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WORLD | 06-02-2023 10:44

EU, Mercosur accelerate trade deal against backdrop of Sino-American tussle

For more than two decades, the European Union and Mercosur laboriously negotiated a trade deal they agreed but never signed. Now, both sides want to finalise it to create a necessary partnership amid the global dispute between the United States and China.

For more than two decades, the European Union and Mercosur laboriously negotiated a trade deal which they finally reached in 2019 but never signed, and are now seeking to finalise it to create a necessary partnership amid the global dispute between the United States and China, experts and diplomats consulted by AFP said.

"It is urgent and extremely necessary for Mercosur to reach an agreement with the EU," said President Luiz Inácio Lula da Silva on a visit to Uruguay at the end of January.

"We are going to intensify our discussions with the EU and sign that agreement so that we can immediately discuss an agreement between China and Mercosur," he added, as Montevideo is already negotiating an FTA with Beijing, which has become a major commercial and financial player in Latin America.

On a visit to Argentina a fortnight ago, German Chancellor Olaf Scholz made the same point: "Our goal is to reach a rapid conclusion" to the negotiations.

The 27 EU countries and the four Mercosur partners (Argentina, Brazil, Paraguay and Uruguay) announced with great fanfare in 2019 that the agreement was ready.

But four years later, the pact, which ran up against the refusal of the European agricultural sector and Mercosur's competitiveness problems making it difficult to cut its high tariffs, remains a pipe dream.

 

Willingness to negotiate

From the European camp, the departure of Jair Bolsonaro from power in Brazil and the arrival of Lula dispel doubts about the agreement.

"There is a greater level of dialogue and, above all, there is a president who has taken on as his own one of Europe’s doubts regarding the Brazilian government's attitude towards the challenges of climate change and the fight against deforestation in the Amazon," explained the MEP Jordi Cañas, chairman of the European Parliament's Committee for Relations with Mercosur, to AFP, which is key to the approval of a treaty between the two blocs.

But beyond the will, there are practical issues and the agreement is far from closed.

"We want an agreement with the EU, but we want a revised agreement," warned Argentine Foreign Minister Santiago Cafiero, whose country holds the pro tem presidency of Mercosur, after meeting with the head of European diplomacy, Josep Borrell, in Brussels on February 1.

"We understand that it is necessary to discuss complementary documents [to the agreement], most of which derive from the European Green Pact (of 2020) and which have partly modified the 2019 negotiations," Cafiero explained.

The minister pointed out that 20 percent of Argentina's exports to the EU consist of soy biodiesel, and with the new European regulations they are "virtually" excluded from bilateral trade.

Brazil also wants to revise the text. The Lula government wants to preserve the possibility of "government purchases being directed to Brazilian companies," Feliciano de Sá Guimaraes, academic director of the Brazilian Centre for International Relations (CEBRI), explained to AFP.

The South American giant also obtained "export quotas for some (agricultural) products in exchange for concessions in the industrial area, particularly in the auto sector", and "I believe that this balance of quotas versus concessions for the eventual opening of the Brazilian auto market will be renegotiated," he said, adding: "There is a lot to negotiate."

 

The third party in contention

Analysts agree that the two blocs would gain in global prominence by concluding a trans-Atlantic free trade agreement (FTA).

"The EU realises that by concluding an FTA with Mercosur, it would have trade agreements with practically all countries from the Caribbean on down. It is an advantage no other actor has" and "allows it to place itself at the centre of the geopolitical war between the United States and China," which has a strong foothold in the region, summarised Ignacio Bartesaghi, an expert in International Relations and Mercosur at the Catholic University of Uruguay.

Guimaraes agrees. The "EU and Mercosur need to unite, come closer politically and economically, in order to contain the dispute between the United States and China. There is an underlying geopolitical issue," he said.

 

How will the agreement be concluded?

European and Mercosur political sources agree that the delayed treaty is gaining momentum but is not guaranteed, and point out that one way to speed up the pace could be to agree on a 'split' or thematic division bringing together the aspects of the pact which can be approved directly by the European institutions, without going through the necessarily slow ratification in each of the 27 parliaments.

In Mercosur there are also particular political timescales explaining the haste of Brasilia and Buenos Aires to move forward, as the Brazilian president told his German counterpart, days after meeting with the Argentine president, Alberto Fernández, in Buenos Aires.

Argentina will hold presidential elections this year, with an uncertain outcome between the centre-right and right-wing opposition and the ruling left.

The Uruguayan government, meanwhile, concludes that, in the current context, the agreement with the EU cannot be seen "as something close."

 

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by Mauricio Rabuffetti & Aldo Gamboa, AFP

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