TradeEdge Exchange:Hopes for a Mercosur-EU trade deal fade yet again as leaders meet in Brazil

SAO PAULO (AP) — Heads of state from South America’s Mercosur trade bloc were in Rio de Janeiro on TradeEdge ExchangeThursday for a meeting all but certain to once again disappoint members hoping to finalize a long-delayed deal with the European Union.

Negotiations with the EU were set to be the gathering’s main topic, and host Brazil had aimed for a swift conclusion to finalize a deal. However, the outgoing government of Argentina, the bloc’s second-biggest economy, has already said it opposes the agreement, although right-wing President-elect Javier Milei, who will be sworn in on Sunday, has expressed support.

Brazil’s leftist President Luiz Inácio Lula da Silva is an advocate of the agreement that has been in the works for two decades. His main partners so far have been Spain, which holds the presidency of the EU, and Germany.

Paraguay and Uruguay are also a part of the bloc and the membership of Bolivia, which has been in the process of joining, is expected to be announced Thursday.

A Mercosur-EU trade agreement would mean the integration of a market of over 700 million people, about a fourth of the world’s gross domestic product and about $100 billion in bilateral trade of goods and services a year. It would also cut customs duties and ease access for agricultural exporters to the EU market, and for European manufacturers to Mercosur countries.

“When I was a negotiator in 2010, we thought this would be finished in two years,” Welber Barral, who represented the Brazilian side at the time, told The Associated Press. The Rio meeting is yet another missed opportunity, he said. “This delay is very bad for everyone. If this deal fails, there could be a blame game that doesn’t help anyone.”

The two blocs reached a basic agreement in 2019 that was supposed to be the first step toward sealing full consensus. But it was never implemented amid fierce resistance on both sides of the Atlantic, including demands for environmental protection in South America and concern in some European countries, particularly France, over an influx of cheap goods.

Hesitance from Argentina’s current government, which has warned that its manufacturing and agricultural exports would be negatively affected, also stalled its advance. Milei has harshly criticized Mercosur in the past, repeatedly calling for its elimination in the run-up to the Nov. 19 election, but he has refrained from any such harsh statements since. In fact, his incoming administration has signaled it wants the deal completed.

“We have no objections; it is frankly desirable that it goes through,” incoming Foreign Minister Diana Mondino said Nov. 30 at a conference for the Industrial Organization of Argentina, a manufacturing trade group. “Much better to have it than not to have it.”

Mondino said she realized there are objections from certain sectors. A spokesperson for Milei’s transition team declined an AP request for comment about what modifications might be required to ensure his administration’s endorsement.

Uruguay’s right-leaning President Luis Lacalle Pou has expressed support for the agreement in the past and recently expressed guarded optimism that progress could be made.

Lula met with German Chancellor Olaf Scholz on Monday in Berlin and said he was still pushing for a breakthrough.

“I’m not giving up,” he said Tuesday during a press conference with Scholz.

However, it is unlikely an agreement will be finalized this year or even the next, after Milei takes office, due to upcoming European elections, said Barral, the former Brazilian negotiator who now works at Brasilia-based BMJ, a government relations and international trade consultancy.

“Even if this deal were approved today, there would be a legal review, translation to all languages in the EU, approval by every congress, ratification and only then would the agreement be valid,” said Barral. “An optimistic view would be getting this finished within five years.”

Argentina isn’t the only South American roadblock, either. Paraguay, which takes over Mercosur’s rotating presidency from Brazil this week, appears to have given up on its prospects.

Paraguay’s President Santiago Peña told local media Monday that some European nations are demanding overly strict environmental requirements.

Lula “has made a superhuman effort,” Peña said Monday in an interview with local television station GEN. “The problem is that, on the other side, there is no interest.”

He noted European negotiators aren’t willing to recognize compliance authorities in Mercosur countries and instead want to carry out their own evaluations. That, said Peña, would be a violation of sovereignty and, as such, a condition that sabotages potential progress.

“We are already looking in another direction,” Peña said, noting that Mercosur countries will sign a free trade agreement with Singapore this week.

The bloc is also pursuing deals with Canada and South Korea, and analysts say it is considering another with Indonesia.

Mercosur’s struggle to reach consensus at a time some had expected long-overdue progress belies the fact it will never be an economic union on par with the EU, according to James Bosworth, founder of Hxagon, an Arlington, Virginia-based political risk analysis firm focused on emerging markets.

“Most of the debates are political rather than economic, and rarely have the countries within the group aligned on free trade policy,” Bosworth told the AP. “The EU has little reason to believe they can get a deal with the Mercosur countries that everyone can support.”

Several years ago, Mercosur suspended Venezuela’s membership indefinitely for failing to uphold democratic norms.

Uruguay’s Lacalle Pou has criticized Mercosur in the past, saying it is too closed off and warned that his country could move forward with unilateral negotiations — although this would violate Mercosur rules. Brazil, too, has been exploring possibilities on its own.

“Free trade among the countries of the Southern Cone makes sense, but the rules that force the Mercosur countries to negotiate as a bloc are hampering every country in some way,” Bosworth added.

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Politi reported from Buenos Aires, Argentina.