The Uncertain Future of the EU-Mercosur Trade Agreement

The Uncertain Future of the EU-Mercosur Trade Agreement

By Anna Nadibaidze

In June 2020, the EU and the Mercosur trade bloc, which consists of Argentina, Brazil, Paraguay and Uruguay, concluded negotiations over the Political Dialogue and Cooperation part of their Association Agreement, after the free trade section was completed in June 2019. With a number of EU member states and civil society organisations voicing concerns about the environmental impact of the deal, its ratification is becoming more unlikely in the short-term. 

The agreement would create the largest free-trade zone in the world, cut tariffs for many products, and simplify customs procedures. For the EU, this means more exports in spheres like machinery, automobiles and pharmaceuticals, while Mercosur countries would export more meat, poultry, sugar and other agricultural products to the European single market.

The Mercosur countries make up a market of 260 million consumers for EU companies, with an annual GDP of €2.2 trillion. The free trade deal was struck at a time of unstable trade relations with the US, therefore it was praised by both sides as a commitment to rules-based trade in an era of protectionism.

Optimists hoped the ratification process would be concluded by the end of 2020. However, the process is just at its beginning. Ratification on the EU side requires the approval from all of the 27 member states and the European Parliament. 

Several national parliaments, including the ones in Austria, the Netherlands, and Ireland, have voted against the deal. Luxembourg has refused to give its support, as did France and Italy. In a non-binding resolution from October 7th, the European Parliament has also stated its opposition to the agreement with Mercosur in its current form. 

What are the obstacles?

Firstly, many farmers’ unions and lobbies across Europe are worried about the competition of cheaper South American products such as meat and cane sugar. Many national policymakers have supported those worries, which the Commission tried to address by preparing a €1 billion aid package for agri-food companies affected by the changes.

Secondly, there are many concerns about the environmental impacts of the deal. Politicians and NGOs across Europe are worried about deforestation and fires in the Amazon, which are caused by human activity. Most of the rainforest is located in Brazil, where President Jair Bolsonaro and his cabinet are renowned for pursuing environmentally damaging policies.

Given the EU’s goal of conducting a trade policy based on values such as sustainable development, importing more products that cause deforestation – such as soya beans or mining commodities – would be contradictory to EU values and its reputation at home and abroad.

The current state of affairs

The German presidency of the Council of the EU was planning to make progress on this issue before the end of 2020. Berlin has been under the pressure of German industry groups seeking to gain greater access to the South American market. 

However, Germany’s position seems to have changed, as Chancellor Angela Merkel expressed “considerable doubts” over the deal in September. This year’s fires in the Amazon and the Pantanal regions have been evaluated by scientists as an increase compared to the average from recent years. 

French President Emmanuel Macron was already hesitant about the agreement last August. This year, the French government demanded further environmental guarantees, after commissioning a study looking into the effects of the trade deal on sustainable development. The Ambec report, published in September, concluded that the accord is likely to increase deforestation and harm biodiversity.

Environmental campaign groups and legal experts have continued to criticize the sustainable development chapter of the deal, pointing out that it gives no incentive to reduce greenhouse gas emissions and does not sanction the violations of environmental commitments. The European Ombudsman began an inquiry into why the European Commission did not update the sustainability parts of the EU-Mercosur agreement before concluding negotiations.

So far, the Commission was not able to credibly address these concerns. In October, the Trade Commissioner Valdis Dombrovskis recognized the divisions over the issue and said the Commission was “already engaging” with Mercosur countries over “meaningful pre-commitments” they can make in relation to the sustainability part of the deal.

Future scenarios

It is unlikely that all EU member states would ratify the deal in its current form, especially in the short-term. 

One option would be for governments to refuse ratification until satisfactory conditions are introduced, especially in terms of ensuring the enforceability of the sustainable development section. Environmental commitments from Mercosur could be monitored and reported by civil society, scientists or NGOs, for example.

Another scenario would be to mandate the Commission to completely renegotiate the deal. This would be a difficult task, given that it took twenty years to reach the initial agreement. Moreover, the Mercosur countries would also have to agree to renegotiate. 

There is also a risk that it is not ratified at all. But would this help the cause of limiting deforestation at all? Given that last year’s criticism has not changed the course of President Bolsonaro’s policies, a rejection of the accord would not help the case of environmental protection.

Finally, even if the EU-Mercosur deal goes through, it is unclear whether the political tensions, especially between Macron and Bolsonaro, will allow the cooperation dialogue to be as strong as expected. Last year, Macron issued personal criticisms against Bolsonaro, stating that the latter “lied” about his commitment to biodiversity. Bolsonaro’s dismissal of the fires as a non-serious issue is adding fuel to the fire. This summer he stated that the Amazon cannot burn because it is a “humid” forest, adding that there is an “environmental sect” in Europe that is working against Brazilian agricultural commerce.

Overall, to benefit from the advantages of this agreement, both parties will need to find a compromise, especially over agriculture and climate change commitments. For the time being, the strong opposition and political tensions prevent any progress both for the deal’s implementation and for environmental protection.

Categories: Economics, International

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