Long-running negotiations between the European Union and Mercosur, aimed at forming an Association Agreement and liberalising trade, have faced numerous hurdles. But as the complex discussions show little sign of imminent resolution, doubts loom over the pact’s future, write Juan Cruz Díaz and Carlos José Cruz Infante
It is 23 years since the European Union embarked on trade negotiations with the Mercosur group of nations that includes Argentina, Brazil, Paraguay, and Uruguay. The aim was to establish an Association Agreement that would create a vast market of 780 million people. Mercosur and the EU reached a political agreement on 28 June 2019, concluding negotiations that promised to reshape trade history between the two blocs.
But the journey has been hampered by intricate challenges. Now, President Santiago Peña of Paraguay has issued an ultimatum to expedite signature of the agreement all parties had reached in 2019, pending approval by all EU states and the European Parliament. The deadline for signature is 6 December this year. With just one month remaining, the clock is ticking.
As negotiations rumble on, there is growing impatience and frustration in the Mercosur bloc at perceived imbalances in their dealings with the EU. The sensitivity of these negotiations is not a recent phenomenon; they have been delicate from the start.
In 2019, many EU citizens were against the agreement; indeed, many active civil society groups strongly opposed it. The heightened sensitivity in South America is mainly because of the EU's focus on environmental issues. There is mounting pressure from certain European agricultural factions, too, against ratification.
Opposition to the Mercosur agreement in South America is mainly because of the EU's focus on environmental issues
France has advocated for more demanding language on environmental standards. This was particularly the case during Jair Bolsonaro's presidency in Brazil, which was marked by climate change scepticism. The recent return of Luiz Inácio Lula da Silva to Brazil's presidency, and the subsequent surge in commodity prices, gave the agreement ratification talks new momentum. Signature by December, however, still appears unlikely.
Some argue that recent EU regulations, particularly those related to deforestation, carbon emissions and sustainability diligence, could reduce pressure on the Association Agreement. Instead, they have presented additional complexities to the negotiation process.
The global landscape within which these negotiations are unfolding has changed fundamentally since 2019. The EU is facing a severe energy crisis, and countries including Germany have begun to pursue autonomous strategies in South America to secure their energy supply and facilitate their transition to cleaner energy.
Moreover, Europe finds itself embroiled in two of the most significant global conflicts since World War II: the Russian invasion of Ukraine and the escalation of the Middle East crisis. These developments are diverting attention away from the Mercosur political dialogue, and introducing yet another layer of complexity.
Internal division within the Mercosur bloc further complicates things. Uruguay and Paraguay favour a more open trade approach. Brazil and Argentina, on the other hand, lean toward a more protectionist strategy. They want less flexibility in bilateral agreements, and this is causing political tensions.
In 2022, Argentina, Brazil, and Paraguay threatened legal action against Uruguay for pursuing independent trade agreements with Australia and New Zealand. Uruguay's President, Luis Lacalle Pou, wants to boost his country's global bargaining power through Mercosur. However, he is also actively seeking agreements with other countries.
Uruguay and Paraguay favour a more open trade approach. Brazil and Argentina lean toward a more protectionist strategy
Uruguay's stance faces opposition from the other Mercosur members. They are demanding that the Treaty of Asunción, the foundational agreement of the bloc, is preserved. This treaty calls for the establishment of a common trade policy for third-party states or blocs, and it was reaffirmed by a Mercosur Common Market Council decision in 2000. Uruguay affirms that this resolution is no longer in force and does not violate the legal framework of the bloc. But Lacalle Pou remains determined in his plans for bilateral agreements, including a Free Trade Agreement with China.
This year’s presidential elections in Argentina have also generated concerns over the South American bloc. The libertarian right-wing candidate, Javier Milei, has described Mercosur as a 'low-quality customs union that leads to trade diversion and harms each of its members'. His comments have led to increased internal tensions, and even raised doubts about the bloc's future.
Mercosur-EU negotiations are complex and intricate. The EU's focus on environmental concerns, protectionist pressures in both blocs, internal divisions within Mercosur, and external factors like energy crises and global conflicts, all present substantial challenges. The future of the agreement depends upon the capacity of all parties to find common ground. They must sustain the spirit of collaboration in an increasingly challenging global context.
If Mercosur nations do not reach agreement with the EU, they could consider exploring trade with alternative partners that impose fewer regulatory demands. Paraguayan president Peña recently suggested that Singapore and the UAE might be potential partners. Alternatively, China's growing commercial influence in South America could make it a more appealing option.
Brazil has sustained the foreign policy project initiated by former President Fernando Henrique Cardoso under President Lula. This approach seeks international leadership through a proactive agenda, firmly rooted in the pursuit of autonomy through integration. In this sense, Lula sees the BRICS group – Brazil, Russia, India, China, and South Africa – as a suitable platform for Brazil's aspirations:
The era when Brazil was excluded from significant global decisions is now behind us
President Luiz Inácio Lula da Silva, state visit to China, 12 April 2023
Argentina is set to join the BRICS alliance in 2024, a few months after China activated a currency swap arrangement to offset its Central Bank's US dollar deficit. The growing influence of China and the BRICS in South America is here to stay.
In December 2023, Brazil hands over Mercosur's pro tempore presidency to Paraguay. With the deadline for finalising the EU agreement set for the same month, President Santiago Peña's call to action remains unanswered. Despite the French Minister of Trade's request for more time, scepticism abounds. It could be Lula da Silva's last chance to seal the deal this year. The likelihood of closing the long-awaited pact by December is looking increasingly unlikely.
