The EU and the South American bloc Mercosur are aiming to conclude their free trade negotiations by the end of 2017. Difficult bargaining lies ahead on bread-and-butter market access issues. A European tour by Brazil’s foreign minister Aloysio Nunes Ferreira this week is aiming at building political capital to that end.
The minister has generally fallen on receptive ears in Brussels. On Tuesday (29 August 2017), Commission president Jean-Claude Juncker, in his first after-summer speech, listed Mercosur among the top priorities for the EU’s free trade agenda in the coming months.
After a meeting with Nunes in Brussels, trade commissioner Cecilia Malmström tweeted that both sides were “committed to finalise” the negotiations “by the end of this year”.
Nunes Ferreira also met Antonio Tajani, the European Parliament’s president. Tajani tweeted: “strongly support Brazil’s efforts to conclude deal this year”.
Cards on table
Both sides are expected to table market access offers in time for the next negotiation round in October to bring the long-sought deal to a close. Negotiations were launched in the 1990s. They were last revived in 2016. All sides see a window of opportunity to conclude these negotiations by 2018 at the latest.
The politically most contentious part of the bargain in Europe will be the inevitable extension of EU import quotas – or TRQs – on products such as beef and sugar, the detailed terms of which are sealed in the EU’s World Trade Organization’s schedule of commitments.
France is leading among eleven EU member states that have tried to slam the brakes in Commission moves to offer to – modestly – open EU markets to Brazilian beef, sugar, and ethanol. The matter already contributed to toppling earlier attempts to conclude the trade negotiations with Mercosur.
Mercosur is withholding an offer to the EU on industrial tariffs in a bid to induce Brussels to come up with an agriculture offer. Removal and reduction of import tariffs on industrial goods by Argentina and Brazil is a key EU ask. Following domestic political pressure from farmers’ groups and some member states, the EU withheld an offer on sensitive agricultural products during a first exchange of tariff schedules in late 2016.
France’s secretary of state in charge of overseeing trade, Jean-Baptiste Lemoyne, told the French press in early August that the Mercosur accord “raises certain questions. We will remain vigilant and we will refuse to give away the interests of our agriculture sector.”
Before coming to Brussels, Nunes Ferrier stopped by in Paris, meeting his counterpart Jean-Yves Le Drian in an attempt to bring the talks forward: “We know that there are some resistances in France, this is what the political negotiations are about. This is why we need to put our cards on the table and smoothen the edges”, said Nunes.
Paris continues to tread carefully on the Mercosur deal back home: an official Quai d’Orsay statement on the Le Drian – Nunes meeting held on Monday (28 August) omitted mentioning the trade talks. But the text insists on the bilateral French Brazilian strategic partnership of 2006, and highlights strong business relations, including the fact that 850 French firms are invested in Brazil, generating half a million jobs.
“In Brazil we are not really inclined to opening the doors to some industrial goods from the EU. But still we sit at the negotiation tables, because we want to work with our EU counterparts to identify sensitive sectors, to maybe try to find some openings on possibilities and at different rhythms”, said Brazil’s top diplomat. “We have to be honest, play cards on the table and try and find a solution together”, he insisted.
France’s agro-business industry could benefit from a deal with Mercosur, the Brazilian minister added: “two of the main items imported from France to Brazil are pesticides and agricultural inputs”.
Brazil is pinning its hopes on the formal commitment of France’s new president Emmanuel Macron to open markets and multilateralism.
This was the case at the Hamburg G20 summit in July 2017, where rifts between a United States tempted by protectionism and other members were out in the open.
“I remember vividly the speech of President Macron at the G20, it was a vibrant speech to support free trade. It was in contrast with what Mr. Donald Trump was saying at the time”, said Nunes Ferrier.
The agricultural quota issue is made even more complicated by the coming departure of Britain from the EU.
As Article 50 withdrawal talks move on, EU member states are starting to come to the conclusion that they will need to agree with the UK that the latter take some share of its TRQs agreed in the EU’s WTO schedule. As a result the EU’s TRQs will shrink – and the process lead to complex negotiations by both London and Brussels with WTO counterparts.
Brazil, a major beneficiary of EU sugar and beef quotas, is reluctant to see the formal volume of imports allowed into the EU be reduced as a result of Brexit. The country’s influential sugar cane industry has signalled it would oppose such a move, and prefer to see the UK open its own sugar markets independently.
The Brazilian chief diplomat also stopped over in London. Nunes Ferrier says it is necessary for the UK and Brazil to have a “strong relationship – as with the EU, or even stronger” after Brexit.
Other sensitive issues on the table mentioned by Nunes are EU rules on intellectual property that restrict the use of generics. Some services sector issues need resolving. Brazil wants better ‘Mode 4’ access to the EU to smoothen the movement of professionals across borders. The EU is asking Brazil to open up its maritime transport markets. Investment liberalisation is also an issue.
Brazilian sources stressed both sides would need to agree on a robust chapter on SPS – sanitary and phytosanitary measures – indicating that this would help regain trust in the country’s standards on meat. This follows on a political scandal in Brazil after press revelations on corruption in the supervision of sanitary standards in one of Brazil’s top export industries.
Nunes Ferrier also hopes to organise an EU Brazil summit this year, which would mark the tenth anniversary of the EU-Brazil strategic partnership. He said it could be used as a “political leverage to reach an agreement with Mercosur”. Strategic partnerships involve holding an annual summit, but the last two were postponed.
Following questions from a select group of journalists, Minister Nunes sought to reassure Brazil’s partners on the potential impact on the trade deal of an ongoing political crisis in the country related to corruption allegations against its president. “All parties converge on the fact that we want a deal with the EU”, the foreign minister said.
Brazil is leading the Mercosur negotiations on behalf of the bloc that also includes Argentina, Paraguay and Uruguay. It took over this role from Argentina in July 2017.
The next intersessional technical meetings are scheduled in the week of 4 September 2017.
Any potential deal on Mercosur would most likely be a so-called ‘political agreement’. This would signal that the most important tradeoffs are agreed, but leaves any technical and a times less technical issues for negotiators to resolve in the ensuing months.
The EU Mercosur agreement is expected to leave out some highly contentious topics in the EU’s current trade politics – investment protection and data protection among them.
Observers say there will be relatively limited ambitions on services trade.
The deal is expected to resemble agreements reached by the EU with Colombia, Peru and Ecuador, rather than the highly regulation-intense and commercially ambitious CETA agreement with Canada.
Catch up on our dense EU Mercosur negotiation coverage here.
By Hermine Donceel and Iana Dreyer