Are we close to a EU-Mercosur trade agreement?

On June 28, 2019, an agreement "in principle" was signed between the Mercosur regional trade bloc and the European Union (EU), marking the end of negotiations on key issues, which had lasted more than 20 years (all governments during that period participated in the negotiation).

It is a strategic agreement for both regions, especially in the current global context.

Moreover, the agreement is now topical, given that the summit between the Community of Latin American and Caribbean States (ECLAC in its Spanish acronym) will take place on July 17 and 18. There is a possibility (which is, by the way, quite remote) that the pact could finally be signed. If this does not happen, the presidential-level meeting will serve to "calibrate" the real chances of an agreement being reached in the short term.

The political clock is ticking both for and against; in the former, because in the second half of the year Mercosur will be presided by Brazil and the EU by Spain, two countries defending the agreement; in the latter case, because if a deal is not signed during this period, next year there will be an election for the European Parliament and a new EU Commission will be elected, which will mean starting talks all over again.

Although some details were left pending, agreeing the outline of a deal was considered a significant step towards the conclusion of the final agreement, which is composed of three pillars: trade, political dialogue and cooperation.

The text of the agreement, almost in its entirety, was made public and was released by the foreign ministries of the Mercosur and EU member states. For the South American bloc, a deal is of fundamental value because of both its internal and external implications; it is almost "foundational." And its benefits are directly related to the challenges it imposes on governments and trade unions, and on the productive sector.

For the EU, a deal means not only gaining access to new sources of energy and food but also the expansion of its sustainable development criteria, the terms of which are widely resisted in some areas of the world.

Mercosur faces a market of 500 million inhabitants and 27 member states. The EU, on the other hand, faces a region with 295 million inhabitants and four member states. The agreement involves a population of more than 800 million inhabitants, representing almost a quarter of the world economy, which demonstrates its great economic scope. Without this agreement, Mercosur only has trade agreements with nine percent of the world's gross domestic product, but with it, that figure would increase to 30 percent. It also means the almost automatic conclusion of other agreements with blocs such as EFTA (European Free Trade Association) or with countries such as Singapore, Canada, South Korea and Japan, among others.

Nevertheless, there has been disagreement between what the European Commission has negotiated and what the EU member states want, which has created obstacles in the process. On the EU side, for example, Brazil has been accused of being primarily responsible for deforestation, although reports indicate that there have been no significant differences in deforestation rates between the (first) Luiz Inácio Lula da Silva and Jair Bolsonaro presidencies. These obstacles seem more related to personal disputes than to substantiated environmental concerns.

In addition to concerns about its environmental impact, the Mercosur-EU alliance has also generated debates in terms of labour rights protection. For this reason, the EU is demanding specific safeguards and guarantees in these areas (see the recent environmental side letter drawn up by the Europeans).

The agreement already includes a chapter dedicated to sustainable development, which establishes commitments to promote environmental conservation, sustainable management of natural resources and respect for labour rights. In addition, it provides for the creation of a Sustainable Development Committee to oversee the implementation of these provisions.

In addition, the EU, having signed the agreement 'in principle', has since made progress in approving its famous Green Pact, which involves – among others – issues related to deforestation and greenhouse gas emissions, which to a certain extent has altered the balance of the negotiations concluded with Mercosur in 2019.

As a result, the effectiveness of these measures and their enforcement are still up for debate.

Some critics argue that the sustainable development provisions are insufficient and lack adequate enforcement mechanisms. It is crucial that both blocs commit to ensuring that the agreement is implemented in a responsible manner and that its social and environmental impacts are closely monitored.

In addition to trade and environmental aspects, the provisional agreement seeks to strengthen political and strategic cooperation between the two regions. This includes the promotion of political dialogue, cooperation on security issues, the fight against organised crime and terrorism, as well as collaboration in areas of mutual interest: education, culture and science.

The EU-Mercosur agreement definitely represents an important milestone. If effectively implemented, it could generate economic benefits and strengthen cooperation between the two regions.

As highlighted, the positive aspects for Mercosur, which are not only commercial, are certainly tangible and commendable. Rather than analysing what is to be gained by the early signing and implementation of the deal, it would be better to examine what would be lost if it fizzles out – i.e. what is the cost of not signing the agreement? From this perspective, the result tips the balance in favour of signing the pact.

Moreover, the failure of the agreement would be a failure of diplomacy, with the efforts of more than 20 years of negotiations lost, not to mention the fact that the agreements already signed by the EU with Mercosur's competitors cut off markets from the region’s exports.

Today it is safe to say that Mercosur is showing more interest in concluding the agreement – or at least it is offering much less resistance, when compared to the attitude of the Europeans (though not the EU Commission).

The days leading up to major summits are akin to Formula 1 races, in which the initial test laps are characterised by the loud noise of engines revving up. Let us hope that the noises about the EU-Mercosur trade deal that are popping up at present are just that, preliminary, and that diplomacy and the will of the leaders of the 31 states involved find a way to advance talks and agree a deal at the EU-CELAC summit or during the second half of this year.

Mercosur has made a great effort, hopefully the EU will do the same.

*Alejandro Perotti is a professor at Austral University.