It took a full quarter of a century, but on December 6, in a second attempt, the European Union and Mercosur, a bloc based in Brazil and Argentina, finalized the text of a wide-ranging agreement governing trade and politics. I let it happen. cooperation. The impact on world trade will be minor. But its geopolitical symbolism is much greater. With the United States poised to become more protectionist under Donald Trump and China’s influence in Latin America significantly expanding, this strengthens ties between two democracies long linked by culture and history. It shows our efforts. But ratification by Europeans is by no means certain, as the continent’s influential farmers fear Mercosur’s highly efficient agribusiness.
Talks between the two blocs began in 1999, when the tide of free trade and globalization was on the rise. But they went on with their conversation indifferently. With Trump and the rise of China, it took 20 years for the first deal to be reached in 2019. But both sides had doubts. Many Europeans opposed Brazil’s far-right president Jair Bolsonaro’s aggressive support for agriculture, ranching, and mining in the Amazon rainforest from 2019 to 2023. At the time, leftist Luiz Inácio Lula da Silva (commonly known as Lula), who was in the opposition party, and the Argentine government believed that allowing expanded access to EU manufactured goods exports would only promote the hollowing out of the country’s industry. I was worried that it might happen.
For the past 18 months, Lula, now back in office, and European Commission President Ursula von der Leyen have been trying to reach a deal. Lula underwent surgery for a brain haemorrhage this week, but was able to partially opt out of government procurement. Brazil’s health services will continue to purchase mainly from local pharmaceutical companies. The new agreement incorporates the Paris Agreement on climate action. A new “rebalance mechanism” would allow either side to invoke mediation and even retaliation if unilateral actions, such as the EU’s proposed deforestation regulations, harm the other’s trade.
If the committee is taking a more flexible stance than before, it’s because Russia’s invasion of Ukraine and Mr. Trump’s return have caused many European leaders to reconsider. “For the EU, this is an economically important but very geopolitical decision,” said Cecilia Malmström, a former European trade commissioner. “With the possibility of a tariff war, Europe needs friends and allies.”
This agreement is not a free trade revolution. The deal would eliminate tariffs on about 90% of goods trade between the two countries, most for up to 12 years and sometimes longer. Agricultural export quotas from Mercosur will gradually increase. Still, this agreement is a big one. Mercosur’s core members also include Paraguay and Uruguay, with a total population of 275 million and a total GDP of $3 trillion, making it the EU’s largest economic partner after Japan and the United Kingdom. (Bolivia joined Mercosur this year but is not part of the agreement). Total trade between the two blocs amounts to nearly $150 billion annually.
The Brazilian Institute of Applied Economics, a government think tank, estimated in a 2019 study of the deal that Brazil would benefit the most from agricultural exports, with an additional $6.2 billion between 2024 and 2040. But European industrial exports will also rise. And the EU has allowed Mercosur to geographically define more than 350 products, so Argentina’s “champagne” and Brazil’s “gorgonzola” will no longer be allowed.
Perhaps more importantly, the deal could encourage increased trade in services and European investment to Mercosur, says former Brazilian Trade Minister Welvar Barral. “This increases legal security for investors and strengthens legal security within Mercosur,” he says. Europe in particular has secure access to critical minerals and raw materials for green energy. Brazil and Argentina are important sources of copper and lithium, and Brazil also has rare earths. Among other things, the agreement provides Europe with a strategy for South America, a region that remains a major economic partner but is rapidly losing China’s influence.
Mr. Lula’s transformation from skeptic to champion of the deal reflects his desire to preserve Brazil’s autonomy in a world where Mr. Trump and China are pushing countries to take sides. Brazil is perplexed by China’s efforts to expand the BRICS group into an anti-Western front. “It is extremely important to have alternatives,” says Oliver Stuenkel of the Brazilian university Fundação Getulio Vargas. “The more Brazil and other Latin American countries strive to diversify their strategic partnerships, the better.” The same logic applies on the European side.
The deal could revive Mercosur, which has been a cornerstone of Brazil’s foreign policy since the 1990s. It was close to death. Increased exports of primary products to China by member states, industrial decline, and political instability have all reduced the bloc’s importance in its early years after its founding in 1994. Mercosur has previously suffered trade losses, partly due to Brazilian protectionism. It only deals with smaller economies such as Israel, Egypt, and Singapore. Uruguay is flirting with signing a bilateral trade deal with China, which would be against Mercosur rules. Argentina’s new president, Javier Millei, has threatened to resign. The EU deal “has given Mercosur a lifeline,” Stuenkel said. “If it passes, Millais could continue with it.”
To facilitate ratification in Europe, the trade part has been replicated in a separate agreement, which will only require the consent of EU governments and the European Parliament to enter into force. The entire treaty must be approved by national parliaments. Governments are likely to discuss the deal in the summer.
Torn between protectionist instincts and geopolitical calculations. France opposes the trade deal, but it may not be able to secure the necessary blocking minority of at least four countries, representing a combined 35% of the EU’s population. With strong support from Germany, Spain and Sweden, the outcome could hinge on Poland and Italy. The EU’s credibility as an economic partner will be at stake.
Correction (14 December 2024): We previously stated that the trade part of this treaty requires the consent of the Council of Europe. I should have said Council of the European Union. sorry.
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