Brazil seeks to conclude Mercosur-EU trade deal after 20-year talks

Brazil seeks to conclude Mercosur-EU trade deal after 20-year talks

04/09/18 - 14:06 - Minister warns imminent elections could derail long-awaited pact

Mercosur and the EU must close a long-awaited trade accord when negotiators meet this month or risk it being derailed by elections on both continents, Aloysio Nunes Ferreira, Brazil’s foreign minister, has warned.

After 20 years of talks, the two sides have agreed 12 of the 15 chapters in the accord, but several thorny agricultural issues remain. These include quotas on meat and sugar exports to the EU from Mercosur, the South American trading bloc whose full members are Argentina, Paraguay and Uruguay as well as Brazil.

Bolivia, Chile, Peru, Colombia, Ecuador and Suriname are associate members, while Venezuela has been suspended.

Negotiators are scheduled to meet in Montevideo, the Uruguay capital, from September 10-14 to try to finalise the deal. If they fail to do so, said Mr Nunes, a new set of politicians could come to power who might rob it of its momentum.

Brazil is set for elections next month with the far-right and left leading in early polls, and European Parliament elections are due in 2019 against a background of rising populism in the bloc.

“If there are people with different visions . . . it could become unviable or you will have to start all over again,” said Mr Nunes in an interview.

“So this is the moment, if we want to do this. If not, you could have to wait another five or six years.”

Argentina and Brazil, the two leading Mercosur powers, are eager to conclude the negotiations and clinch a rare piece of good news for their crisis-hit economies.

Mauricio Macri, the Argentine president, last week asked the IMF to speed up the release of a $50bn bailout package after a 50 per cent depreciation of the peso against the dollar this year. On Monday, he unveiled a sweeping austerity programme, admitting the country faced an “emergency” in the wake of market panic after the currency’s collapse.

Michel Temer, Brazil`s president, is presiding over an economy that is barely recovering from its worst recession in history. “We forecast [Brazil’s] real gross domestic product to grow just 1.2 per cent in 2018 [revised down from 1.5 per cent], with risk skewed to the downside,” said Alberto Ramos, Goldman Sachs economist.

The country is also mired in corruption scandals that have claimed the scalps of scores of prominent businessmen and politicians.

Although Mr Temer is not standing for re-election, his centre-right Brazilian Democratic Movement party and coalition allies are desperate to have something to show voters after two years in power.

"The Mercosur market is bigger than the Japanese market . . . with countries that are growing, modernising and have rising middle classes and ever more demanding consumers", Aloysio Nunes Ferreira, Brazil’s foreign minister

A deal with the EU would be the first main trade pact signed by Mercosur outside the region since it was formed in the early 1990s, and would represent a coup for Brazil in its effort to open up its insular economy. It would follow agreements negotiated by the EU with Japan, Mexico and Canada and come as Donald Trump, US president, is ratcheting up global tensions on trade.

“The Mercosur market is bigger than the Japanese market . . . with countries that are growing, modernising and have rising middle classes and ever more demanding consumers,” said Mr Nunes. The issue with meat and sugar exports was that the EU wanted to set a low quota for additional imports from Mercosur that would also incur a tariff, he said.

“It would be politically difficult for us to sell this deal in Congress if in addition to the quota we also have a tariff within the quota,” he added.

Brazil’s agricultural sector is keen for more trade deals to take advantage of Mr Trump’s trade war.

Soyabean farmers, in particular, are confident they can meet any gap in supply after China imposed tariffs on US exports of the crop.

“Brazil needs to take advantage of that because we have the conditions to greatly increase our agricultural output,” said Bartholomeu Braz, president of the Brazilian association of soyabean producers, Aprosoja.

The country had wasteland that could be replanted with soyabeans but this would require a trade deal with China to ensure a market for the extra supply, he said.

Brazil`s 2017-2018 soyabean harvest was estimated at 119m tonnes, up 4.3 per cent compared with a year earlier, the confederation of agriculture and animal husbandry, CNA, said.

The Latin American country exported 54m tonnes of this to China, or 80 per cent of its soyabean exports. Soyabeans are Brazil`s biggest export to China.

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