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Comment – Why the EU-Mercosur free trade deal could yet again fail

The last moments of a trade negotiation are always highly uncertain. Bluff and brinkmanship are part of the game. Sometimes, someone pulls a rabbit out of the hat and everything falls into place.

 

Yet the petering out of the EU-Mercosur free trade negotiation in Buenos Aires on the sidelines of the World Trade Organization’s ministerial meeting this week is not a good omen.

 

The risk that the talks, initially started in the late 1990s, get derailed yet again is high.

 

The European Commission said negotiations will continue – a new round is planned in late January 2018 – and that it hopes to reach a breakthrough in the coming weeks. South American leaders expressed similar views.

 

Yet there are five warning signs that negotiators who want to achieve success need to heed.

 

Warning sign 1 – The structure of the negotiations

 

In a situation that is comparable to the now-stalled TTIP negotiations, the key priority of the Mercosur negotiators is market access in agricultural sectors that are highly sensitive in the EU. If the EU hasn’t liberalised trade in beef and sugar thus far, it means these are sectors that have been very successful in the last decades in fending off trade liberalisation. They are fierce and strong.

 

As a journalist, one reads the writing on the wall when receiving a press release from the big agrifood lobby group Copa-Cogeca entitled “EU/Mercosur: Copa and Cogeca step up action” a few days before the meetings held in Buenos Aires.

 

One needs to take Copa and Cogeca seriously. They mean what they say and they walk the talk. More often than not, they get their way. Copa-Cogeca was all over the place in Buenos Aires worrying more about Mercosur than about the WTO talks on agriculture subsidies.

 

Result? The EU did not deliver on its promise to table a new offer on beef and ethanol. There are still no signs of an offer on sugar quotas.

 

Warning sign 2 – The Hogan effect

 

We all know that DG Agriculture wields enormous power in EU trade policy. Phil Hogan, the EU’s agriculture commissioner, has stepped in forcefully in the Mercosur negotiation. Hogan has become a sort of top EU agrifood ‘salesman’ and is known to be a tough negotiator.

 

While his intense interventions in the final stages of the EU-Japan negotiations this year have borne fruit – even if they also complicated the talks – with Mercosur, Hogan’s current interventionism could backfire. He is pushing for better market access for products such as wine and olive oil.

 

With Japan, it was a matter of just convincing the Japanese that importing more dairy, pasta, wine and pork would benefit their wealthy consumers. There is little direct competition between Japan and the EU on agriculture.

 

The situation is different with Mercosur. South America is peopled by former – mostly Southern – Europeans who took with them European food-production techniques and grow them in comparable climes: wine, cheeses, etc. There is direct producer competition – both ways.

 

For the EU’s agriculture sector, there is not that much appetite for the South American market, hence less readiness to strike a deal.

 

Warning sign 3 – France, Ireland and the Brexit factor

 

France is the home of both an embattled beef industry and the heart of the sugar-beet growing area in the EU. Bad luck for the Brazilians.

 

Macronism hasn’t transformed France’s agriculture ministry. It behaves as it always has on trade: by first saying ‘non’. Ireland is in bed with France on beef. Furthermore, Ireland is worried about losing a share of its main market, the UK, due to Brexit.

 

Emmanuel Macron’s France might be more market-friendly at home, but is becoming perhaps even less open to more trade liberalisaiton than before.

 

There is a new type of environmentalism emerging in French left circles that Macron needs to pay attention to, which combines with old-fashioned agricultural interests. Nicolas Hulot, the environment minister, and Stéphane Travert, the agriculture minister, bicker back home on issues like the use of the chemical glyphosate in farming. But on trade, they are de facto allies.

 

Macron has also vowed to make sustainable development chapters in the EU sanctionable. France is trying to get its way on this with Mercosur, not least to placate public opinion on CETA, the agreement with Canada signed one year ago and that still needs ratifying by many member states.

 

Jean-Baptiste Lemoyne, France’s trade secretary, reiterated demands on this in Buenos Aires. It’s not making a deal any easier.

 

Warning sign 4 – Cecilia Malmström’s excessive optimism

 

Optimism and willingness to get things done is a duty in the high echelons of power and, of course, in the commission. But when does optimism stop and panglossianism start? It’s a fine line.

 

Malmström and her team have a track record of underestimating the difficulties in reaching agreements with large, difficult or complex trade partners. She was optimistic until the very last minute that a deal could reached with the Russians in late 2015 on the Ukraine DCFTA, although it was pretty clear one cannot negotiate with the Russians on Ukraine trade issues.

 

Malmström and the commission more broadly have always said a deal is possible with the US on TTIP by end-2015, then end-2016. Any objective analysis of the state of the negotiation (we made quite a few) indicated that, even if the talks were going well without all the political noise around them, that TTIP wasn’t ready in 2016, when it collapsed. It needed maturing.

 

Warning sign 5 – Talks are not yet ripe

 

With Mercosur, the situation is comparable.

 

Yes, the Mercosur talks are nominally 20 years old. But in fact, the real current talks only began in 2016. The EU has continued piling up demands on its trading partners generally, and it has also done so with the South Americans.

 

For Mercosur, this is the first time the bloc is negotiating a serious trade deal with a big large developed economy: it’s a tough learning curve.

 

Dealing with complex and onerous sanitary and phytosanitary chapters, being ready to adopt EU technical standards in autos, making hard choices on rules of origin in autos and textiles, putting together an offer on public procurement at local level, agreeing to EU pharma intellectual property demands: this is a lot to deal with in a short period of time.

 

In the Japan negotiations, it was relatively easy to build consensus on the deal with the EU. Tokyo went through the ordeal of negotiating the – now defunct – Trans-Pacific Partnership with the United States.

 

Japan is a unitary actor. If President Shinzo Abe says there needs to be a deal with the EU, there will be a deal. That’s what happened in 2017. With Mercosur, this is by definition more difficult. To start with, one needs four presidents to say there needs to be a deal.

 

In the EU, too, there needs to be a boss to ‘bang heads’ back home and build the necessary consensus to get to a deal. This would require a strong Germany combined with full commitment of Jean-Claude Juncker. Germany is itself absorbed as it tries to build a new government. And Juncker is also busy with many other things.

 

 

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