Brussels (CN) — After two decades in the making, a trade deal between the EU and the South American Mercosur trade bloc was dragged over the line in an eleventh-hour summit on Friday, but political instability and divisions in some of Europe’s major economies could make the approval process long and tedious.
The deal, if ratified, will create a market for over 700 million people between the EU states and Argentina, Brazil, Paraguay and Uruguay. It is expected to save businesses in Europe billions of euros annually in tariffs.
“This agreement is not just an economic opportunity; it is a political necessity,” European Commission President Ursula von der Leyen said as she announced the deal in Montevideo, Uruguay.
“I know that strong winds are coming in the opposite direction, towards isolation and fragmentation, but this agreement is our near response,” she said, with words that were seen as a reference to threats by US President-elect Donald Trump to hike tariffs on imports when he takes office in January.
Twenty-five years of talks on the trade deal were marred by protectionist and environmental fears on both sides, and negotiators this week were racing against time to hash out the draft agreement at a summit of the Mercosur format, which includes farming powerhouses Brazil and Argentina as well as Uruguay and Paraguay.
The fresh EU-Mercosur agreement was also made possible after negotiators made amendments to public procurement, auto trading and critical minerals exports compared to a previous text from 2019, which was deemed unacceptable back then.
Friday’s deal also saw an annexe about environmental measures to defuse South American fears about EU protectionism.
EU-Latin America ties
Relations with Latin America and the Caribbean returned to the EU’s agenda after years of relative absence as trade deals faltered and the EU feared losing influence in the region.
Securing access to Latin America’s raw materials and other key resources in the face of “increasing geopolitical challenges” had gotten a push after Russia’s war in Ukraine spooked Europeans about waning influence in other world regions.
A future EU-Mercosur deal was increasingly seen in Brussels as key to reducing “excessive dependency” on third countries and helping the EU to “de-risk” from China.
“At a time when we need positive news, this is a great development between long-standing partners,” EU’s top diplomat Kaja Kallas said. “For Europeans, it opens up a vast region to freely trade with, including access to critical raw materials, and diminishes the risk of competitors replacing us in our absence.”
She added, “For both sides, it will lead to many more jobs and opportunities — this is good foreign policy and a good day for the EU and our partners in Latin America.”
The European Parliament’s Foreign Affairs Committee lauded the deal, saying, “The strategic alignment between the EU and Mercosur has significant geopolitical value, as it can help the two regions strengthen their collective autonomy and resilience while promoting democracy, sustainability, and multilateralism.”
Latin American leaders welcomed the development as an opportunity to secure new markets and environmental gains.
“We are securing new markets for our exports and strengthening investment flows,” Brazil’s President Luiz Inacio Lula da Silva said. “[W]e have a modern and balanced text, which recognizes Mercosur’s environmental credentials and reinforces our commitment to the Paris Agreement.”
Argentine President Javier Milei said countries in the region “cannot let commercial opportunities pass by.”
“It is very important that the world opens up to us,” Uruguayan President Luis Lacalle Pou said, calling the agreement “not a solution, but an opportunity … for the smaller countries in Mercosur.”
Paraguayan President Santiago Peña, too, acknowledged the deal was an important step but cautioned there was still work to do: “We have to be very realistic; we have a long way to go.”
European divisions
Von der Leyen made the late, unexpected call to fly in for the summit in Montevideo after what some EU officials called a “window of opportunity” opened up on the European side.
However, it remains unlikely that the political agreement after the signature of the deal will translate into swift ratification.
While the European Commission possesses the prerogative over negotiating trade deals on behalf of the 27-nation bloc, the accord needs to be ratified by its member states. The new trade agreement would require approval from 15 of the 27 EU members, representing 65% of the EU population, along with a simple majority in the European Parliament.
That may prove difficult as European countries remain deeply divided over whether the agreement should move to the next stages.
France, one of the main opponents of the agreement that had branded the deal “unacceptable,” is locked in domestic political chaos after the country’s government collapsed on Thursday, three months after taking office, due to far-right and leftist lawmakers joining forces.
However, while Paris may be distracted, France is unlikely to drop its opposition to the trade deal in the long term. French Trade Minister Sophie Primas pledged to resist its next stages, citing environmental and farming concerns.
“The draft agreement between the EU and Mercosur is unacceptable in its current form. We will continue to tirelessly defend our agricultural sovereignty,” the French presidency said in a statement.
Italy said on Thursday that there were no conditions for signing off on the newly struck deal, and Poland warned last week that it was opposing the free trade deal in its current form.
At the same time, a group of EU members, including Germany and Spain, hailed the deal as vital for the EU in order to diversify its trade ties amid fears of a Chinese trade war.
Germany’s Chancellor Olaf Scholz said “an important hurdle for the agreement has been overcome.”
“Spain will work to ensure that this agreement is approved by the majority of the [European] Council because trade openness with our Latin American sister countries will make us all more prosperous and stronger,” Spain’s Prime Minister Pedro Sanchez said.
Farmers opposed, industry split
European supporters of the Mercosur deal see the Latin American partner countries as a new market opportunity for European cars, machinery and chemicals — and a potentially reliable source of critical minerals, such as the critical raw material lithium, which is used to make batteries necessary for Europe’s green transition.
They also point to agricultural benefits, given that the deal offers greater access and lower tariffs for EU cheeses, ham and wine.
The biggest European winners are expected to be food and drink exporters, particularly in the dairy, spirits and chocolate sectors that have not been very present in Latin and South America.
However, the big losers are expected to be European beef and poultry producers, with the latter largely based in Eastern European countries such as Poland and Ukraine.
Both European green groups and farmers have repeatedly protested against an EU-Mercosur deal that they say would lead to cheap imports of South American commodities, notably beef, and would not meet the EU’s green and food safety standards.
Friday’s deal establishes a bilateral safeguard mechanism to deal with potential surges in imports that threaten to harm specific agricultural sectors.
However, the European farm lobby COPA-COGECA said in a statement that the agreement “will have profound consequences” for family farming across the EU if it is ratified, and it has called for mass protests in Brussels against the deal.
“The [European] Commission has sent a very worrying message to millions of farmers across Europe,” COPA-COGECA president Massimiliano Giansanti said in a statement.
EU member states and the European Parliament “must now firmly challenge the terms of this agreement,” the organization said.
The agreed Mercosur deal text also makes the Paris Climate Agreement an “essential element” of the trade deal, with a clause that is meant to ensure that one party can suspend the full or parts of the agreement if another party violates the international treaty or decides to withdraw from it.
Green groups have complained that the clause would not deter the industry from its role in destroying large swaths of the Amazon rainforest, a crucial cushion against climate change.