EU, Mercosur Deal Faces Hurdles on Two Continents

EU, Mercosur Deal Faces Hurdles on Two Continents

A new trade pact is spurring concerns about the potential impact on European farmers and South American manufacturers

It took 20 years of on-and-off talks to reach a deal Friday on a trade pact between the European Union and four South American nations. Winning implementation could take years, with environmentalists and trade unions making final approval a challenge.

In Europe, some politicians and activists contend that opening domestic markets to Brazilian agricultural exports will fuel deforestation in the Amazon. Farmers and ranchers from France to Poland say they are being sacrificed to secure markets for Europe’s powerful industrial exports, such as autos and machinery.

“Trading more cars for cows is never acceptable when it leads to the destruction of the Amazon,” said Naomi Ages, who oversees trade matters at Greenpeace International.

In South America, leftist politicians and powerful unions say the deal will gut manufacturing jobs due to an influx of cheaper European imports.

“The only thing it will bring is more grief for Argentines,” Alberto Fernández, a leftist presidential hopeful told cheering workers in Buenos Aires on Saturday. “I don’t want to live in a country where the only chance for progress is selling grains and beef. I want industries.”

The agreement shows that trade deals are still possible despite mounting world-wide protectionism, as Brussels adds another deal after clinching pacts with Canada, Mexico, Japan and Singapore in recent years. But the deal with Japan took provisional effect 18 months after a political agreement. Canada’s took nearly four years for provisional implementation.

The obstacles against those deals underscore the difficult road ahead for negotiators from the EU and South America’s Mercosur—a customs union made up of Brazil, Argentina, Paraguay and Uruguay—in implementing a deal to create a trade bloc of 780 million people with a $21 trillion economy.

The EU has to submit it to the bloc’s 28 member states for approval amid a rise of antiestablishment parties opposed to globalization. Last year, Italy’s populist government said it wouldn’t ratify the Canada deal over farmers’ concerns, a move that risks annulling the whole agreement.

With that backlash in mind, EU negotiators went to great lengths to appease both European leaders and their South American counterparts, securing the bloc’s most beneficial trade deal yet. It stands to lift more than €4 billion ($4.6 billion) of tariff costs for European exporters, four times greater than the Japan deal that took effect in February.

The accord protects many European agricultural brand names from France’s Comté cheese to Italy’s famed prosciutto di Parma. European wine and olive oil will have duty-free access to South America. Mercosur would allow nongovernmental organizations to provide oversight of environmental and labor rights clauses and “effectively implement” the Paris climate agreement.

French President Emmanuel Macron, who had asked the EU to safeguard the bloc’s farmers and climate goals, called the agreement “a good one given that the demands we made have all been taken into account.” For the EU, the deal provides freer access to a market of 260 million people.

The deal is intended to give South American manufacturers time to prepare for European imports by gradually reducing tariffs over several years.

Argentine President Mauricio Macri, who led Mercosur’s push for the deal, said the accord would boost economic growth with an influx of investments while paving the way for Argentina to pass more market-friendly reforms.

“This is the most important agreement we’ve signed in our history,” said Mr. Macri, who faces a tough reelection challenge in October from Mr. Fernández and his running mate, ex-president Cristina Kirchner, a firebrand nationalist.

Brazil, a global agricultural powerhouse and the world’s ninth-biggest economy, would benefit from one of the EU’s most generous quotas for meat imports. Political analysts say the deal will have the support of the influential farmers’ caucus in congress and even the backing of leftist Workers’ Party members from rural areas.

“The government should have an easy majority for this kind of agreement,” said Carlos Melo, a political analyst at the Insper business school in São Paulo.

But the headwinds are substantial. In Europe, environmentalists were upset an accord was signed with Brazil’s right-wing president, Jair Bolsonaro, who has ambitious plans to open the Amazon to further development.

“Paying lip service to the Paris climate agreement only polishes Bolsonaro’s image as he continues to cut down the Amazon,” said Anna Cavazzini, a member of the European Parliament with Germany’s Greens.

For the deal’s backers, the biggest challenge in South America will come in Argentina. It has one of the world’s most closed economies, with 40% of the population supporting protectionism, according to a recent poll.

Mr. Macri is seen as essential for implementation.

“The election is going to be crucial for the agreement,” said Bruno Binetti, a political analyst at Torcuato Di Tella University in Buenos Aires. “It is closely tied to Macri personally, so it would be very hard to imagine it being approved under a [Fernández] administration.”

Powerful labor unions closely allied with Mr. Fernández’s Peronists are opposed to the trade deal. And it isn’t just big industries. Ariel Aguilar, who heads a group of Argentine leather manufacturers, said his sector will lobby lawmakers to reject the accord.

“How many companies are going to close because of this?” he said. “It’s the destruction of Argentina’s industry.”

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