Understand the impasse over the EU-Mercosur agreement – 05/20/2023 – Market

The trade agreement between the European Union and Mercosur is at an impasse. Signed in 2019, in the first year of Jair Bolsonaro’s (PL) government, the text has not yet been ratified by both blocs – and now runs the risk of not being approved.

Officially negotiated since 1999, the resolution comes up against new environmental constraints requested by the Europeans, as well as divergences from the Brazilian government on damages to the reindustrialization of the country.

President Luiz Inácio Lula da Silva (PT) has already promised to complete the agreement in 2023, but said that the current terms are impossible to be accepted, defending a renegotiation of the text.

According to MEPs involved in the process, the EU chose to freeze the procedure after signing in 2019 due to a “Bolsonaro effect”. According to parliamentarians, it would be politically unfeasible to approve a trade agreement involving Brazil at a time when the country’s environmental image was tarnished internationally.

How to justify, for example, the conclusion of an agreement to buy more goods from Brazil while the Amazon was on fire, questioned a member of the committee responsible for analyzing the bloc’s trade agreements.

Lula’s arrival at the Presidency reopens the possibility of definition – and the EU wants to take advantage of this window before the elections for the European Parliament, which take place in 2024.

The agreement is seen as important for the bloc to get rid of its trade dependence on China. Furthermore, the conclusion of the commercial treaty with Mercosur could give a geopolitical and economic respite to an EU that is increasingly isolated between the dominance of the US and China.

Together, Mercosur and the European Union account for about 25% of the world’s GDP (Gross Domestic Product), covering a population of 750 million people.

However, because it is an agreement that was on the table for two decades, there is a perception that aspects that are important today are not properly addressed in the text.

On the European side, the main complaint is about the environmental part. The bloc wants to establish sustainable requirements for the entry of Mercosur products, mainly with regard to deforestation in the Amazon, human rights violations and the use of pesticides.

The agreement has sustainability standards that are not binding, which is why the blocs are negotiating an additional term, called a “side letter”, which makes environmental commitments mandatory.

This is one of the main impasses for the ratification of the agreement. While Europe wants to ensure that the export of commodities with environmental problems is seen as a violation, members of the Brazilian government consider the conditions too strict.

The French MEP, Yannik Jadot, from the Greens, says that Brazil today signals a commitment to the environment, which is positive for the agreement. But he considers that it is not possible to settle for “political compromises”, given that the treaty will last decades and pass through other rulers.

Making sustainable terms binding would therefore be a guarantee against any governments with an anti-environmental agenda.

France is one of the main opponents of the deal as it stands. The country defends, among other things, the inclusion of what would be “mirror clauses”, that is, products can only enter the EU if they follow the same conditions that the bloc imposes internally.

This is a particularly delicate point for Brazilian agriculture. Not only because of the issue of deforestation but, above all, because of pesticides.

During the Bolsonaro government, hundreds of pesticides were authorized. Many of them are not allowed in other countries.

What some MEPs argue is that it makes no sense —and the agreement must include this— to buy goods from Brazil that were produced with substances completely banned in Europe.

But the rigidity of the environmental rule is not unanimous among MEPs. There are those who find it desirable that the EU be flexible in order to conclude the agreement soon.

In an interview with SheetJosé Manuel Fernandes said that both blocks must have common sense, as they are seeking the same objectives.

Does Europe want to close the deal or not?

Nor is this the only divergence among Europeans. The EU is far from having a heterogeneous position on the terms of the agreement.

The agricultural sector —which has a lot of political strength— fears that more South American products will enter the local market. In addition to protectionist interests, there is the claim that production standards are less rigid and, therefore, goods cost less.

Fernandes, however, says that some political wings use environmental pretexts to create obstacles. The underlying interest would be to make the conclusion of the treaty with Mercosur unfeasible.

According to MEPs involved in the discussion, the issue is not popular among voters, environmentalists and agro. The main support would come from the industrial sector, which wants access to new markets.

Is it possible to reopen the deal?

Another divergence is in relation to the possibility of reopening the agreement. In the opinion of members of the Brazilian government, the side letter already configures a reopening of the treaty – even if not in a formal way.

European parliamentarians disagree. For Jadot, from the Greens, it is not even a side letter, but a term that explains how the agreement should be interpreted.

Despite this, the MEP is in favor of reopening negotiations to reach a more up-to-date understanding of the agreement, which he calls a “dinosaur”.

According to him, the renegotiation would be important even for Brazil, since the agreement makes no mention of the reindustrialization of the Mercosur countries.

“If the Germans are so anxious about this agreement, it’s because they need to export, because they have a problem with Russia, they have a problem with China. So they want to have new markets. If they want new markets in Latin America, it’s not for for Brazil to produce cars, it is for the Germans to export cars to Brazil”, he says.

Is it possible to conclude the agreement this year?

Both European and Brazilian leaders agree that there is a window of opportunity for the treaty to close in 2023.

The Portuguese MEP says it is difficult, but possible and desirable. The French parliamentarian is betting that the European Commission will finalize the agreement this year, but with little sustainable ambition.

The official conclusion, however, he considers impossible to happen so soon. “It won’t be ratified this year for sure,” he says. “Once the agreement is signed, there’s legal scrutiny. You have to check every word in legal terms,” ​​he adds.

Even so, Jadot thinks the agreement will not be ratified in parliament. While unanimity is not required, the text is unlikely to pass without the consent of France, the bloc’s second-largest economy.

“I think that the Commission will try to make a compromise with Mercosur, but it will not be enough for the Council and for Parliament, because of the sustainable aspects. It is my bet”

He cites that, in 2020, the EU concluded an agreement with China on investments, which was not approved by Parliament.

With AFP