Opinion: EU-Mercosur pact is still alive

Opinion: EU-Mercosur pact is still alive

Opponents of free trade with South America's Mercosur states are delighted that Austria is stymieing a potential deal. But the agreement is not dead yet, says Bernd Riegert.

Austria has threatened to veto the planned free trade deal between the EU and the South American Mercosur trade bloc. This could certainly influence the final round of talks between both sides, as there is no agreed text yet. After 20 years of negotiations, a final version of the planned agreement is set to be presented in late October. Only then will the Council of the European Union — where member states are represented by their economic or trade minsters — vote on the deal. At the moment, it looks like the deal would need unanimous backing. A majority vote would only be possible if the European Commission decides it is solely the EU's responsibility, not that of the members states. But that is not the case with such a comprehensive trade deal, which forms part of a wider association agreement with South America.

Avoiding a deal will not save Amazon rainforest

So as all member states will have to support the deal, a single no-vote could bring the entire endeavor to a standstill. Aside from Austria, France, Ireland and Luxembourg have also threatened to veto the agreement with Brazil, Argentina, Paraguay and Uruguay. They suddenly claim to be unwilling to sign an agreement with Brazil's right-wing nationalist President Jair Bolsonaro, because he fails to protect the Amazon rainforest. But this argument is not very convincing, as a Mercosur deal would also enshrine certain environmental standards and require the rainforest to be protected in order to guarantee all trade benefits. Without any such deal and the absence of any leverage for the EU, President Bolsonaro will certainly not change his political course.

In reality, it is more likely that France, Ireland and possibly Austria are more worried about their own farmers. They have voiced their concern that South American beef could flood the EU market, bringing local producers to their knees. And while there is some truth to this fear, it is certainly exaggerated. After all, South American beef currently makes up merely between 1 and 2% of beef on the EU market – and the Mercosur deal would not dramatically increase this share. EU farmers are actually struggling with over-production. Each year, 102% of the bloc's beef demand is produced within the EU, meaning that the EU is a beef exporter itself.

A fundamental debate over global trade is needed

European carmakers, machine manufacturers, equipment suppliers and service providers would profit if trade barriers were reduced. South America is already the second biggest export market for these sectors. The growing dispute about the benefits of the deal will lead to a fundamental debate on the merits free trade.

And of course, any such deal always produces winners and losers. We just need to assess whether the overall benefits for bloc's economy outweigh potential disadvantages. And whether intercontinental trade is even a good idea in the first place. Or should we be aiming for more autonomous supply systems with lower transport and energy requirements – even though goods produced will be more expensive and choice limited.

All these questions will be addressed once the Mercosur deal is up for ratification by the EU member states. But it will take two years until the bloc's 27 national parliaments have each taken a stand on the deal. The free trade deals with Canada (Ceta) and Japan (Jefta) were ratified after a similar back and forth. So there's no blindingly obvious why reason a free trade deal with South America won't eventuality become reality.

The bloc's planned free trade and investment partnership with the US (TTIP), meanwhile, is on ice for now because isolationist US President Donald Trump withdrew from talks. But the EU still has its sights on striking a deal. And reaching one with South America would send an important political signal to the US and the rest of the world that intentional cooperation and trade do work at a time when Trump and China are embroiled in a tit-for-tat trade war.

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