Lula takes over Mercosur amid tensions with the European Union – 7/1/2023 – Market

After a 13-year hiatus, President Lula will once again sit in the Mercosur chair. His Argentine ally Alberto Fernández will pass the baton to him amid tensions with the European Union that should dominate the meeting, next Tuesday (4), between the leaders of Brazil, Argentina, Uruguay and Paraguay, in addition to the other seven associated South Americans. , except Venezuela.

The Brazilian will participate in the bloc for the first time this term and will finally be able to discuss with his neighbors his dissatisfaction with the new environmental demands of the Europeans to ratify the free trade agreement between the two blocs, which has held up discussions since the beginning of the year.

Another theme that may return to the 62nd half-yearly summit of the group, on the Argentine side of the Iguazu Falls, in the city of Puerto Iguazú, is the desire of the Uruguayan Luis Alberto Lacalle Pou to sign a bilateral agreement with China. There is an expectation that the country will continue insisting on the subject, widely criticized by the current governments of Brazil and Argentina.

An eventual return of Venezuela to Mercosur still seems distant, even with Lula’s nods and the region’s approach to dictator Nicolás Maduro since the last summit, in December, which former president Jair Bolsonaro (PL) did not attend. The country was suspended from the bloc in 2016 for violating the group’s democracy clause.

“[Se o Brasil] intend to take [esse tema à reunião], I would say no. Now, is it in Brazil’s interest to have Venezuela back? Yes. But for that to happen, certain conditions must be met, the conditions for entry of any Mercosur country”, said Ambassador Gisela Maria Padovan, secretary for Latin America and the Caribbean at Itamaraty, to journalists last Thursday (29).

According to her, the main message that Lula wants to take to the meeting is the “reprioritization” of the bloc and the integration of the region not only in trade, but in areas such as infrastructure, health and defense. “But I cannot anticipate [o que ele vai falar]. Of course, we make the speeches, but President Lula always says he won’t read them,” she said, laughing.

The biggest sign of this is the president’s repeated speeches pointing to Europeans. “Have you seen now that the French Congress has approved that it will not want to make an agreement with Mercosur, because they think that Brazil will not be able to meet the Paris goals?”, he spoke last Tuesday (27), at the launch of the Crop Plan 2023-2024. “And who fulfills it? Who of them fulfilled a goal now more than us?”

Officially negotiated since 1999, the Mercosur-European Union agreement was concluded in 2019, in the first year of the Jair Bolsonaro (PL) government, but has not yet been ratified by the two blocs. The main impasse for this is an annex to the text, called a “side letter”, proposed by the Europeans at the beginning of this year, which would make some previously voluntary environmental commitments mandatory.

While Europe wants to ensure that the export of commodities with environmental problems is seen as a sanctionable violation, the Brazilian government considers the conditions too strict and the tone of criticism has been rising. “It is not possible for there to be an additional letter threatening a strategic partner,” the PT candidate repeated in France a week ago.

Another point of the agreement that Lula has publicly insisted on reviewing is government purchases. This chapter provides for “national treatment” for foreign suppliers contracted by the States, but also has several exceptions to protect national companies. Still, Lula and especially the Argentine Alberto Férnandez see damage to their industries.

“This is going to be a different summit, with a much stronger Brasilia-Buenos Aires axis compared to 2022”, says Argentine María Victoria Alvarez, professor of international relations at the National University of Rosario. “Argentina has always been very cautious, under Kirchnerist governments, in relation to free trade agreements that open up its industry, and must continue defending this issue”, adds the specialist in the European Union.

An expected response to the EU’s letter, however, should not come out at this Mercosur summit. “The government is finishing its assessment of specific points and is translating President Lula’s instructions into a document that will be presented to Mercosur partners and then to the EU”, says Maurício Lyrio, secretary of economic affairs at Itamaraty, stating that the proposal ” is very close” and “it will not be long”.

Before the meeting of presidents, this Monday (3) the meeting of the Common Market Council (CMC) with ministers of the bloc takes place, but Fernando Haddad (Finance) should not go. He will stay in Brasilia to dedicate himself to articulating projects such as the fiscal framework and tax reform, with votes guided by the Chamber.

So far, the presence of Chancellor Mauro Vieira and the executive secretary of the Ministry of Development, Industry, Commerce and Services (MDIC), Márcio Rosa, have been confirmed. At the end of the two days of debates, Fernández will hand over the six-month presidency of the bloc to Lula, who will organize the next summit, in December 2023 or January 2024.

“At the last summit, the most controversial subject was the free trade agreement that Uruguay wants to close with China. This debate is very important and should return”, says Professor Cairo Junqueira, coordinator of the Observatório de Regionalismo, which originated at Unesp, Unicamp and PUC-SP.

The neighboring country, which did not sign the final declaration of the December meeting, strongly defends that the restrictions of bilateral agreements outside the bloc “contribute to deepen asymmetries to the detriment of smaller economies”. Brazil and Argentina maintain that they violate a 2000 rule and could destroy the bloc’s Common External Tariff.

“This remains on Uruguay’s agenda, because it is on the agenda of the parties that are in the government’s base coalition [de Lacalle Pou] and actors from the country’s private sector”, says Camilo Burian, professor of South American foreign policy at the University of the Uruguayan Republic (Udelar).

Itamaraty indicates that “it does not see relevance in this debate, because there is nothing new”. The Ministry of Foreign Affairs of Uruguay, on the other hand, stated that it would not give statements prior to the meeting — Argentina and Paraguay, governed by Mario Abdo Benítez, did not respond to requests for an interview. Bolivia is still in the accession process.

According to the government, Mercosur moved US$ 46.1 billion internally and US$ 727 billion in trade with the rest of the world in 2022. The main destinations for the bloc’s sales are China, the United States and the Netherlands. The region also accounted for 6.5% of Brazilian exports and 6.9% of imports last year.