Why Europe’s trade agreement with South America is so controversial

That of the European Union Blockbuster trade deal The deal with South America’s Mercosur bloc is widely seen as highly contentious, with EU member states divided over terms and many wary of another deal Focus of farmers.

After 25 years of talks, the EU and five South American countries – Brazil, Argentina, Uruguay, Paraguay and, more recently, Bolivia – signed an agreement Landmark Trade agreement on December 6th, laying the foundation for one of the largest free trade zones in the world.

The transatlantic partnership is appreciated It is expected to cover an area of ​​more than 700 million people and account for around 20% of global gross domestic product.

The deal, which aims to ease trade between the two blocs by cutting tariffs on a range of products, now requires the approval of the EU Parliament and a qualified majority of 15 member states.

Analysts expect a rocky ratification process as farmers and some EU member states warn it could lead to unfair competition for European agriculture.

France, the second largest economy in the Eurozone, is vehemently against itwhile countries such as Poland, Italy, Austria and the Netherlands have all expressed reservations.

Germany, which strongly supports a deal, is among a bloc of 10 other member states calling on European Commission President Ursula von der Leyen to quickly ratify the final terms.

“I think the first thing we need to do is be cautious given the fact that we’ve been here before,” Mariano Machado, chief Americas analyst at Verisk Maplecroft, told CNBC via video call.

First of all, the EU and Mercosur bloc signed a draft trade agreement in June 2019, only to have progress stalled until earlier this month due to a litany of political and environmental issues. These headwinds included an expected increase in pesticide use and the prospect of further biodiversity loss, as well as concerns about the extent Deforestation in the Amazon and human rights concerns regarding indigenous groups.

Machado said France’s tacit opposition to the agreement over the past nearly six years had evolved into “proactive attempts to simply throw out the agreement.”

In this context, Machado said that von der Leyen had given the EU a monumental victory by “squeezing through the cracks”. Political unrest in France and make it “increasingly difficult” for Paris to defy the agreement.

“It is much more expensive to push back a piece of paper than an idea,” Machado said, adding that it was unlikely France could successfully lead a blocking minority.

A spokesman for the French Foreign Ministry did not respond to a request for comment.

“The capitals that oppose the deal are trying to form a coalition that could prevent the council from reaching the required qualified majority,” he said. said Alberto Rizzi, policy fellow at the European Council on Foreign Relations, a think tank.

“A blockade would cause enormous economic and political damage to the EU, at a time when it can ill afford it,” he continued. “European governments cannot pass this test of unity and strength to appease opponents such as European farmers and potential far-right voters.”

Food and agricultural products make up the bulk of EU imports from Brazil, Argentina and other Mercosur countries, according to analysts at Dutch bank ING treasure The total import value of these items was 23 billion euros (US$24.13 billion) in 2023.

In a research note published earlier this month, ING analysts said the deal was expected to boost trade growth between the two regions, citing a mix of larger import quotas and lower or eliminated tariffs on products such as beef, poultry, sugar beets and soybeans.

This is sowing resentment among EU farmers, especially because their counterparts in Mercosur can operate at lower costs.

For example, on December 12, farmers in southwestern France built a wall of 578 bales of hay during a demonstration on the road to Auch-Toulouse, with each bale intended to represent French MPs in the country’s 577-seat parliament, an additional bale for France’s President Emmanuel, according to media reports Macron.

The obstruction was in protest against the EU-Mercosur trade deal and other domestic political issues.

Environmental activists have also raised the alarm about the possibility of increased trade in agricultural products, citing the prospect of an influx of EU food imports in return for more EU exports of cars, plastics and pesticides.

“No greenwashed appendices can fix this inherently bad deal,” said Laura Restrepo Alameda of Climate Action Network Latin America. said on December 6th.

“It aims to promote trade in products that lead to deforestation, land grabbing, massive pesticide use, carbon emissions and human rights abuses,” she added.

In response to a CNBC request for comment, EU Commission spokesman Olof Gill said the EU’s approach to the deal “is an example of how trade agreements can effectively advance global climate efforts by combining economic cooperation with environmental responsibility.”

Gill pointed to the inclusion of the latest trading and sustainability standards and the inclusion of the landmark Paris Agreement as an “essential element” of the agreement.

“This will allow the EU to suspend the agreement if Paris Agreement standards are not met, strengthening the role of trade agreements in supporting climate goals,” Gill told CNBC by email.

Analysts told CNBC earlier this month that lithium is strategically important probably played a big role in the trade agreement, while a reduction in Car tariffs was also touted as a much-needed boost for Europe ailing automobile industry.

Lithium, sometimes called “White gold” due to its bright color and high market value considered as a crucial part of the global transition away from fossil fuels.

Mercosur countries such as Argentina, Bolivia and Brazil have large reserves of lithium, while EU demand for this important raw material is expected to increase significantly.

Elizabeth Johnson, head of Brazil research at economic consultancy TS Lombard, said Brazil would likely be one of the deal’s biggest winners.

“The country already accounts for around 80% of all Mercosur exports to the EU, and the bloc is currently Brazil’s second-largest trading partner,” Johnson said in a research note published on December 11.

“Brazilian policymakers hope that the agreement will help expand Brazil’s export base with new products and strengthen European investment in Brazil, particularly in the area of ​​energy transition,” she added.