The EU’s Mercosur trade dilemma

The Southern Common Market, also known as Mercosur, turns 30 years old today. At this important milestone, will the European Union spoil its party?

Developed after a period of dictatorships that marked the need for regional cooperation and openness, Mercosur was envisioned as a common market much like the EU. Representing nearly 300mn people and a landmass 50% larger than Europe, it has served a dual purpose: economic development and the consolidation of democracy and peace. Mercosur citizens today are free to move and work in any member state and the bloc’s name is even emblazoned in their passports.

After 20 years of negotiations, the EU-Mercosur trade agreement was a historic moment for the bloc, reported around the world as a commitment to open markets in the face of rising protectionism and an increasingly insular world. The ambitious deal involves the elimination of tariffs on most products between the two regions over a period of 15 years, with extra protections for EU commodities and terms of trade.

Despite guarantees from the Commission around equal safety standards and the enormous advantage of Common Agriculture Policy (CAP) subsidies for European farmers, EU member states with strong agricultural sectors have spearheaded opposition to the deal.

They are joined by uncommon allies like the Netherlands and Austria, who are mainly guided by environmental considerations. The 2019 Amazon wildfires rallied public opinion in support of this argument and placed the focus on the environmental policies of Brazilian President Jair Bolsonaro. The common worry is that the Mercosur deal will encourage further deforestation in the Amazon basin for agricultural production. The Commission has assured that the new Trade and Sustainable Development (TSD) chapter addresses these concerns through enforcement mechanisms and binds the signing parties to the Paris Agreement – but to little avail.

These views have their merits, but miss a key fact: the EU’s greatest tool for producing positive global change is precisely access to its markets.

The EU’s Green Deal has been a convincing domestic show of intent, but its external arm has been overlooked. Environmental studies have found that policy changes in adherence with the EU trade deal are likely to permanently improve Mercosur standards for goods destined for both European and other markets around the world. The EU needs partners for its climate strategy – scrapping the deal and disengaging from Latin America will do nothing to curb current deforestation nor will it prevent future damage.

The fires in the Amazon will not be extinguished by walking away.

Another misconception is that rebuffing the Mercosur deal will pressure the bloc to capitulate and accept the EU’s terms. Current trends point elsewhere.

China is now Mercosur’s largest trading partner both in terms of imported and exported goods, while EU and US shares have dropped. Up from a 12% stake in 2007, Mercosur now sends 30% of its products to China, almost double the EU share. This trend will continue to increase as China seeks to buttress its food security and implement a comprehensive diplomatic offensive. Brazil has already been forced to retract political restrictions on Chinese enterprises as a result of recent vaccine diplomacy efforts. Few believe that increased Chinese influence in the region would prove better for the environment.

The EU has a unique opportunity to engage with its Mercosur allies – in partnership, not submission – in a show of multilateralism.

If anything, the trade deal is a test for the EU’s global ambitions. The Mercosur region is indispensable in combatting climate change and should be involved in any effort to address the global crisis.

Europe must look beyond its political differences with the Brazilian government and take the reins of global climate policy through cooperation. This is what strategic autonomy should look like.

The EU-Mercosur agreement should be ratified, with careful monitoring of its implementation. The EU could propose certain steps to advance in this direction while simultaneously reassuring public opinion, such as drafting a political declaration on environmental commitments and technical solutions like Green Seals for meat products destined for the EU.

The Commission is said to be working with Mercosur to outline further commitments on deforestation, but too much waggling could throw the process into disarray. Talks with Malaysia over a free trade agreement have been paused since the EU was accused at the WTO of holding double standards on deforestation policies.

Mercosur, on its part, will need wide-ranging reforms to prepare its markets for EU competition. This deal could mark the bloc’s maturity as a global economic player, if handled responsibly.

What the EU-Mercosur negotiations have shown is that future trade agreements will need emphasis on environmental considerations from the get-go. The attractiveness of the European market ought to be a key driver for encouraging sustainability across the globe. Concrete and progressively implemented commitments seems to be the only durable path for the EU to reconcile its interests in open trade and environmental protection.

Nonetheless, the Mercosur trade deal is an important test of the EU’s global commitments. It will impact the debate around big issues like Europe’s agricultural sector, the future of free trade agreements and its willingness to tackle climate change. The ratification of the agreement would be more than just a birthday present to Mercosur, but of great importance to the world.