EU-Mercosur FTA: Threats and Challenges

EU-Mercosur FTA: Threats and Challenges

When the European Commission announced the signing of the EU-Mercosur free trade agreement, it sounded like a done deal. However, the provisional text must be ratified by all the parliaments of adhering countries, including the European Parliament and Council. Such a process will likely prove time-consuming and highly polarising. From France to Argentina, widespread opposition to the agreement is mounting. There is now a real chance that it will be rejected or substantially watered down.  

The EU-Mercosur Free Trade Agreement 

On June 28th, the European Commission and Mercosur representatives signed a provisional deal for an encompassing trade agreement. It was the product of 20 years of difficult negotiations and over 40 rounds of talks. When duly implemented, negotiators stress, the deal will change the relationship between the two trading blocs.  

Mercosur, bringing together Argentina, Brazil, Paraguay and Uruguay, obtained significant concessions for its agricultural sector. EU tariffs on goods such as beef, poultry and sugar will be reduced over a 15-year time span allowing the South American bloc to utilise its agricultural advantage and penetrate the single market. 

In exchange, Mercosur agreed to open itself to the European industrial sector and withdraw its double-digit tariffs including the majority of tariffs on chemicals, machinery, and cars. According to the Commission’s estimates, the agreement will generate over 4 billion euros in savings for European exporters. The financial sensibilities make this deal more lucrative than those recently signed with Canada and Japan.  

Rule-based trade

In an age marred by growing protectionist sentiment, the victory is economic as much as symbolic for Brussels. Crucially, the deal signals that the bloc is capable and willing to pursue its independent free-trade agenda. It helps confirm the EU as the bulwark of the open, rules-based global economy. Outgoing Commission President Jean-Claude Juncker tweeted hours after the announcement, 

“In the midst of international trade tensions, we are sending today a strong signal with our Mercosur partners that we stand for rules-based trade”.

Reactions were proportionately enthusiastic on the other side of the Atlantic. Both Jair Bolsonaro and Mauricio Macri, Brazil’s and Argentina’s Presidents, hailed the agreement as a historic breakthrough for Mercosur.

However, celebrations might have been premature. Before becoming effective, the trade agreement must be ratified by the parliaments of all adhering countries. This includes various regional assemblies and the European Parliament and Council. Far from being a mere formality, ratification promises to be a polarising and arduous process. It could take up to two years,  and its outcome cannot be taken for granted. 

A deal with many foes

In the old continent, the agreement has met the fierce resistance of the agricultural sector and the powerful farm lobby Copa-Cogeca. European farmers fear that foreign producers will flood the single market with cheap sugar and meat driving prices lower.     

Criticism has been particularly strong in France, that has a long-established history of protecting its agricultural sector from foreign competition. Despite representing less than 4% of the total working population, French farmers are traditionally influent and combative constituency. On several occasions, they have conducted acts of protests like dumping manure at the doorsteps of townhalls and party offices. Hence the cautiousness with which the French government has received the announcement from Brussels. Didier Guillaume, the agriculture minister, has recently stated that the EU-Mercosur deal cannot be ratified in its current form. 

Discontent with the agreement is not contained to Paris. Even Belgium, Ireland, and Poland, that together with France form the union’s “beef belt”, have fiercely criticised the agreement. Just one single parliament is enough to block ratification. As such, there is a concrete risk that the EU-Mercosur deal will face the same hurdles experienced by the Canada-EU free trade agreement. The latter’s implementation was stalled for months by the regional parliament of Wallonia, the French-speaking region of Belgium. 

Threat from Brazil

Another threat to the smooth implementation of the deal comes from Brazil, and more specifically from President Jair Bolsonaro. Among the concessions, the EU managed to extort from Mercosur the commitment to respect the Paris Climate Agreement. Nonetheless, Bolsonaro vowed to back out from the agreement on Trump’s example.     

Even if he does not, there are other ways in which Brazil’s questionable environmental policies could derail the ratification process. Just take deforestation. Bolsonaro has pledged on multiple occasions to open the Amazon to mining and agricultural exploitation. More recently, his utter disregard for the Amazon fire crisis showed that he’s willing to carry out this promise. Bolsonaro’s stance is bound to come under increasing scrutiny in Brussels, where Green parties secured their best result ever in the last European elections. Farm lobbies, moreover, will seize the opportunity to show Brazil is undercutting European competitors courtesy of looser environmental regulations. 

Threat from Argentina

It is Argentina, however, that arguably poses the greatest obstacle to smooth ratification of the EU-Mercosur deal. President Mauricio Macri, a convinced advocate of the deal, lacks the numbers to pass it in the Congress. Many think the agreement only benefits the agribusiness elite while bypassing the domestic industry. The deal, the argument goes, relegates the country to a doomed economic model over-reliant on the export of agricultural commodities. 

Support for market-friendly Macri has been sapped by the IMF-sponsored fiscal tightening and galloping inflation. His market-friendly reforms did not manage to overhaul the economy, and he is now on track to lose the presidency in October. The recently held primary elections, traditionally a bellwether for the country’s political mood, put him 15 points behind the Peronist opposition.  The left-wing ticket headed by Alberto Fernandez is now firmly on course to win the presidency. Peronists count industrial workers among their most inveterate supporters. Not surprisingly, Alberto Fernandez already voiced his intention to reject a deal that would expose the domestic industry to the formidable competition of German carmakers. Were he to win over Macri this month, as it seems increasingly likely, the odds of ratification would be drastically reduced.

In Conclusion

It was precisely the fear of a Peronist comeback that motivated EU and Mercosur officials to speed up negotiations and broker a provisional agreement. However, their goodwill might prove vain. From Brazil to France, other, formidable foes are standing up against the deal. Celebratory tweets aside, the future EU-Mercosur agreement could hardly be more uncertain. 

Categories: Economics, Europe

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