Understand why government purchases became a subject of dispute between Mercosur and the European Union

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Item is part of an agreement concluded in 2019, but members of the government defend a new discussion. Lula says he ‘doesn’t give up’ on re-discussing, and that clause could harm national companies. President Lula at the 62nd Mercosur Summit, in Argentina Ricardo Stuckert/Presidency of the Republic Holder of the Mercosur rotating presidency since the beginning of the month, President Luiz Inácio Lula da Silva (PT) said last Monday (12) that he will not give up re-discuss a central theme in the negotiations of the agreement between the bloc and the European Union: government purchases. The dilemma basically deals with the possibility that companies headquartered in Mercosur participate on an equal footing in bids in the European bloc – and vice versa. In practice, the agreement makes it difficult for governments to prioritize local companies to stimulate domestic production, for example. This Saturday (15), Lula leaves for a summit in Brussels (Belgium) that will bring together, next week, leaders of Latin American and European countries. The president will have seven bilateral meetings, and he can take the opportunity to discuss this point. The agreement between Mercosur and the European Union has been negotiated since 1999. The commercial part was concluded in 2019, and the political and cooperation parts in the following year. Since then, the process has been under review. As Brazil is in the Presidency of Mercosur and Spain is in charge of the European Union, there is an expectation between the countries that the agreement can be concluded later this year. There are still, however, some discrepancies. The European Union, for example, sent an additional document that provides for new requirements in the environmental area and possible sanctions, which was seen as a “threat” by the Brazilian government. Brazil, in turn, understands that the current version of the agreement related to government purchases may harm the national industry. In view of this, the g1 listed below a series of questions and answers on the subject: What does the part of the agreement on government procurement provide for? Will participation be unrestricted? How did the decision to re-discuss the topic come about? How could there be harm? Is the reopening of discussions a consensus in the government? Who makes the final decision? Based on the decision, what are the next steps? What is the mechanism for this? Is there a set deadline? Brazil assumes the presidency of Mercosur for the next 6 months What does the part of the agreement on government purchases foresee? This section provides that European companies will be able to participate on an equal basis in biddings in Mercosur countries and that companies from the South American bloc will be able to compete in biddings in European countries. These tenders involve, for example, the acquisition of goods, contracting services and execution of works with public funds. Will participation be unrestricted? According to government members heard by g1, no. Exceptions may be defined in which the government will be authorized to prioritize local companies. How did the decision to re-discuss the topic come about? According to sources heard by the g1, the assessment of members of the Lula government is that, as it stands, the agreement may, eventually, harm or not stimulate domestic industry. The government understands that, by being a “big buyer” in several areas, such as health, defense and agriculture, it can stimulate the development of these sectors and, consequently, the economy as a whole. And any foreign participation could harm domestic production. How could there be harm? According to these sources, the evaluation is that the health sector, for example, is stimulated by government purchases – since the government is the one who buys equipment, inputs and medicines for the Unified Health System (SUS). The example used by these sources is the production of vaccines against Covid. In 2021, the Oswaldo Cruz Foundation (Fiocruz) had to suspend the production of immunizers while awaiting the arrival of the so-called Active Pharmaceutical Ingredient, necessary for production. The API used by Fiocruz was produced in China, and the assessment of members of the Lula government is that, for example, if Brazil adopted measures to stimulate domestic industry, the technology needed to manufacture the API could avoid this type of situation. The stimulus, add these members, could happen financially, that is, through the purchase of material for vaccines. Mercosur: Lula defends a ‘rapid and forceful’ response to the agreement with the European Union Is the reopening of discussions a consensus in the government? No. According to members of the government, the perception of the economic team, such as the Planning, Agriculture and Development, Industry, Commerce and Services portfolios, the exceptions already contemplated in the agreement are sufficient to guarantee the interests of the national industry. They also understand that the eventual reopening of the discussion may further delay the closing of the agreement. On the other hand, still according to members of the government, other areas, such as the Civil House and the Ministry of Health, understand that the discussion on this topic is necessary and does not harm the agreement itself. Who makes the final decision? According to members of both sides of the government, the final word will be up to President Lula, who has already said he will not give up the discussion. “There’s one thing I’ve already said to everyone that we don’t give up on. We don’t give up on government purchases, because government purchases will be the possibility of developing medium and small entrepreneurs in this country. So we’re going to have to have a dispute”, said Lula on the 12th. Based on the decision, what are the next steps? When the president decides whether or not to propose reopening the discussion on the topic, the matter should be taken to the other members of Mercosur (Argentina, Paraguay and Uruguay). According to members of the government, if there is a consensus among the countries that the issue should be discussed again, the European Union should be informed. What is the mechanism for this? According to government sources, just as the European Union presented an additional document in the area of ​​the environment without reopening the negotiation of the agreement as a whole, it is possible that Mercosur, if it decides to discuss government purchases again, will use the same instrument. Thus, in theory, a response letter from the European Union on the subject would suffice, without other points of the agreement being discussed again. Is there a set deadline? No. The government considers it possible to finalize the trade agreement by the end of the year, but, as there is no deadline for completion, there is also no deadline for defining whether or not to discuss again the item on government purchases. Analysis: What is the future of the agreement between the European Union and Mercosur?

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