Why Europe’s trade deal with South America is so controversial

The European Union blockbuster trade deal with the Mercosur bloc of South America is widely considered to be very controversial, with EU member states divided on its terms and very attentive to another. farmer’s fire point.

After 25 years of talks, the EU and five South American countries – Brazil, Argentina, Uruguay, Paraguay and, recently, Bolivia – signed a reference trade agreement on December 6, which sets the stage for one of the world’s largest trade areas.

The transatlantic partnership is estimated to cover an area of ​​more than 700 million people and represents about 20% of the global gross domestic product.

The agreement, which is designed to facilitate trade between the two blocs by lowering tariffs on a range of products, now needs the approval of the EU Parliament and a qualified majority of 15 member states.

Analysts expect a slow ratification process, with farmers and some EU member states warning that it could create unfair competition for European agriculture.

France, the second largest economy in the euro zone, is vehemently opposeswhile countries such as Poland, Italy, Austria and the Netherlands have expressed reservations.

Germany, which is strongly in favor of a deal, is part of a bloc of 10 other member states asking European Commission President Ursula von der Leyen to quickly ratify the final terms.

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

The EU bloc and Mercosur initially signed a draft trade agreement in June 2019, only for progress to be sustained until the beginning of the month amid a litany of political and environmental issues. Some of these headwinds include an expected increase in the use of pesticides and the prospect of further loss of biodiversity, concerns about the rate of deforestation in the Amazon and human rights related to indigenous groups.

Machado said France’s tacit rejection of the deal has evolved over the past nearly six years into “proactive attempts to throw the deal under the bus.”

In this sense, Machado said that the EU’s von der Leyen had secured a monumental victory by “squeezing between the cracks” The French political agitation and makes it “increasingly difficult” for Paris to oppose the deal.

“It is much more expensive to return a piece of paper than an idea,” said Machado, adding that it seems unlikely that France will be able to successfully lead a blocking minority.

A spokesman for France’s Foreign Ministry did not respond to a request for comment.

“Capitals opposing the deal are trying to build a coalition that could prevent the board from reaching the necessary qualified majority.” he said Alberto Rizzi, a policy fellow at the European Council on Foreign Relations, a think tank.

“The blockade comes with enormous economic and political damage to the EU at a time when it can barely afford it,” he continued. “European governments cannot fail this test of unity and strength to appease opponents, such as European farmers and potential far-right voters.”

Food and agricultural products account for the majority of EU imports from Brazil, Argentina and other Mercosur countries, with analysts from the Dutch bank ING. estimate these items reached a total import value of 23 billion euros ($24.13 billion) in 2023.

In a research note published earlier this month, ING analysts said the deal is expected to facilitate trade growth between the two regions, citing a mix of higher import quotas and lower tariffs or eliminated on products such as beef, poultry, sugar and soy.

This is the seed of discontent among EU farmers, especially because their Mercosur counterparts can operate at lower costs.

For example, farmers in southwestern France on December 12 built a wall of 578 hay bales in a demonstration on the road to Auch-Toulouse, with each bale said to represent French parliamentarians in the Parliament of the country of 577 seats, with a supplement for the parliament of the country. French President Emmanuel Macron, according to media reports.

The obstruction occurred to protest the EU-Mercosur trade agreement, along with other domestic issues.

Environmental campaigners have also raised the alarm over the potential for increased trade in agricultural products, citing the prospect of an influx of EU food imports in exchange for more EU exports of cars, plastics and pesticides.

“No greenwashed annex can solve this inherently bad deal,” Laura Restrepo Alameda from Climate Action Network Latin America, he said on the 6th of December.

“It is built to promote trade in products that drive deforestation, land grabbing, massive pesticide use, carbon emissions and human rights violations,” he added.

In response to a request for comment from CNBC, EU Commission spokesman Olof Gill said the bloc’s approach to the deal “exemplifies how trade agreements can effectively advance climate efforts global, linking economic collaboration with environmental responsibility”.

Gill cited the incorporation of the latest business and sustainability standards and the inclusion of the benchmark Paris Agreement as an “essential element” of the agreement.

“This will allow the EU to suspend the agreement if the standards of the Paris Agreement are not met, strengthening the role of trade agreements in supporting climate goals,” Gill told CNBC for email.

Analysts told CNBC earlier this month that the strategic importance of lithium probably played a major role in the trade agreement, while a reduction in car fare it was also presented as a much-needed boost for Europe ailing automobile industry.

Lithium, sometimes called “white gold” due to its light color and high market value, it is considered as a critical component in the global shift away from fossil fuels.

Mercosur countries such as Argentina, Bolivia and Brazil hold large reserves of lithium, at a time when the EU’s demand for this critical raw material is projected to increase substantially.

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

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

“Brazilian politicians hope that the agreement will help expand Brazil’s export base to include new products and strengthen European investments in Brazil, especially in the energy transition segment,” he added.