The EU and Mercosur Trade Deal

ANGERS — Trade negotiations between the European Union and Mercosur (Argentina, Brazil, Paraguay and Uruguay) began in 1999 and, illustrating the challenges inherent in forging trade pacts among blocs with diverging national interests, resulted in a provisional agreement only in 2019. Since then, efforts to finalise the agreement have floundered. European leaders must recommit to reaching a deal, which will require deft diplomacy.

An EU-Mercosur trade agreement would undoubtedly yield economic gains for both sides. But it also has strategic significance, especially for the EU. At a time when the bloc is wary of depending on China, a trade deal with the world’s fifth-largest economy would allow EU member countries to forge new economic ties, secure the critical resources needed for the green-energy transition, and counter Chinese influence in the region. Moreover, as climate change exacerbates food insecurity, a deal would enable the bloc to diversify its suppliers.

But too many policymakers fail to grasp the benefits of strengthening EU-Mercosur ties. Despite the opportunity presented by Brazil’s Mercosur presidency and Spain’s EU presidency in 2023, an agreement was not reached. But with Brazil’s G20 presidency in 2024, and with Mercosur countries playing an active role in that group, this year could be a watershed for the EU-Mercosur relationship.

To be sure, the negotiations over the past 25 years have faced significant hurdles. For starters, Mercosur countries have balked at a provision that would allow EU firms to bid on public procurement contracts, which Brazilian President Luiz Inácio Lula da Silva, in particular, has been using to promote the growth of domestic businesses.

The EU, for its part, has insisted on stringent environmental and social standards, as revealed in the leaked draft of an additional joint instrument. Mercosur countries see these requirements as superfluous, because they are already working to achieve their existing international climate commitments, including the targets set by the 2015 Paris climate agreement. True, they may struggle with implementation, but so do their European counterparts. Consequently, from Mercosur’s perspective, the EU’s demands appear to reflect a protectionist mindset, especially in France, where the trade deal has drawn the ire of local farmers.

If the EU continues to drag its feet, Mercosur could abandon the agreement in favour of new trade deals with Asian countries; Uruguay, in particular, has recently sought closer ties with China. During Lula’s Mercosur presidency, the bloc signed a trade agreement with Singapore, its first in southeast Asia, with the hope that the country will serve as a gateway to the region for Latin American businesses. The bloc is also actively pursuing agreements with South Korea and Japan, propelled by the Brazil’s ambitions to boost its food sales in Asia.

A trade deal with Mercosur, could help the EU accelerate the green transition and improve food security. Mercosur members, and Latin American countries more generally, have abundant deposits of the critical minerals that are essential for many clean-energy technologies, and are thus emerging as key players in the effort to achieve net-zero greenhouse-gas emissions. The region, led by Chile and Argentina, already produces large quantities of lithium and has vast reserves of graphite, nickel, manganese, and rare-earth elements, with Brazil holding around one-fifth of global reserves in each of these resources.

Moreover, as supply-chain disruptions and climate change undermine global efforts to ensure sustainable food production, and as hunger and malnutrition increase dramatically, Mercosur could play a crucial role in feeding the world, thanks to the bloc’s highly productive agriculture sector.

Despite its potential, Latin America needs more investment. That is where Europe could come in. While business investments and operations should comply with EU environmental and social standards, international instruments such as the Paris climate agreement and the European Commission’s proposed directive on corporate sustainability due diligence could achieve this goal by serving as a broader regulatory framework beyond the EU-Mercosur trade agreement.

Aside from the economic implications of delaying a formal trade deal with Mercosur, further hold-ups could exacerbate geopolitical tensions and erode the trust that is integral to effective partnerships. Of course, the EU is free to take a tough stance in negotiations. But the bloc’s leaders should recognise that faltering negotiations with the EU could steer Mercosur countries towards alternative partnerships, particularly with China

Nowadays, the EU’s primary diplomatic responsibility toward Latin America is to foster a collaborative environment that emphasises mutual respect and envisages a broader legal framework for economic cooperation. The EU-Mercosur trade deal is a necessary step in that direction.

Copyright: Project Syndicate, 2024.

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