Why the Europe-South America trade deal is controversial

The European Union’s major trade deal with South America’s Mercosur bloc is widely considered to be highly controversial, with EU member states divided over its terms and many countries offering new incentives to farmers. We are concerned that there may be a spark.

After 25 years of negotiations, the EU and five South American countries (Brazil, Argentina, Uruguay, Paraguay and now Bolivia) signed a landmark trade deal on December 6, creating one of the world’s largest free trade areas. Preparations were made.

The Transatlantic Partnership is estimated to cover an area of ​​more than 700 million people and represent approximately 20% of the world’s gross domestic product.

The deal, which aims to boost trade between the two blocs by reducing tariffs on a range of items, currently requires approval by the EU Parliament and a qualified majority of 15 member states.

Analysts expect the ratification process to be rocky, with farmers and some EU member states warning it could create unfair competition for European agriculture.

France, the eurozone’s second-largest economy, is strongly opposed, while countries including Poland, Italy, Austria and the Netherlands are all reluctant.

Germany, which is strongly in favor of the deal, is among 10 other member states calling on European Commission President Ursula von der Leyen to quickly ratify the final terms.

“I think the first thing we need to do is be cautious about the fact that we’ve been here before,” Mariano Machado, principal analyst for the Americas at Verisk Maplecroft, told CNBC in a video call. he said.

The EU and Mercosur bloc originally signed a draft trade agreement in June 2019, but progress was delayed until early this month amid mounting political and environmental issues. These headwinds include expected increases in pesticide use, the prospect of further biodiversity loss, concerns about the rate of deforestation in the Amazon, and human rights concerns regarding indigenous peoples.

Machado said France’s tacit rejection of the deal had evolved over the past nearly six years into “an active attempt to simply tear it up.”

In this regard, Machado said the EU’s von der Leyen had won a monumental victory by “slipping through the cracks” of France’s political turmoil and making it “increasingly difficult” for Paris to oppose the deal. He said he got it.

“It’s much more expensive to withdraw a piece of paper than an idea,” Machado said, adding that France was unlikely to succeed in spearheading a blocking minority.

A French Foreign Ministry spokesperson did not respond to a request for comment.

Some European governments are thought to oppose the EU-Mercosur trade deal over concerns that the partnership could boost support for domestic far-right parties ahead of elections in 2025.

Alberto Rizzi, a policy researcher at the European Council on Foreign Relations think tank, said: “Capitals opposed to the deal are trying to build a coalition that could prevent the council from reaching the required qualified majority.” .

He added: “It would cause enormous economic and political damage to the EU at a time when it has little room to stop it.” “European governments cannot fail this test of unity and strength to appease opponents such as Europe’s farmers and potential far-right voters.”

Food and agricultural products make up the largest share of EU imports from Brazil, Argentina and other Mercosur countries, with analysts at Dutch bank ING predicting that total imports of these items could reach €23 billion in 2023. 24.13 billion).

Analysts at ING said in a research report released earlier this month that the deal would combine higher import quotas and lower or eliminate tariffs on products such as beef, chicken, sugar beets and soybeans, thereby increasing the potential for trade between the two regions. It is expected that trade growth will be stimulated.

This has caused frustration among EU farmers, especially since Mercosur farmers can operate at lower costs.

For example, on December 12, farmers in southwestern France erected a wall made of 578 hay bales during a demonstration on the streets of Auch Toulouse, each representing a French member of the 577-seat French parliament. And one more bale is said to represent members of the French Parliament. French President Emmanuel Macron, according to media reports.

The disruption was carried out to protest the EU-Mercosur trade deal, among other domestic issues.

Environmentalists have also sounded the alarm about the potential for increased trade in agricultural products, citing a potential influx of EU food imports in exchange for increased EU exports of cars, plastics and pesticides.

“A green annex cannot solve this inherently bad agreement,” Laura Restrepo Alameda of the Climate Action Network Latin America said on December 6.

“It was created to facilitate trade in products that cause deforestation, land grabbing, heavy use of pesticides, carbon emissions and human rights violations,” she added.

In response to a request for comment from CNBC, European Commission Spokesman Olof Gil said the EU’s approach to the deal was to ensure that “trade agreements effectively advance global climate action and foster economic cooperation and environmental responsibility.” It’s an example of how to connect.”

Mr Gill cited the introduction of modern trade and sustainability standards and the inclusion of the landmark Paris Agreement as “essential elements” of the agreement.

“This strengthens the role of trade agreements in supporting climate goals by allowing the EU to suspend the Paris Agreement if its standards are not respected,” Gill told CNBC in an email. told.

Analysts told CNBC earlier this month that while lithium’s strategic importance likely played a big role in the trade deal, lower auto tariffs also provided much-needed economic boost for Europe’s struggling auto industry. He said it was being touted as a stimulus package.

Lithium, also known as “white gold” due to its bright color and high market value, is seen as a key element in the global transition away from fossil fuels.

Mercosur countries such as Argentina, Bolivia and Brazil have large lithium reserves, and the EU’s demand for this critical raw material is expected to increase significantly.

Elizabeth Johnson, head of Brazil research at economic consultancy TS Lombard, said Brazil is likely to be one of the deal’s biggest winners.

“The country already accounts for around 80% of all Mercosur exports to the EU, and Mercosur is now Brazil’s second-largest trading partner,” Johnson said in a research note published Dec. 11. mentioned in.

He added: “Brazilian politicians hope that this agreement will help expand Brazil’s export base, including new products, and strengthen European investment in Brazil, especially in the energy transition sector. There is,” he added.