The EU and Mercosur started Association Agreement -AA- negotiations in 2000. Divergences in the commercial chapter blocked negotiations until May 2010. The clear inadequacy of the European offer to Mercosur agricultural sector made the agreement unfeasible.
Since 2010 re-launch, nine rounds have taken place without success. In January 2013, both parties agreed to exchange market access offers before 2014. However, Mercosur negotiating countries (Argentina, Brazil, Uruguay and Paraguay, as Venezuela remains aside of this negotiation) took more time, presenting their joint-offers list in July 2014. Currently, an agreement on a new date for the exchange of offers is pending.
Until 2010, the low costs of no agreement have delayed the entire process. However, this AA is now highly positioned on the Mercosur foreign trade agenda as the EU has become its first trading partner and foreign investor (€285 billion direct investment in 2012). Three of the four Mercosur negotiating Member States -MSs- no longer benefit from the Generalised Scheme of Preferences –GSP- which has put a sense of urgency to proceed with the talks: the costs of no-agreement are higher for them.
After the last European elections, new commissioners and officials took office, delaying the calendar of negotiations. Even if EU sources said that “the change of authorities will not interfere with the negotiations”, Mercosur sources believe that “there will naturally be a slowing down of the process”. Negotiations in Mercosur, differently from the EU, are first of all, among its MSs, as common institutions are still weak, with Brazil (70% of Mercosur GDP) as the negotiations leader. Secondly, Mercosur negotiations also take place between each national government and its constituents. The main locking point was the Argentinian industry sector, “which fears losing the lucrative Brazilian market to cheaper more competitive products from the EU”. Argentina´s new measures to protect its industry have been brought to the World Trade Organization by the EU, delaying AA negotiations. Differently, Brazilian industry sector is more likely to sign the AA, since this country is keen to avoid “becoming too dependent on China – that mainly imports commodities from Brazil, while exporting cheap manufactured goods that Brazilian producers allege undermine domestic industry -”.
Mercosur MSs have not set a joint position until last year, even if domestic actors (Argentina and Uruguay agricultural associations, lead by the powerful Brazilian agro-business lobby) put pressure to sign the agreement. Mercosur lacks a supranational coordination power and there is no certainty that the AA would be ratified by its MSs parliaments. For Carello-Moix, Argentina is again the main challenge due to its monist legal approach, “where ratification of international law immediately incorporates it into national law.”
With the exception of Paraguay, Mercosur MSs no longer benefiting from the GSP: now they classify as high middle-income countries. Duties on exports to the EU are not reduced anymore for them. If an agreement is not reached soon, their exports will suffer, hurting key economic sectors.
Some experts explored the possibility of negotiating a FTA between the EU and Brazil. Several Brazilian businessmen have highlighted that “Brazil cannot be an island nor Mercosur can be isolated from the rest of the world”. Nevertheless, Brazil’s foreign policy is fully engaged in the Mercosur project, despite Argentinian economic problems. The stabilization of the region (through Mercosur and the bigger Unasur project) is a Brazilian priority. Plus, Mercosur MSs agreed to conduct trade negotiations with third countries together, without exceptions. Thus, the possibility of a Brazil-EU FTA is highly improbable. One alternative solution explored was the creation of a “two-speed Mercosur” in order to proceed with the negotiations.
Why the two negotiation teams have not been able to agree in 15 years?
Firstly, in December 2001 the Argentinian economy collapsed, making Mercosur less attractive for the EU. Secondly, the 2004 and 2007 enlargements obliged EU institutions to focus on domestic problems: new MSs were mostly post-Soviet countries with economic and socio-political challenges to address. Plus, with more MSs, the requirement of unanimity in a 28 members´ Council (which is more protectionist than the Commission when approving AAs) contributed to making things more difficult. Thirdly, the EU is focused in the negotiation of the US Transatlantic Trade and Investment Partnership -TTIP-. Finally, Mercosur priority on agriculture liberalization clashed with agricultural protectionist EU MSs (Spain, France, Ireland…). Woolcock identifies some European farmers` organizations as “one of the main obstructers in the progress of negotiations, successfully delaying the signing of any agreement that would give Mercosur free access to the EU Market”. This is why the past nine negotiating rounds focused on trade rules other than direct market access issues. However, new recent elements counterbalanced the aforementioned, making the trade agreement more attractive for the EU: for example, in 2013, the EU has become a net exporter to Mercosur for the first time.
The main difficulty for Mercosur negotiators was to prepare a single offer of liberalisation: when Argentina, Brazil, Paraguay and Uruguay merged their individually prepared offer lists, the total coverage of the offer was quite small. In March 2014, the EU concluded that it was impossible to advance due to the insufficient level of Mercosur´s offers. Finally, last July, Argentina accepted to increase the offer of goods being liberalized. Mercosur MSs then announced that a joint trade proposal for the EU was finally ready. However, new delays appeared due to the presidential elections in Brazil, Mercosur´s negotiations leader.
Negotiations will speed up as Mercosur feels renewed pressure: the TTIP negotiations are advancing, while the ratification of the EU-Canada FTA continues. Moreover, the Pacific Alliance (a regional trade bloc between Chile, Colombia, Peru and Mexico) has successfully created a new area of deep integration towards free movement of goods, services, capitals and people. The European Parliament qualified the Pacific Alliance as “the most promising and dynamic regional group in LatinAmerica -LA-” in opposition to Mercosur, “a stagnating and increasingly protectionist bloc”. Mercosur MSs are aware that they should reach an agreement promptly: the perfect bargaining situation for the EU.
In the EU side, the new Commission and the subsequent changes in the negotiation team, together with the new European Parliament, will likely pose difficulties in negotiations. Some experts show uncertainty regarding “the ability of the Commission to prepare a proposal for agricultural liberalisation that is attractive to Mercosur”. Others highlight the renewed pressure that the EU is experiencing as the US is signing FTAs with other LA countries. The EU fears the emergence of a US-pan American bloc meaning a loss of opportunity in opening access for European products to Southern Cone markets. Therefore, EU’s interest in concluding the AA with Mercosur increased. Plus, this AA is in line with EU’s foreign policy goal of constructing a multi-polar world, with emphasis on regional integration.
Mercosur needs this agreement more than ever: the end of the GSP threats several of its exports to the EU. The AA will remove tariffs again, and this time permanently. Plus, Mercosur risks of being more and more commercially isolated due to the dynamic Alliance of the Pacific competition and the signature of FTA between the US and other LA states.
The EU also needs this agreement to boost its exports and keep on reactivating its economy. With a positive commercial balance of trade with Mercosur, it is easier than ever to reduce tariffs to their goods and services. Plus, the EU needs to keep its influence in the region, in order to balance the US signature of FTAs with other LA countries.
With increased interests and the most important locking points reduced or eliminated, the chances of finally signing this AA seem high. Calculations done by the Commission and the Brazilian Ministry of Foreign Trade estimate a free trade gain of 9 billion € (4.5 per partner). The cost of no agreement is bigger than ever. Now it is urgent to set a date for the exchange of market access offers.
Enric-Sol Brines Gómez