Massive EU-South American free trade pact would reduce tariffs

PARIS (AP):

After more than 20 years of negotiations, the 27-nation European Union and Mercosur – a South American trade bloc of Brazil, Argentina, Paraguay, Uruguay and Bolivia – are still trying to finalise a major trade agreement that is sparking protests by European farmers.

A draft deal was announced in 2019, but disagreements over environmental, economic and political issues are delaying its final approval.

Here’s a look at the deal, why it matters, and challenges it faces.

WHAT IS THE DEAL ABOUT?

It aims to create one of the largest free-trade zones in the world, covering over 700 million people and nearly 25 per cent of global GDP. Much like the US-Mexico-Canada free-trade agreement, its goal is to reduce tariffs and trade barriers, making it easier for businesses on both sides to export goods.

For the EU, the deal would mean lower tariffs on products like cars, machinery and chemicals. Mercosur countries would benefit from better access to EU markets for agricultural exports such as beef, poultry and sugar.

Negotiations began in 1999 and an initial agreement was reached in 2019, but it remains unratified due to significant opposition, particularly from France.

European farmers, especially in France, worry that an influx of South American products would saturate their markets, undercutting local agriculture.

One year after a massive European farmers’ protest movement, another round of protests have erupted across the continent, with many claiming that reduced tariffs or duty-free quotas for South American products could be fatal for them.

For example, 99,000 tons of beef would face a reduced tariff of just 7.5 per cent, while 180,000 tons of poultry would enter duty-free. According to the European Commission, this accounts for less than two per cent of the EU’s annual beef consumption.

Livestock farmers argue they cannot compete with South American producers, who benefit from lower labour costs, larger farms and less stringent regulations on practices such as the use of growth hormones compared to EU standards.

In October, a European Commission audit found that Brazil, the world’s largest exporter of beef, cannot guarantee that its exports to the EU are free of the growth hormone “oestradiol 17-β,” which has been banned in Europe for decades.

WHO SUPPORTS IT?

Germany, Spain, Italy and Portugal are among EU countries pushing for the deal to be finalized by year’s end. Germany, in particular, sees Mercosur as a key market for its automakers.

In South America, leaders like Brazilian President Luiz Inácio Lula da Silva view the agreement as a boost for regional trade and economic growth. Countries like Uruguay and Paraguay also support the deal, hoping to diversify their trade partners and reduce reliance on China. Argentina President Javier Milei has also backed it, signalling a shift from his predecessor’s scepticism.

The deal is also backed by industries in both regions. European carmakers and pharmaceutical companies see it as a way to access Mercosur’s growing markets.

Ursula von der Leyen, president of the European Commission, has also expressed strong support, calling it “an agreement of great economic and strategic importance” — despite opposition from certain EU member states.

WHO OPPOSES IT?

France, with the biggest agriculture sector in Europe, has led opposition within the EU, along with Poland, Austria and the Netherlands. French President Emmanuel Macron has called for stronger environmental and labour standards, stating that “France would not sign the deal as is”.

France has also requested that the European Commission renegotiate the text, particularly by incorporating “mirror clauses”, which would impose identical standards on products traded between the two blocs.

However, France’s ability to block the deal is limited, as trade talks fall under the authority of the European Commission, which negotiates for the 27 member states.

Environmental groups, including Greenpeace, have also criticised the deal, warning it could accelerate deforestation in the Amazon and increase the use of harmful pesticides.

WHAT NEXT?

The Mercosur summit on December 5 and 6 in Uruguay could be a key moment for the deal. However, even if the agreement is signed, it must be ratified by all 27 EU member states, the European Parliament and all member states’ national parliaments before taking effect.

This would give France a chance to veto it.

To speed up and make approval easier, the European Commission is considering splitting the deal into two parts, a broader cooperation agreement, and a trade-focused agreement. The latter would only require a majority vote under EU rules, bypassing the need for unanimous approval.

Under this plan, France would lose its veto power unless it can gather enough support to form a blocking minority. While countries like Poland and Austria have raised objections, their combined influence falls short of the threshold needed to halt the deal.