Why Europe’s trade deal with South America is so 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) have signed an agreement. landmark A trade agreement was signed on December 6, setting the stage for the creation of one of the world’s largest free trade zones.

A transatlantic partnership Estimation It covers an area with a population of over 700 million people and accounts for 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 second largest economy in the euro area, vehemently opposedMeanwhile, countries such as Poland, Italy, Austria and the Netherlands have all expressed reservations.

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.

Initially the EU and Mercosur signed a draft trade agreement It was announced 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.

“Capitals opposed to the deal are seeking to form a coalition government, which could prevent parliament from reaching the necessary qualified majority.” said Alberto Rizzi is a policy researcher at the European Council on Foreign Relations think tank.

“To block it would cause huge economic and political damage at a time when the EU has little economic capacity,” he continued. “European governments cannot fail this test of unity and strength to appease opponents such as Europe’s farmers and potential far-right voters.”

Analysts at Dutch bank ING say food and agricultural products make up the largest portion of EU imports from Brazil, Argentina and other Mercosur countries. estimate Total imports of these items reached 23 billion euros ($24.13 billion) in 2023.

Analysts at ING said in a research report released earlier this month that the deal would combine increased import quotas with lower or eliminated tariffs on products such as beef, poultry, sugar beets and soybeans, resulting in stronger trade-offs 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, farmers in southwestern France erected a wall made of 578 hay bales during a demonstration on the streets of Auch Toulouse on December 12th, 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 deal,” said Laura Restrepo Alameda of the Climate Action Network Latin America. said December 6th.

“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 Spokesperson 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 lithium’s strategic importance: While it likely played a key role in trade deals, lower car tariffs have also been touted as a much-needed boost for Europe’s struggling car industry.

Lithium is also called “white gold” because of its bright color and high market value. considered 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.