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Mercosur and EU face decisive week to save trade deal
With signing expected in Brazil this Saturday, leaders race against time to overcome French resistance and rules that hurt agribusiness.
The saga of the free trade agreement between Mercosur and the European Union (EU) is experiencing its most tense chapter. After 25 years of negotiations, the expectation is that the treaty will finally be signed this Saturday (20), in the Brazilian city of Foz do Iguaçu.
However, the handshake between the blocs is not yet guaranteed. Last-minute rules created to protect European farmers and strong political opposition from France are jeopardizing the creation of a gigantic market, which totals $22 trillion in wealth.
A decisive week for the global economy
The coming days will be a trial by fire for diplomacy. For President Lula and European Commission President Ursula von der Leyen to celebrate the deal on Saturday, complex legislative steps need to be cleared in Europe.
Check out this week’s critical agenda:
- Tuesday (16): The European Parliament votes on the safeguard mechanism (known as the “emergency brake”).
- Thursday (18): The European Council decides on the final agreement. Approval is needed from at least 15 of the bloc’s 27 countries.
- Saturday (20): If the previous steps are met, the official signing takes place during the Mercosur Summit in Brazil.
The “emergency brake” that worries Brazilian agribusiness
The biggest current obstacle is a new rule called the “safeguard mechanism.” In practice, it acts like an emergency button for Europeans.
If the European Union feels that the influx of products from South America is harming its local producers, it can suspend tax benefits and resume charging import tariffs immediately. Experts warn that this creates great uncertainty for those exporting meat, sugar, and ethanol from Brazil, as the rules of the game could change at any moment.
The division in Europe: France resists and Germany wants speed
Europe does not speak with one voice when it comes to Mercosur. The continent is divided into two main groups:
- The resistance group: Led by France, it includes countries like Poland, Italy, and Austria. They want to protect their farmers, who depend on government subsidies and fear they cannot compete with the efficiency of Brazilian agribusiness.
- The industry group: Led by Germany and supported by Spain and Sweden. They are in a hurry to close the deal to sell cars and machinery to South America and secure access to strategic raw materials.
Expectation versus reality in implementation
Even if the agreement is signed in Foz do Iguaçu, changes will not happen overnight. The bureaucracy to implement the new rules is heavy.
The text needs to be ratified (confirmed) by the parliaments of all involved countries. This means that, despite the political will to seek partners beyond the United States and China, the “real life” of trade without barriers could still take months or even years to actually begin.
What changes with the approval of the deal
If political obstacles are overcome, the economic impact will be transformative for both sides of the Atlantic. The agreement would create a consumer market of 700 million people.
The main expected benefits are:
- Cheaper products: The gradual end of taxes for 91% of products sold between the blocs.
- Technology: Brazilian industry would have easier access to modern European machinery and equipment.
- New investments: Sectors such as energy, mining, and technology would receive more foreign capital.
Resumo em Português:
A assinatura do acordo comercial entre Mercosul e União Europeia, prevista para este sábado no Brasil, depende de uma semana decisiva de votações na Europa. O maior entrave é a resistência da França e a criação de um mecanismo de salvaguarda que permite à UE taxar produtos agrícolas sul-americanos se houver prejuízo aos produtores locais. O tratado envolve um PIB combinado de US$ 22 trilhões, mas enfrenta divisões políticas profundas.
Resumen en Español:
La firma del acuerdo comercial entre Mercosur y la Unión Europea, prevista para este sábado en Brasil, depende de una semana decisiva de votaciones en Europa. El mayor obstáculo es la resistencia de Francia y la creación de un mecanismo de salvaguardia que permite a la UE gravar productos agrícolas sudamericanos si hay perjuicio a los productores locales. El tratado involucra un PIB combinado de 22 billones de dólares, pero enfrenta profundas divisiones políticas.
