EU, Mercosur Negotiators Aim for "Endgame" in Trade Talks

7 December 2017

Negotiators from the European Union and the South American bloc Mercosur are ramping up their efforts to finalise a trade accord between them, with the hopes of announcing a political deal on the margins of the WTO’s Eleventh Ministerial Conference (MC11) in Buenos Aires, Argentina, next week.

The two coalitions have been negotiating an Association Agreement and related trade deal since 1999, though those talks later stalled over disagreements on sensitive topics such as agriculture. They rebooted negotiations in 2010, and later renewed their discussions last year. (See Bridges Weekly, 21 April 2016)

The latest round was completed on 10 November in Brasilia, Brazil, with another round currently underway through 8 December in Brussels, Belgium.

“We hope that we can exchange offers on most of the issues. Of course, we know that there are some sensitivities remaining, so we will have to see how far we get this week,” said EU Trade Commissioner Cecilia Malmström in Brussels this week, speaking during “EU Trade Policy Day” on 5 December.

Previewing the EU-Mercosur discussions in Buenos Aires at the WTO ministerial, she noted that ministers plan to “take stock [of] where we are and if we can see the skeleton of an agreement, if we can see the most sensitive issues – can we move into the very final endgame and then make an announcement of where we are.”

She also noted that the timeframe is important, given potential shifts in political dynamics, and stressing that the two sides would like to see a deal done by late this year or early next. Brazil is set to see general elections in October 2018, for example.

“We are committed to do this as soon as possible because we are almost there, because there is a momentum, because next year, if it drags on too long there will be election campaigns and you risk losing that momentum,” she added.

According to a report on the November round issued by the European Commission, the two sides made significant progress in various areas, including on the chapters involving government procurement, sanitary and phytosanitary (SPS) measures, and dispute settlement. It also noted “divergences” in various areas, which negotiators are working to whittle down in the days to come.

The planned deal would also cover areas such as rules of origin, sustainable development, services and establishment, intellectual property including geographical indications, technical barriers to trade, and an anti-fraud clause, among other topics.

However, market access, particularly on beef, ethanol, and car parts, remains among the most challenging issues to resolve, Malmström noted this week. Agriculture is a major sector for both sides, and disagreements in this area have repeatedly stymied progress in the talks in the past.

For example, some EU member states have balked at the prospect of slashing tariffs on imported beef from the Southern cone countries, which is a key ask from the latter group. Agricultural products already make up a hefty portion of Mercosur exports to Europe, along with minerals and machinery, according to European Commission statistics.

Mercosur is reportedly willing to phase out import tariffs at a faster pace in exchange for greater market access on beef, according to comments from an Argentine negotiator reported in Reuters. Automobiles also remains a challenging area, given that both sides are home to major producers of cars and car parts. Approximately 17 percent of the EU’s exports to Mercosur countries involve vehicles and their components.

Even if a political deal is announced in Buenos Aires at the WTO ministerial, there will still be other steps to finalise before an agreement can take effect – such as wrapping up any final technical or sensitive issues, translation and legal “scrubbing” of the text, signature, and ratification.

Trading relationships

Officials from both sides have said that deeper trading relationships with partners that share similar values could be a boon not only to economic growth, but also for meeting sustainable development objectives, particularly in the current geopolitical landscape where trade policy and politics have increasingly taken the spotlight.

Analysts say that the push for finalising the long-running trade talks could have a significant economic impact for both sides directly. For example, Matias Spektor, a professor of international relations at Brazil’s FGV business school, told the Bloomberg news agency that the deal could be “a game changer for economic recovery in Brazil and Argentina,” which are the two largest economies in the four-country coalition and have been hard-hit by an economic downturn in recent years.

The 28-nation EU is already Mercosur’s largest trading partner, making up one-fifth of the latter bloc’s overall trade, according to statistics published by the European Commission.

The Mercosur coalition has also been expressing growing interest in developing deeper trade ties with both regional partners, as well as those further afield.

The group has been looking at how to build a closer relationship with the Pacific Alliance, a newer coalition of Latin American countries that currently includes Chile, Colombia, Peru, and Mexico as full members, with other countries in the process of negotiating associate membership. (See Bridges Weekly, 2 November 2017 and 13 April 2017)

The EU and Chile have recently launched talks to modernise their existing trade accord, while Brussels is also in the penultimate stages of negotiating an update with Mexico City to their existing agreement. (See Bridges Weekly, 23 November 2017)

The EU has a series of other trade negotiations underway that could see significant developments in 2018,such as the expected launch of trade talks with Australia and New Zealand, respectively. The 28-nation bloc is also aiming to finalise the final sticking points in its trade agreement with Japan, having announced a political deal earlier this year. (For more on EU-Mexico, see related story, this edition)

ICTSD reporting; “New round of EU/Mercosur talks in Brussels: agriculture main concern for France, Ireland, and Poland,” MERCOPRESS, 27 November 2017; “Mercosur to offer EU faster reduction in tariffs: Argentine negotiator,” REUTERS, 24 November 2017; “Progress on EU-Mercosur Deal Sparks Hopes of a ‘Game Changer’,” BLOOMBERG, 4 December 2017; “Mercosur sees more than 70 percent chance of EU trade deal: official,” REUTERS, 6 November 2017.

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