B&K Newsletter: The EU-Mercosur Trade Agreement: a now-or-never situation?

A tormented history?

Negotiators of the trade deal between the European Union (EU) and Mercosur countries are meeting in Brasília this week for a new round of talks. They aim to seal the deal as soon as possible, possibly by a November G20 summit in Rio de Janeiro.?

On 28 June 1999, the European Union and Mercosur—the South American trade bloc of (initially) Argentina, Brazil, Paraguay, and Uruguay—began negotiating a trading deal that soon became the EU-Mercosur Trade Agreement.?

Over the years, negotiations experienced different phases until May 2016, when the EU and Mercosur intensified the negotiations' pace by establishing regular negotiation rounds and meetings.?

On 28 June 2019, 20 years after the first round of negotiations, the EU and Mercosur reached a political agreement on a comprehensive trade deal covering most issues, such as tariffs, sanitary standards, intellectual property, and technical trade barriers.?

If approved, the EU-Mercosur trade agreement would create the largest free trade zone globally, encompassing 780 million people and facilitating over $120 billion in trade as of 2022. The deal aims to remove over 90% of tariffs, which could lead to a 15% boost in trade for Mercosur and contribute to a 0.3–0.7% increase in GDP.?

Despite these potential benefits, the deal has faced strong resistance, particularly from European agribusiness and environmental groups. French President Emmanuel Macron has repeatedly expressed his doubts. Critics of the agreement argue that it could cause environmental harm, especially in the Amazon, and primarily benefit corporate interests. Complicating matters further, the EU’s Deforestation Regulation—prohibiting imports from deforested areas—has fueled perceptions among some Mercosur countries that environmental concerns are being used as a barrier to ratification. These disagreements over ecological issues have become a central sticking point in the final stages of the negotiations.?

Moreover, Bolivia, the newly admitted member of Mercosur, has significantly increased its ties with China (by starting trading in yuan) and Russia, receiving billions of dollars from Rosatom to develop its lithium.?

An uphill climb?

From the scenario depicted above, it is clear that the EU-Mercosur Trade Agreement is more than just a trade deal and needs a firm commitment from both sides of the Atlantic to be successful: for the agreement to be finalized and ratified, the EU would probably have to split it up, which could see parts of it, for instance, tariffs and intellectual property rights, provisionally applied while more controversial parts – the agriculture elephant in the room - could initially be left out. A similar strategy was used in negotiations for the trade agreement with Canada, known as CETA. While it provisionally took effect in 2017 concerning customs duties, some of the more contentious aspects still require ratification by all member states before they can fully come into force. This approach would sacrifice much of the spirit that animates a trade deal, but it could constitute a good method to move forward.?

And even with that in mind, lest not forget that a trade deal negotiated by the European Commission would require approval in Brussels from the European Parliament and – at least - the nod of a qualified majority of 15 member countries representing 65 per cent of the EU population in the Council before moving to national parliaments. The domestically weakened French President, Emmanuel Macron, could struggle to find a coalition of member states to block the deal this time, but it is clearly an uphill climb even in this way.?

Mercosur continues to face internal divisions on the other side of the Atlantic. Similar to his predecessor Bolsonaro, Brazilian President Lula has shown interest in "modernising" Mercosur, including the possibility of allowing member countries to pursue bilateral trade agreements with third-party nations—something former Argentine President Alberto Fernández opposed. Meanwhile, Fernández’s successor, Javier Milei, has threatened to pull Argentina out of the bloc altogether due to his “sensitive” relations with Lula. Tensions have also been fueled by Uruguay's continued efforts to negotiate a free trade agreement with China, and Bolivia's recent entry into Mercosur amid an ongoing economic crisis and an increasing dependency on China and Russia could further increase strain within the group.?

Conclusion?

To finalise and strike a trade agreement, it is clear that much more than a diplomatic effort is demanded this time. Both parties need to set aside political divergencies within their relative blocks. The two sides of the Atlantic should also commit to transparency and balance while exploring innovative ways to overcome economic and political deadlocks. As always, political willingness will determine the success (or the failure) of this ambitious agreement that goes beyond trade, covering strong and deep linguistic and cultural ties between Europe and Latin America.?

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