Talks to implement the long-sought Mercosur trade agreement between the European Union and South America’s major exporting nations remain stalled.
Both sides plan to make a fresh attempt at finalizing the trade pact after European elections in June.
Ratification of the agreement would enhance trade in Brazilian coffee and Argentine tea by lowering import barriers for finished goods such as roasted and soluble coffee and packaged tea. Once in place, over four years, the agreement would reduce to zero tariffs for roasted & ground and instant coffee, which are currently 9% for instant coffee and 7.5% for roasted & ground. European exports to Mercosur economies, including Argentina, Brazil, Paraguay, and Uruguay, currently face tariffs as high as 18%.
Brazil’s Ministry of Economy estimated the agreement could add $125 billion to Brazil’s economy and increase European investments in Brazil by $113 billion over 15 years. Economists say the impact on the EU will be small, adding more than 0.3% GDP. The deal was announced in 2019 but awaits a unanimous decision of the individual common market countries.
Ratification seemed imminent in December at the 63rd Mercosur summit in Rio de Janeiro. Delegates arrived with pens in hand, but French President Emmanuel Macron refused to sign, saying the agreement failed to meet aggressive environmental guarantees.
Macron visited Brazil in March to discuss concerns about deforestation with President Luiz Inácio Lula da Silva but remains the primary European opponent. The French president stepped up his opposition following the meeting with Silva, saying "as it is negotiated today, it is a very bad deal."
National elections in Argentina have further complicated negotiations. In March, the new government’s Foreign Minister, Diana Mondino, pressed for the “modernization” of the rules negotiated 25 years before. She called for additional countries to be admitted to the bloc (Bolivia joined in 2023) and for a separate controversial free-trade agreement with China.
Trade officials representing Mercosur countries are negotiating agreements with UAE, Vietnam, and the Association of South East Asian Nations (ASEAN).
The European Council on Foreign Relations (ECFR) writes that signing the agreement will encourage diversification of economic ties to China. The organization is concerned that “further delays in signing a free trade deal would push Latin America closer to China’s orbit – for good.”
China is the top destination for Mercosur exports, and Beijing has announced plans to invest $250 billion in the region by 2025.
ECFR reports that Brazil has 20% of the world’s graphite, nickel, and manganese reserves and 94% of niobium reserves needed in aerospace manufacturing. Argentina has the world’s third largest lithium reserves, essential for electric-vehicle batteries. “European institutions are hard at work trying to find ways to convince EU firms to relocate supply chains away from China, ideally to like-minded countries (democracies),” according to ECFR.
Brazil’s $3.4 trillion GDP economy and Argentina, with $1 trillion in GDP (PPP), initiated the free trade agreement 32 years ago. Founding members of the Mercado Común del Sur (Southern Common Market) include Uruguay and Paraguay in 1991. Mercosur is currently the world’s fifth-largest market at $5.7 trillion (PPP) and has a population of 750 million.