Just when it looked like the EU and Mercosur had their ducks in a row to finalise the trade deal, Argentina’s incoming president and the French president have thrown a spanner in the works.
It had been hoped to conclude the deal this week following Brazil president Lula’s visit to Germany, and the Commission president Ursula von der Leyen and Trade Commissioner Valdis Dombrovskis had planned a trip to South America to coincide with the Mercosur leaders’ summit currently being held in Brazil.
This is all taking place during the final days of the current administration, as the new president in Argentina takes office on 10 December.
He is on record as having serious misgivings about the entire Mercosur structure, and the outgoing government were unwilling to sign off the necessary additions on deforestation and environmental controls that have been negotiated in response to EU disquiet, which is led by France and supported to a greater or lesser extent by several other countries.
The Irish Government position could probably be best described as wanting to have it both ways – to be seen as having a strong environmental line, but at the same time wanting the pharmaceutical and technical sectors of the economy to have greater access to the South American market.
‘Having the cake and eating it’ was how this was described in the UK in relation to Brexit.
Officially, the EU and Mercosur concluded negotiations and agreed a comprehensive trade deal in June 2019, after two decades of stop-start negotiations.
A key element of that deal that then-Agriculture Commissioner Phil Hogan heavily promoted, was the commitment by Mercosur to replant 12 million hectares of rainforest by 2030 and end all illegal clearence.
However, the opposite happened in the years that followed. Brazil’s then-president Jair Bolsonaro made no attempt to control deforestation, and between 2019 and 2022, the rate of clearance accelerated. However, since President Lula replaced Bolsonaro at the beginning of this year, the rate of rainforest clearance has halved so far in 2023.
Farmers were always opposed to any Mercosur deal, as it gave access to the cheapest producers of beef in the world a quota for an extra 99,000t of beef.
To make matters worse, the current EU Commission introduced its “Farm to Fork” strategy less than a year after the Mercosur deal was agreed. This required EU farmers to raise the bar even higher when it came to management of the environment at the expense of productive agriculture.
With Brazil increasing rainforest clearance and the EU raising the bar for its farmers, unsurprisingly, opposition to the deal grew in Europe.
Austria led the way in opposing outright, and there was also widespread opposition in the EU Parliament. All this meant that ratification of the existing deal was impossible.
Opportunity opens and closes
The return of president Lula in Brazil this year created the opportunity for a dialogue that encouraged the EU leadership to believe that modifications or annexes could be added to the deal that would address the environmental deficit and make ratification easier.
Notwithstanding, the fact that in recent days France’s President Macron said it doesn’t go far enough, there had been hopes that a deal could be closed this week – but this isn’t the case.
There also has to be doubts at the Mercosur end, with the hostility of the incoming president Javier Milei, but the reality is that Brazil is the key driver in Mercosur, given the weakness of Argentina’s economy.
It now looks like 2023 will close with both the Australian and Mercosur trade deals close but not concluded.
Farmers were always opposed to any Mercosur deal, as it gave access to the cheapest producers of beef in the world a quota for an extra 99,000t of beef
Talks with Australia broke down recently, with both sides blaming the other, although the New Zealand deal did make it through the ratification process recently.
This won’t upset farmers, as both these deals would have brought potentially thousands of tonnes of lower costing beef to the EU market when they come into effect, plus sheep meat from Australia.
With elections coming up in May 2024 for the EU Parliament and a new Commission being appointed in the autumn of 2024, the EU will be unlikely to have a very adventurous approach to trade negotiations for much of next year.
This will be welcomed by Irish beef and sheep producers, but while both these deals may go into hibernation, they won’t go away in the long term.