In Oscar Wilde’s masterful play The Importance of BeingEarnest, first performed in 1895, Lady Bracknell famously says that “to lose one parent may be regarded as a misfortune, to lose both looks like carelessness”.
Fast forward more than a century and this same sentiment is being felt in much of Brussels with the potential failure of the European Union’s free trade negotiations with the Mercosur nations of Brazil, Argentina, Paraguay and Uruguay. The setback comes hard on the heels of the failure of the bloc’s trade talks with Australia.
Speculation had recently grown that an EU-Mercosur deal could be concluded in December. However, that prospect might have been extinguished after comments from the new Argentinian President Javier Milei, an anarcho-capitalist political maverick, as well as French President Emmanuel Macron.
The signals from Argentina are mixed as Milei criticised Mercosur during his campaign, but his Foreign Minister Diana Mondino said the new administration wanted to see a conclusion of the deal “soon”. However, Macron then came out with his own criticism. This is key because the deal might have to be concluded as an agreement covering the competences of both the EU and the 27 member states, which would give Macron the power of veto.
While the failure of neither the Australia nor possibly the Mercosur agreement is catastrophic for the EU, both are serious setbacks in several respects. First, EU trade negotiations will be put on the political back burner in 2024 with the European elections in June next year.
Argentina’s President-elect Javier Milei (left) speaks with Diana Mondino, expected to be foreign minister in the new government, on a balcony of the San Martin Palace at the headquarters of the Argentine Foreign Ministry in Buenos Aires on December 9. Photo: EPA-EFE
Second, the failure could slow Europe’s “de-risking” from China. The EU increasingly needs trade and investment deals with reliable political partners following Russia’s invasion of Ukraine and the bloc’s desire to reduce its reliance on China for raw materials.
The Australia deal offered Europe the possibility of greater access to huge deposits of raw materials and energy such as rare earths and green hydrogen. The pact’s collapse, mainly because of disagreements over agricultural issues, disappointed many across Europe. German Finance Minister Christian Lindner said that if the EU “can’t make progress even with Australia, a liberal democracy firmly rooted in the Western world, that is concerning”.
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However, the potential collapse of the Mercosur deal is, in some ways, even more alarming for many in Brussels. The pact, more than 20 years under discussion, would create an integrated market of around 780 million consumers, removing an estimated €4 billion (US$4.35 billion) of import tariffs on European products.
It would pull the two regions closer geopolitically amid a broader, international competition for influence. This has seen Beijing and Moscow trying to strengthen diplomatic ties with resource-rich countries in Latin America.
December had been seen as a window of opportunity to get the EU-Mercosur deal over the line. In part this is because Spain, a supporter of the pact, holds the six-month rotating presidency of the Council of the European Union.
However, a loss in momentum with the election in Argentina gave Macron an opening to come out strongly against the deal. Macron’s chief concern is agricultural issues, as farming lobbies are politically powerful in France. The big fear is that a Mercosur deal would see a surge in agricultural exports to France in particular, and the EU in general, from Latin America.
Santiago Pena (left), president of Paraguay, Luis Inacio Lula da Silva (centre), president of Brazil, and Luis Arce, president of Bolivia, speak during a ceremony on the second day of the Mercosur summit in Rio de Janeiro on December 7. Mercosur will receive Bolivia as a full member and sign a trade agreement with Singapore after not having closed its negotiations with the European Union. Photo: AFP
Latin America has the world’s largest reserves of arable land, accounting for about 15 per cent of global food production and 45 per cent of net international agri-food trade. It also has a wealth of critical minerals. The EU’s foreign policy chief Josep Borrell has said that the emerging market has the potential to become the “new Persian Gulf” given its critical mineral assets such as lithium.
If the EU-Mercosur trade talks collapse, it would send out a signal that the constraints on trade liberalisation are growing again. This could significantly undermine the creaking rules-based trading system, with the World Trade Organization at its heart. That body could soon face a further wave of protectionism from the United States if Donald Trump wins a second term as president in next year’s election.
For now, however, all eyes are on whether there might yet be a tiny window remaining to get the EU-Mercosur deal over the line in coming days. The fear in Brussels is that if an agreement is not concluded this month, the best-case scenario could be that talks resume in 2025, in what could be a much-changed political landscape following next year’s European and US elections.
Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics
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