AN EU-MERCOSUR TRADE PACT ? IS IT FEASIBLE?

Brazil wants to strengthen commercial and political linkages with the European Union. The priority with Europe is to finalize a stalled trade pact between the EU and Mercosur (a bloc comprised of Argentina, Brazil, Paraguay, Uruguay, and Venezuela representing a market of 291 million people). One of the main difficulties in advancing an EU-Mercosur deal has been Argentina’s isolationist position on international trade. Throughout 2014, Mercosur countries hotly debated ways to move forward together. Germany is interested in deepening trade ties with Brazil and is committed to accelerating the EU-Mercosur trade negotiations.

Brazil has set a proactive Atlantic agenda centered on trade facilitation, regulatory convergence, and an EU-Mercosur trade pact. As Brazil continues to explore and define its role on the international stage, exercising the soft power of agenda-setting appears to be emerging as one of its primary tools. Brazil is, of course, seeking domestic gains from these moves. But in helping to frame and advance the trade agenda both globally and in the Atlantic, Brazil is stepping forward in a leadership role.

Mercosur Negotiations

Negotiations in Mercosur, differently from the EU, are first of all, among its Member States, as common institutions are still weak, with Brazil (70% of Mercosur GDP) as the negotiations leader. Secondly, Mercosur negotiations also take place between each national government and its constituents. The main locking point was the Argentinian industry sector, which fears losing the lucrative Brazilian market to cheaper more competitive products from the EU. Argentina´s new measures to protect its industry have been brought to the World Trade Organization by the EU, delaying AA negotiations.

Mercosur lacks a supranational coordination power and there is no certainty that the AA would be ratified by its Member States parliaments.

On the EU side, the new Commission and the subsequent changes in the negotiation team, together with the new European Parliament, will likely pose difficulties in negotiations. Some experts show uncertainty regarding the ability of the Commission to prepare a proposal for agricultural liberalisation that is attractive to Mercosur. Others highlight the renewed pressure that the EU is experiencing as the US is signing FTAs with other Latin American countries. The EU fears the emergence of a US-pan American bloc meaning a loss of opportunity in opening access for European products to Southern Cone markets. Therefore, EU’s interest in concluding the AA with Mercosur has increased. Plus, this AA is in line with EU’s foreign policy goal of constructing a multi-polar world, with emphasis on regional integration.

Mercosur needs this agreement more than ever: the end of the GSP threats several of its exports to the EU. The AA will remove tariffs again, and this time permanently. Plus, Mercosur risks of being more and more commercially isolated due to the dynamic Alliance of the Pacific competition and the signature of FTA between the U.S. and other Latin American states.

The EU also needs this agreement to boost its exports and keep on reactivating its economy. With a positive commercial balance of trade with Mercosur, it is easier than ever to reduce tariffs to their goods and services.

With increased interests and the most important locking points reduced or eliminated, the chances of finally signing this AA seem high. Calculations done by the Commission and the Brazilian Ministry of Foreign Trade estimate a free trade gain of € 9 billion € (4.5 per partner). The cost of no agreement is bigger than ever. Now it is urgent to set a date for the exchange of market access offers.