening statement to the other heads of state.

A Mercosur-EU trade agreement would mean the integration of a market of more than 700 million people, about a fourth of the world’s gross domestic product and about $100 billion in bilateral trade of goods and services a year. It would also cut customs duties and ease access for agricultural exporters to the EU market, and for European manufacturers to Mercosur countries.

“When I was a negotiator in 2010, we thought this would be finished in two years,” Welber Barral, who represented the Brazilian side at the time, told The Associated Press. The Rio meeting is yet another missed opportunity, he said. “This delay is very bad for everyone. If this deal fails, there could be a blame game that doesn’t help anyone.”

The two blocs reached a basic agreement in 2019 that was supposed to be the first step toward sealing full consensus. But it was never implemented amid fierce resistance on both sides of the Atlantic, including demands for environmental protection in South America and concern in some European countries, particularly France, over an influx of cheap goods.

Lula said he had spoken with most European presidents as well as many of their negotiators, and that he made a personal appeal to French President Emmanuel Macron to “stop being so protectionist.”

Hesitance from Argentina's current government, which has warned that its manufacturing and agricultural exports would be negatively affected, also stalled the deal's advance.

Milei has harshly criticized Mercosur in the past, repeatedly calling for its elimination before the Nov. 19 election, but he has refrained from any such harsh statements since. In fact, his incoming administration has signaled it wants the deal completed.

“We have no objections; it is frankly desirable that it goes through,” incoming Foreign Minister Diana Mondino said Nov. 30 at a conference for the Industrial Organization of Argentina, a manufacturing trade group. “Much better to have it than not to have it.”

Mondino said that she realized there are objections from certain sectors. A spokesperson for Milei's transition team declined an AP request for comment about what modifications might be required to ensure his administration's endorsement.

Uruguayan President Luis Lacalle Pou has expressed support for the agreement in the past and recently expressed guarded optimism that progress could be made.

However, it's unlikely an agreement will be finalized even next year, after Milei takes office, because of an upcoming European Parliament election in June, said Barral, the former Brazilian negotiator who now works at Brasilia-based BMJ, a government relations and international trade consultancy.

“Even if this deal were approved today, there would be a legal review, translation to all languages in the EU, approval by every congress, ratification and only then would the agreement be valid," said Barral. “An optimistic view would be getting this finished within five years.”

Argentina isn't the only South American roadblock, either. Paraguay, which takes over Mercosur's rotating presidency from Brazil this week, appears to have given up on its prospects.

Paraguayan President Santiago Peña told local media Monday that some European nations are demanding overly strict environmental requirements.

Lula “has made a superhuman effort,” Peña said Monday in an interview with local television station GEN. “The problem is that, on the other side, there is no interest.”

He noted European negotiators aren't willing to recognize compliance authorities in Mercosur countries and instead want to carry out their own evaluations. That, said Peña, would be a violation of sovereignty and, as such, a condition that sabotages potential progress.

“We are already looking in another direction,” Peña said, noting that Mercosur countries will sign a free trade agreement with Singapore this week, which Uruguay's president celebrated as a sign that Mercosur isn't “stagnant” despite its frustration with the EU.

The total volume of trade between Mercosur and Singapore reached $10 billion in 2022. The island is Brazil's second biggest market for exports in Asia, behind China.

“The Mercosur-Singapore deal should make these solid economic ties even more dynamic,” the leaders of the South American trade bloc said in a statement.

Mercosur is also pursuing deals with Canada and South Korea, and analysts say it's considering another with Indonesia.

Lula addressed Peña directly in his opening speech.

“When you assume the presidency, don't ever give up, man. Don't give up. Insist, fight, converse," Lula said.

Mercosur’s struggle to reach consensus at a time some had expected long-overdue progress belies the fact it will never be an economic union on par with the EU, according to James Bosworth, founder of Hxagon, an Arlington, Virginia-based political risk analysis firm focused on emerging markets.

“Most of the debates are political rather than economic, and rarely have the countries within the group aligned on free trade policy," Bosworth told the AP. “The EU has little reason to believe they can get a deal with the Mercosur countries that everyone can support.”

Lacalle Pou has criticized Mercosur in the past, saying it's too closed off and warned that Uruguay could move forward with unilateral negotiations — although this would violate Mercosur rules. Brazil, too, has been exploring possibilities on its own.

“Free trade among the countries of the Southern Cone makes sense, but the rules that force the Mercosur countries to negotiate as a bloc are hampering every country in some way,” Bosworth added.

Mercosur leaders recognized in a joint-statement that the trade bloc “still faces difficulties for trade and integration, which should not be ignored.”

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Daniel Politi reported from Buenos Aires, Argentina.