After arduous negotiations between the European Commission, headed by Ursula von der Leyen, and the Mercosur group consisting of Brazil, Argentina, Paraguay and Uruguay, a joint declaration was reached, and the curtain rose on Friday, December 6th of this year, on the sixty-fifth summit of the Mercosur in Montevideo, Uruguay.
Despite the opposition of some members of the European Union, the European Commission clung to the necessity of ratifying the free trade agreement with the group, in light of the geostrategic transformations known to the world, the most important of which is the rise of Trump and the right-wing Republican Party to power in the United States of America, and his threat to raise customs duties on the Union’s imports. The European Union, considering that the primary beneficiary of the trade agreements linking the United States of America with the European Union, is the latter.
This is at a time when the world is moving to strengthen the components of the green economy and renewable energy sources, such as green hydrogen, plant-based bioenergy, and others.
Countries around the world are also working to search for the raw materials necessary to develop their industry, and the four Mercosur countries are considered an important source of these materials, which is what makes many countries salivate, including the twenty-seven countries of the European Union.
Negotiation path
Negotiations between the two parties began in 1999, and twenty years later, the text of the agreement was agreed upon on June 28, 2019. In 2022, an annex was agreed upon to clarify additional ambiguous points.
After that, experts from both parties continued to review the document from a legal and technical perspective, despite France’s opposition, which claims that completing this process will cause huge losses to the agricultural and livestock sector.
The European Commission, which has always had a different position, is striving to complete this path, as the volume of trade exchanges with this market will be increased after the cancellation of approximately 90%.% of customs duties between Mercosur and the European Union, at a time when it is expected that new customs taxes will be imposed in the United States of America on exports from EU countries.
The Executive Board of the European Commission had recommended strengthening negotiations with the Mercosur countries in order to reach an agreement before the end of this year, especially after an agreement was reached by the G20 regarding issues that were pending during the last meeting.
The Montevideo Summit in Uruguay of the Mercosur countries at the beginning of this month, December 2024, represented an opportunity to resolve the negotiating process that lasted more than two decades. However, members of the French government, Parliament with its majority, and most of the political spectrum in the country have expressed their opposition to concluding this agreement, but the European Executive Body considers the issue of reaching an agreement a strategic necessity, and it is a proposal that is recommended by two of the largest European economies – Spain and Germany.
Federico Steinberg, a researcher at the Royal Elcano Institute, believes that circumstances have changed in recent years, as we are currently facing opportunities presented by the geopolitical situation and the willingness of the parties concerned to sign the agreement.
As Steinberg explains to the Spanish newspaper Cinco Dias, which specializes in economic affairs: “No single country can use its veto against European trade policy, and this is what we saw recently when Germany opposed imposing customs duties on Chinese electric cars. The decision was made.” With a majority in the European Union Council, despite France’s opposition, it is possible to move forward, according to the expert.
The economic importance of the agreement
The European Commission sees the trade agreement with the Mercosur countries as a historic transformation, as it will be the first trade agreement of this importance and symbolism, linking the European Union to this important trade pole, which represents about a fifth of the global economy.
This agreement will enable the generation of 50,000 million euros from total imports and exports. It is also considered a strategic and economic partnership for two geographical areas with a population of 700 million people. It will work to create new opportunities for both parties, while increasing the competitiveness of European Union countries’ enterprises.
In the same context, the Commission emphasizes that this trade partnership will raise the gross domestic product of the Union countries to 15,000 million euros. And 11,400 million euros for the Mercosur countries.
It will enable the Union countries to invest in South American countries and benefit from the necessary raw materials. To develop modern industries, and link the economies of the Mercosur countries with the European economy, which is looking for alternatives after the United States of America threatened to raise customs duties on the Union’s imports, according to statements by one of the executive deputies of Ursula von der Leyen, President of the Union Commission, Mr. Valdis Dombrovskis, on a recent visit to Brazil. It is considered one of the countries most enthusiastic about the agreement in years.
Brussels believes that this agreement will enhance the economic security of the European region in a world witnessing increasing divisions. As the turbulent geopolitical conditions highlight the importance of securing trade agreements with reliable partners, agreements that actually contribute to protecting vital supply chains from fluctuations, and reducing dependence on parties that may make decisions harmful to the interests of the Union, while ensuring access to the necessary basic raw materials and vital imports for developing industries. Ambitious European countries, and strengthening supply chains in order to increase the European economy’s ability to withstand, in the context of an international economy with no known outcomes.
Also, the European Commission considers that reducing high customs duties in Mercosur will significantly enhance the competitiveness of European companies in the markets of the group countries, which will open new horizons for multiple sectors. This will allow exporters from the European Union to save more than 4 billion euros annually.
In the same context, the flow of business operations for European exporters will increase for more than 26,000 small and medium-sized companies in the European Union that currently export to Mercosur countries.
European companies will also be able to participate in the bidding process and compete in public tenders for supplies or to meet the needs of the public sector within the framework of public contracts for the Mercosur countries, which was previously only available to local companies.
Agreement challenges
Farmers went out to protest the signing of the agreement, not only the French, but also in Spain. For example, some farmers’ unions demonstrated against the potential impact that imports of products from South America may have on their economic activity. Under the pretext that goods coming from Mercosur countries do not respect European health standards, which will inevitably harm the competitiveness of European companies. This is the same thing that prompted farmers from other European countries, such as Poland and Austria.
A recent study by the European Union Commission expected an increase in imports from Mercosur countries towards EU countries that could reach about 1,800 million euros by 2032, with a particular focus on agricultural products and meat.
For example, the study indicates that by 2032, the European Union will import rice from Mercosur worth up to 152 million euros, which would constitute 10% Of the European Union’s rice imports, sugar imports will rise to reach 114 million euros. Which will negatively affect the European Union’s trade balance with this bloc.
But in return, the Union countries will have a large share of the market in other sectors such as fruits, vegetable oils, and alcoholic beverages.
The study also indicates that the implementation of 10 free trade agreements negotiated by the European Union will raise beef imports to 529 million euros, an increase of 24 million euros.%Taking into account that Mercosur is the main exporter of this product, that is, it earns about 432 million euros.
Accordingly, the prices of European products are expected to decline by about 2.4%%And production will decrease by about 0.9%. According to the same study, total imports of poultry meat may rise by up to 28.3%That is, about 260 million euro From the Mercosur countries to the Union.
Many experts believe that the nature of the agreement is political, meaning that the agreement linearly needs the parliamentary ratification of the Mercosur countries, and the consensus of the economic ministers within the European Union Council, which shares legislative jurisdiction with the European Parliament, before it is presented to the latter for ratification.
Even after the agreement enters into force, we will have to ratify the national parliaments of the twenty-seven countries in order to complete the course of legal procedures. It goes without saying that some EU countries are suffering from a state of turmoil, such as the overthrow of Michel Barnier’s government in France, supported by President Emmanuel Macron, the strong opposition to the Georgia Meloni government in Italy, and the opposition of environmentalists to the Italian government’s directions.
All of these factors may contribute to obstructing the legal and regulatory steps necessary to secure the implementation of the agreement, but obstructing the process of this legal implementation of the agreement requires 35% of the total countries of the Union, and 45% of its total population, which is difficult to achieve.
The opinions expressed in the article do not necessarily reflect the editorial position of Al Jazeera Network.