Twenty-five years in progress, the historic agreement eliminates prices on more than 90% of goods while reshaping trade links in South Europe.
A quarter of a century after the start of negotiations, Mercosur, the South American commercial block whose main members are Argentina, Bolivia, Brazil, Paraguay and Uruguay, finally signed a trade agreement with the European Union (EU). The agreement accumulates against the grain at an era of increasing protectionism and increasing department.
“This agreement is not only an economic opportunity, it is a political necessity,” said the president of the European Commission, Ursula von der Leyen, at the Mercosur summit in Montevideo in December, where the pact was signed. “I know that strong winds arrive in the opposite direction, towards isolation and fragmentation, but this agreement is our quasi-response.”
The agreement is the largest in the EU and the first in Mercosur with a large trading partner.
“European products enter [the Mercosur] Market in much better conditions than American or Japanese products, ”wrote Federico Steinberg, visiting the Center for Strategic and International Studies in Washington, DC, in an article published on December 6.
The agreement has two parts. We cover goods, services, public procurement and intellectual property, focusing on commercial issues such as prices, with particular attention to cars, agriculture and critical minerals.
“The growing uncertainties in geopolitics” have aroused interest in the minerals of the rare earths, explains Charlotte Emlinger, an economist at the Center for Pulsember Studies and International Information (CEPII) at the office of the French Prime Minister. For sensitive articles, such as beef exports to Europe, quotas put a lid on the entries.
The second part of the pact deals with broader themes, including human rights and the environment. With another EU commerce pact in 2024 with New Zealand, he innovated by referring to the Paris Agreement on Climate Change, a detail notably accepted by the Argentinian president Javier Milei, a skeptical global warming.
What is Mercosur and why is it important?
With a combined GDP of nearly 3 dollars, the four main members of Mercosur – for the “South South Market” in Spanish – would be classified as the fifth world economy. Some 300 million people live in an area of almost 15 million square kilometers. The GDP figure does not include Bolivia, which has been approved for membership but which is in a “implementation period” of four years on board.
The EU was already the second largest trading partner in Mercosur two years ago, representing 16.9% of total trade, dragging China but beating the United States, according to the European Commission. The EU exported 55.7 billion euros in Mercosur that year, with 53.7 billion euros in the other direction.
Presented as the emerging EU of the South when it was created in 1991, Mercosur has not yet changed beyond an imperfect customs union. The four originals added Venezuela in 2012 to suspend it in 2016 for violating political standards; Bolivia reached its full -fledged subscription last year. Suriname, Guyana, Colombia, Ecuador, Panama, Peru and Chile are associated states; They will not be officially affected by the EU-Mercosur agreement.
Intra-regional trade among the four founders jumped four to 16.9 billion dollars between 1990 and 1996, according to the Inter-American Development Bank, but real integration has proven to be elusive. Internal trade remained only 10.3% of the world total in 2022, according to data from the Economic Complexity Observatory, an online database.
Why now?
The Calendar of the Agreement can be linked to the EU efforts to ensure a solid and diversified trade in the face of the protectionist measures of the American president Donald Trump, the growing role of China and the disappearance of the World Trade Organization (WTO) as an effective facilitator of the integration of international trade.
“In recent years, the geopolitical situation has become more disastrous for the EU,” explains Maximiliano Marzetti, associate professor of law, Department of International Negotiation and Conflict Management, Lille Economics Management Lab in France, “with the war in Ukraine, Brexit and protectionist and aggressive policies of China and the United States. The EU needs new business partners in a climate of hostility to free trade and also to affirm its relevance on the current international multipolar scene. »»
Mercosur-EU negotiations date from further away: until 1999, during the period of “cutting-edge globalization”, but they remained at low speed until the end of the Obama administration, when the United States began to take action to weaken the World Trade Organization.
Given a toothless WTO, the bilateral and multilateral agreements have become more critical, and the EU has triggered a burst of activity. In Latin America, he added to the agreements with the Andean community (Peru, Colombia, Ecuador) and Central America (Honduras, Nicaragua, Panama, Costa Rica and El Salvador) as well as bilateral agreements with Chile and Mexico, both recently renewed.
With the new Mercosur contract, “the EU wanted to send a message to Trump”, explains Ignacio Bartesaghi, director of the Institute of International Affairs of the Catholic University of Uruguay. “We know you are going to close. We want to open.
Mercosur, for his part, needed a victory. Either he “concluded an agreement with the EU, or he would die,” says Bartesaghi.
However, all members are far from speaking with one voice.
The president of the “anarcho-capitalist” of Argentina, Javier Milei, proposed hard words for Mercosur, even though he begins a one-year stay as president of the Pro Tempore group. During a speech at the top of Mercosur, Milei described the block as “a prison that prevents member countries from taking advantage of their comparative advantages and their export potentials”.
A month later, in Davos at the annual meeting of the World Economic Forum, Milei told Bloomberg that he would abandon the Mercosur and his common external rate, which pre-fulfills secondary agreements, for an agreement with the United States. “If the extreme condition was that, yes,” he said. “However, there are mechanisms that can be used, even in Mercosur.”
Uruguay also explored an independent agreement with China. But “negotiations have never started because of Lula’s vision that Mercosur is together,” notes Bartesaghi.
These fragmentary agreements do not solve all the problems either. The bilateral agreement renewed with the EU will not solve the problems of the associate member of Mexico if it is affected by higher prices of its neighbor in the North.
“Remember that the United States represents 80% of Mexican exports and that the EU represents less than 5%,” explains Ashkan Khayami, main analyst, risk of Latin American countries at BMI, a British multinational research company. “It is not really plausible for the EU to replace the United States as the kind of main destination, or even a very important destination, for Mexican exports.”
What is the next step?
Then comes the ratification. For Mercosur, it’s simple. The legislatures must vote, but if we reluctant, the agreement will always apply to those who approve of the agreement. In Europe, however, the process is complex both bureaucratic and politically.
Before December, French farmers protest against the Mercosur agreement; A resolution against the agreement was filed in the French Parliament. Politicians in Poland, Italy and the Netherlands also raise questions. But observers tend to face this to the domestic posture.
Thanks to the quotas aforementioned for beef, for example, “it is only a hamburger per capita,” explains Bartesaghi. Paraphrasing a French familiar saying: “Mercosur is the tree that hides the forest”, quips Emlinger.
Although the EU has sovereignty over trade, other treaty problems require the approval of the Member States. Supporters can therefore try to divide the text of Mercosur into its two components, trade and others. The commercial section could probably be accelerated through the European Parliament, where it would need votes representing 65% of voters. Other sections, including environmental problems, would take the road longer and country by country.
“It is likely that the EU opts, if it can, to divide the ratification process,” explains Marzetti.