EU, Mercosur Exchange Offers, Amid Brazil Political Turmoil

19 May 2016

The EU and Mercosur exchanged offers on goods and services in their trade talks last week, in an effort to give new momentum to the long-running negotiations. The move comes amid a turbulent political situation in Brazil, which has raised concerns over the potential broader implications for the region and beyond.

“Both sides remain fully committed to this negotiation, in view of the important economic and political gains expected for both sides from a comprehensive, ambitious, and balanced EU-Mercosur Association Agreement,” the two blocs said in a brief communiqué released on 11 May.

They also pledged to hold a meeting at chief negotiators’ level before the summer break, during which time they will attempt to chart a path forward for the second half of 2016.

The 11 May offers swap was the first such exchange between the two sides since 2004, when the talks stalled. (See Bridges Weekly, 6 October 2004) The EU-Mercosur talks originally began in 1999, as part of a larger effort to launch a region-to-region Association Agreement between the two sides.

While re-booted in 2010, progress in recent years has been limited, with no negotiating rounds held since late 2012. (See Bridges Weekly, 19 May 2010 and 31 October 2012

Agriculture controversy

In the weeks leading up to the exchange, farmers from various EU member states have openly pushed back against the resumption of talks, warning the 28-nation bloc’s trade officials against including certain sensitive agricultural goods – such as beef and ethanol – in their exchange with the South American customs union.

Agriculture has long been a sticking point in the bilateral negotiations, and was faulted for earlier negotiating breakdowns. Despite multiple reports that these goods were set to be omitted from the EU offer, Uruguay foreign affairs minister Rodolfo Nin Novoa told reporters that beef and ethanol ultimately were included in the offers exchanged last week, noting that the volumes of both will be subject to negotiation further down the road.

Those EU member states warning against the inclusion of those goods have argued, among other concerns, that a better understanding is needed on the ramifications of keeping these products in a final deal, given that the South American countries involved are major exporters of both.

Industry groups from both sides have also publicly weighed in on the subject in recent weeks, each urging revisions to the content of the 11 May offers.

“We congratulate the negotiating teams from both parts of the Atlantic for this great achievement, but we would like to express our profound disappointment with the exclusion of sugar and ethanol from the EU offer,” said UNICA, the Brazilian Sugarcane Industry Association, in a 12 May position paper.

The group argued that excluding ethanol would go against the EU’s own climate goals, particularly in moving the transport sector away from using carbon-intensive fuels, and suggested that the European bloc incorporate duty-free quotas for Mercosur-produced sugar and ethanol in the next offer.

Meanwhile, EU farm group Copa & Cogeca also opposed the EU’s agriculture offer, but for different reasons.

“Despite warnings from 20 EU ministers against making an offer on agriculture which includes sensitive agriculture products in the free trade talks, the Commission has gone ahead with the move,” said Copa & Cogeca Secretary-General Pekka Pesonen in a statement.

The EU farm organisation also suggested that the Mercosur bloc already exports significant quantities of beef and poultry meat to the European Union, and therefore do not need additional tariff-rate quotas. Other questions raised by the group included the level of environmental and quality standards for those goods.

Brazil upheaval

Meanwhile, the continued political turmoil in Brazil, the largest economy in the Mercosur bloc, has sparked questions over what this will mean for both the region as well as for the group’s foreign trade policies.

A majority in the country’s Senate backed the impeachment of President Dilma Rousseff late last week, prompting her immediate removal from office for the next six months so she can stand trial. In the interim, Vice President Michel Temer has taken her place.

What implications the impeachment of Rousseff could have for the EU-Mercosur talks has been raised by some officials, including Uruguayan foreign minister Rodolfo Nin Novoa, who told the EFE news agency last week that it could “effect some change” in the ongoing negotiations.

If so, it would not be the first time in recent years that political upheaval in the Southern Cone has affected the pace of the talks. In 2012, the impeachment of then-president Fernando Lugo lead to Paraguay being suspended temporarily from the Southern Cone grouping, while paving the way for Venezuela’s entry. (See Bridges Weekly, 31 October 2012)

Nin Novoa stressed, however, that “the structure of the offer does not change, and to the contrary, I think that all of our countries will try to improve it and attempt to gain benefits so as to defend our regional interests,” noting also that there are political problems underway in some EU member states, such as the problems forming a government in Spain.

ICTSD reporting; “Majority in Brazil Senate Backs Rousseff Impeachment,” BLOOMBERG, 12 May 2016; “Nin Novoa: situation en Brasil puede afectar negociación Mercosur-UE,” EL PAÍS, 12 May 2016; “France leads EU revolt against Mercosur trade talks,” FINANCIAL TIMES, 5 May 2016; “A beef with Mercosur,” POLITICO, 6 May 2016.

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