In Summary
An agreement between Mercosur and the EU has been reached against a backdrop of external threats and uncertainties in the geopolitical and trade spheres.
What at first glance appears to be merely a free trade agreement is, in reality, also a means of building geopolitical capital.
Despite all manner of clauses and details, certain sectors may end up paying the price for this geopolitical capital and the essential raw materials needed now and in the future.
The Netherlands must anticipate the agreement and ensure fair competition
Latin America Update | After 25 years of formal negotiations and an agreement in principle in 2019, Ursula von der Leyen shook hands with the presidents of the Mercosur member states on 6 December ’24 in Montevideo, Uruguay, to finalise a free trade agreement between the two trading blocs. Although nothing is yet set in stone – as the European Parliament and the Member States still need to approve the treaty – it is clear that both Mercosur and the EU are eager for economic security and independence from other major powers, particularly China and the United States. A trade agreement that reduces tariffs cannot be viewed in isolation from the threat posed by President-elect Donald Trump to do the opposite. Amid political and economic uncertainty, new partners are being sought. The momentum seems to be building for a breakthrough.
The trade agreement is one of the items on the agenda at the G20 summit in November this year. The seemingly warm rapport between Brazil’s Lula and France’s Macron, and the frosty relationship between Lula and Argentina’s President Milei, did not immediately suggest that, not long afterwards, both Milei and Lula would be pictured with von der Leyen, beaming broadly. Milei is known to be highly critical of Mercosur itself, which he recently described as a “prison” at the summit on 6 December in Montevideo, precisely because of the trade restrictions the bloc is said to impose.
Despite the criticism of Mercosur as an organisation, and partly thanks to Milei’s strong support for free trade, a consensus was reached within Mercosur – an organisation that has also been deeply divided internally in the past – comprising Brazil, Argentina, Uruguay, Paraguay and, as of this year, Bolivia (which is not included in the trade agreement). Venezuela was suspended as a member in 2017 due to its undemocratic political situation.
Mercosur – known as ‘Mercosul’ in Portuguese and ‘Ñemby Ñemuha’ in Guaraní, the other official language spoken mainly in Paraguay – is, with a population of around 300 million, an attractive market for the EU and vice versa. Mercosur mainly imports industrial products from the EU, whilst the EU primarily imports agricultural products and raw materials from Mercosur. The latter is highly significant from a geopolitical perspective, whilst environmental organisations and the agricultural sector – particularly the meat sector – are leading the loudest protests.
On the other side of the ocean, in Europe, some Member States still harbour significant doubts, led in particular by France and Poland. The main points of criticism are an uneven playing field and differing standards in the areas of labour, animal and environmental rights. Another frequently voiced criticism is that it is primarily larger multinationals in both trading blocs that will benefit from a deal. In the Netherlands – which has always been a strong supporter of the agreement – criticism is now also being voiced, led by the BBB.
The European Commission continues to assure that health and safety standards for products from Mercosur will be the same as those for European products. It is possible that division and political volatility are hampering the EU’s efforts to reach an agreement. Can the EU really anticipate – let alone respond to – the new dynamics of the changing world order in good time?
Trade liberalisation applies to most goods and services in both directions. Within different categories of goods, tariffs are being phased down at varying rates towards lower levels or elimination, and differences may also exist between countries. For instance, the latest version of the treaty states that tariffs on industrial export goods from the EU will, in principle, be phased out over ten years, but for electric and hybrid cars and vehicles, for example, a period of 18 years applies.
It is clear that the agreement has taken previous criticism very much into account. For instance, it recognises more than 350 protected products from certain regions, such as Limburg vlaai; it restricts imports of beef, poultry and sugar; and all parties are required to comply with the Paris Climate Agreement and the EUDR.
Several countries are of great importance to the EU in terms of raw materials. At present, the EU remains heavily dependent on China for a number of these raw materials. Argentina holds approximately 21 per cent of the world’s lithium reserves (with Bolivia, which is not yet included, holding a further 22 per cent). Brazil holds around 18 per cent of the world’s rare earth elements and 12 per cent of its nickel. These are essential materials for technological independence and the sustainability and energy transition.
What at first glance appears to be merely a trade agreement is, in reality, also a means of generating geopolitical capital. It is precisely this quest that is driving both Mercosur and the EU. Factors including the threat of substantial import duties from the United States, conflicts in East Europe Europe, Africa and the Middle East, and complex relations with China are driving an active search for ‘friends’. Preferably friends who can offer products that reduce dependence on precisely those countries and regions.
Mercosur is already working hard to find trading partners beyond the EU-Mercosur agreement.
For instance, a treaty with Singapore is merely awaiting ratification; talks are under way with the United Arab Emirates; and the Reuters news agency reports that active contact has already been established – or at least that diplomats are citing them as potential bilateral partners – with Mexico, Canada (both of which would be directly and severely affected by any trade barriers under Trump), Vietnam, South Korea, Indonesia and Lebanon. Isolationism and protectionism on the one hand therefore create opportunities on the other.
In the Netherlands too, certain sectors or companies could find that the burdens of the agreement outweigh the benefits. However, the geopolitical interests are too great to halt the agreement. A constructive approach is needed, whereby the Netherlands can be vigilant in ensuring compliance with the standards set out in the agreement. Preparations can be made to address the implications. If fair competition is guaranteed, there are enormous opportunities for Dutch companies and organisations, as well as for consumers.
In a world where geopolitical relations are constantly changing, it is essential that the Netherlands acts not only as an active player within the EU, but also as a bridge-builder to new markets. Partners are desperately needed, and in this regard we can and must make good use of the diplomatic ties of the various Member States. The EU–Mercosur agreement could be an opportunity not only to stimulate economic growth, but also to play a leading role in promoting sustainable and fair trade practices. Waiting and seeing is not an option.
This article was translated, find the original here.