Where Europe-South America Relations Go From Here


Nearly a quarter of a century ago, in June 1999, heads of state and government from the European Union gathered with their Latin American and Caribbean counterparts in Rio de Janeiro for their first interregional summit. To great fanfare, the delegates established a strategic partnership. They also began negotiations on a trade agreement between the EU and Mercosur, the South American customs union of Brazil, Argentina, Paraguay, and Uruguay. A World Trade Organization (WTO) report published a year later confidently predicted that talks would be concluded by 2005.

Nearly a quarter of a century ago, in June 1999, heads of state and government from the European Union gathered with their Latin American and Caribbean counterparts in Rio de Janeiro for their first interregional summit. To great fanfare, the delegates established a strategic partnership. They also began negotiations on a trade agreement between the EU and Mercosur, the South American customs union of Brazil, Argentina, Paraguay, and Uruguay. A World Trade Organization (WTO) report published a year later confidently predicted that talks would be concluded by 2005.

Yet the summit did not lead to closer ties between the two regions. Although EU companies make up the biggest share of foreign investment in Mercosur countries, an EU-Mercosur deal was never ratified and the EU’s influence in Mercosur countries has declined significantly over the past two and a half decades—particularly when compared to that of China and the United States.

Take Brazil, Latin America’s largest economy. While trade between Brazil and the EU grew in absolute numbers over the years, the EU’s share of Brazil’s overall trading portfolio became smaller. In 2000, the EU still absorbed 28 percent of Brazilian exports, a number that fell to 24 percent in 2007 and 16 percent in 2019. Similarly, Brazil’s share of the EU’s overall trade sunk from nearly 2 percent of EU imports and exports in 2000 to 1.6 percent by 2021.

China, by comparison, was an insignificant trade partner of Brazil’s at the turn of the century. Yet today, roughly 30 percent of Brazil’s exports go to China—more than to the EU and the United States combined. China’s influence in South America has expanded in other ways, too. Brazil in 2009 became a founding member of the Beijing-led BRIC grouping (called BRICS since South Africa’s accession a year later), while Argentina joined China’s Belt and Road Initiative in 2022. (Though Brazil’s total exports to the United States also declined significantly—from nearly 25 percent in 2000 to around 11 percent in 2021—Washington has been able to retain influence in Brasília due to its leading geopolitical role in the Western Hemisphere.)

To correct course, Mercosur and EU countries sought to agree on a final version of the long-awaited trade deal in late 2023 before moving on to ratification in national parliaments. Yet negotiations failed, very possibly for good. Now, Europe and South America are likely to drift further apart—particularly as Mercosur countries’ ties to China deepen. Esteban Actis, who teaches international relations at the National University of Rosario in Argentina, described the Mercosur-EU deal as “[t]he costliest (non)agreement in history” in a post on X.

Trade negotiations between the EU and Mercosur in 1999 began under a center-right government in Brazil. But when power switched hands to the rival Workers’ Party from 2003 to 2016—under the first and second presidencies of Luiz Inácio Lula da Silva and then his successor, Dilma Rousseff—Mercosur became largely uninterested in advancing trade negotiations with Europe, or anyone else. Brazil and Argentina saw free trade deals with blocs like the EU as a risk to their highly protected domestic industries.

Things changed after Rousseff was impeached in 2016 and the more economically liberal Michel Temer government came to power in Brazil. The year prior, the equally pro-market Mauricio Macri had won elections in Argentina, allowing negotiations with the EU to restart.

Three years later, in June 2019, almost exactly 20 years after that initial summit in Rio de Janeiro, there seemed to be a flicker of hope that the deal could be revived. The EU and Mercosur reached an agreement in principle, leaving ratification by the European Parliament and EU member countries’ legislatures as the final remaining hurdle.

The deal would create the world’s largest free trade area, with almost 780 million people and more than $120 billion in trade in 2022. Over 90 percent of tariffs would be abolished, providing companies from both the EU and Mercosur unprecedented access to each other’s markets. The agreement was expected to lead to an increase of approximately 15 percent in the combined trade flows of Mercosur countries and to additional GDP growth of between 0.3 and 0.7 percent of the South American bloc over time.

The agreement was also intended to foster rapprochement between the two blocs on matters such as public procurement, intellectual property, and environmental safeguards. Ratification would strengthen both the EU and Mercosur: Substantiating the EU’s claim to be a “trading superpower” and reversing the EU’s declining relevance in South America, while also assuring the continued existence of Mercosur.

Perhaps most importantly, the deal would have produced significant geopolitical benefits for both blocs as the EU and Mercosur countries sought to diversify partnerships amid growing U.S.-China tensions and broader global instability. For countries like Brazil, strengthened ties to Europe would have bolstered its strategy of multi-alignment and increased Brasília’s leverage in negotiating with Washington and Beijing. These strategic considerations are likely what led Lula to reverse course from his earlier tenures in office and voice support for concluding the EU-Mercosur deal during the first year of his third presidency—by the end of 2023.

But powerful interest groups—mostly in Europe—began to mobilize to prevent the deal from being ratified in national parliaments across the continent. French President Emmanuel Macron had repeatedly expressed his skepticism regarding the deal, rooted largely in opposition from powerful French agribusiness; other countries, such as Germany, strongly favored ratification. Several national parliaments stated that they would not ratify the agreement—likely with an eye to public opinion. Countless civil society organizations, especially environmental groups, pressured policymakers to oppose the deal, often arguing that it would abet environmental destruction in the Amazon, deepen inequality, and mostly serve corporate interests.

The EU’s new Deforestation Regulation also complicated matters. The rule bans commodities from deforested areas from being imported into the bloc and required adjusting the trade deal to incorporate countries’ targets under the Paris Agreement. The modification process deepened a perception among Mercosur governments that Europe was using environmental concerns as a pretext for blocking ratification of the agreement. These environmental disagreements were a major point of contention in the deal’s later stages.

Still, the past few months seemed to be a unique window of opportunity to reach an adjusted agreement that could expedite ratification—in part because the countries holding the EU and Mercosur presidencies, Spain and Brazil, respectively, were supportive of it. Time also seemed to be running out: Paraguayan President Santiago Peña, who took over Mercosur’s rotating presidency in December from Brazil, had made clear that he would end trade talks with Brussels if the deal had not been agreed upon during Brazil’s presidency. In addition, Javier Milei’s inauguration as president in Argentina—as well as this year’s European Parliament elections—were largely seen as roadblocks to ratification. (In a pragmatic shift, Milei—who previously bashed Mercosur—announced after his Nov. 19, 2023, election victory that he was in favor of a trade agreement.)

Yet in the end, both Macron and outgoing Argentine President Alberto Fernández—who said he did not want to deliver an accomplishment to Milei—publicly voiced their opposition to moving forward with the deal. It became clear there would be no agreement, leading the EU’s trade commissioner to cancel his trip to Brazil. The Rio summit was thus anticlimactic, leaving Lula empty-handed—and Mercosur’s future in doubt.

Policymakers involved in the negotiations have refused to publicly recognize that negotiations are—for all intents and purposes—over. “We still hope to sign the deal,” Brazil’s foreign minister said on Dec. 4, 2023. But behind closed doors, policymakers recognize it is necessary to reimagine EU-Mercosur ties in the context of non-ratification. That means accepting that the two blocs are likely to become less geopolitically relevant to each other—and that the EU may not be the best vehicle for European countries keen on strengthening ties to South America, which may be better served using bilateral avenues.

Decades of unsuccessful negotiations have strained ties between the EU and Mercosur countries. “Nobody can take it anymore,” Lula said last year, expressing the deep frustration and impatience the decades-long negotiations have caused. Across both blocs, leaders have turned to finger pointing. Fernández blamed “resistance from Europe” for non-ratification, but Uruguay blamed Brazil, which blamed Argentina after the outgoing Fernández government publicly rejected the deal. Behind closed doors, German diplomats have vented their frustration about France’s opposition.

While Mercosur recently concluded a trade deal with Singapore and admitted Bolivia as a member, the future of the bloc is very much in doubt. Uruguay is already negotiating a bilateral free trade deal with China, and unless Mercosur decides to join the negotiations, ratification would effectively force Uruguay to leave the customs union, with unclear consequences for its membership in the bloc. It is equally uncertain what policies the Milei administration will pursue toward the bloc, even though Foreign Minister Diana Mondino has voiced her support for ratification.

What seems to be clear, however, is that—in failing to ratify a deal 20 years in the making—both the EU and Mercosur missed a historic opportunity to adapt to a more unstable, unpredictable, and multipolar world.



This article was originally published by a foreignpolicy.com . Read the Original article here. .