Mercosur’s proposal for relaunching EU trade agreement: the sticking points

Santiago Cafiero met with EU representative Josep Borrell and presented a series of points to "review" regarding the agreement. Financing for development, government purchases and electromobility are the focus of the debate.

Mercosur has a concrete proposal to relaunch the trade agreement with the European Union. Qualified sources at the Foreign Ministry said Foreign Minister Santiago Cafiero expressed this sentiment on Wednesday to European Union representative Josep Borrell.

The points the South American bloc is proposing for review mainly relate to a new regulation adopted by Europe which restricts the entry of products for environmental reasons. Financing for development, government purchases and electromobility are the focus of the debate, and Brussels was amenable to negotiating.

After that ad-like scene in which the former foreign minister Jorge Faurie cried on the phone while telling then Argentine president Mauricio Macri that the trade agreement between the European Union and Mercosur was a fact, there was little to no information about its implementation. That 2019 episode was yet another stunt for the electoral campaign, and despite the announcement, there are “unfinished issues” for its implementation.

‘European Green Deal’

The scenario has changed in the last three and a half years. In 2020 the EU as a whole signed the “European Green Deal”. These are a series of initiatives that seek to make the bloc “climate neutral” by 2050, and propose a 50% reduction in greenhouse gas emissions by 2030, compared with 1990 levels. This regulatory framework has a direct impact on the trade agreement.

As a concrete example of the harm caused by these measures, Mercosur mentions the forthcoming entry into force of the Renewable Energy Directive (RED II), which aims to modify the Indirect Land Use Change (ILUC) threshold. In Argentina, it would hurt several activities, including soy biodiesel which represented sales of more than US$1.8 billion in 2022, 20% of the total exported to Europe.

Last Wednesday, Cafiero held meetings in Brussels with Josep Borrell, Vice President and High Representative for Foreign and Defense Policy, and Valdis Dombrovskis, Executive Vice President and Trade Commissioner of the European Union, among others. Prominent diplomatic sources confirmed that the Argentine official brought up a series of concrete proposals to “review” the agreement between the European Union and Mercosur.

Points up for review

One of the outstanding points Mercosur proposes for review is the so-called “development cooperation instrument”. This is a commitment the European bloc made that involves financing to adapt to the productive sectors, but it does not yet have an implementation framework yet. The goal is to shorten the current asymmetries and new limitations that the Green Deal entails.

Another key point is linked to government purchases. Specifically, safeguarding policies such as “Buy Argentine”, which prioritizes national industries in state investments, considering that this constitutes a fundamental tool for productive sectors in developing economies.

The third point is the development of a special chapter for electromobility, a sector Argentina and Brazil aim to develop together, as they already do with the auto industry. Sources say the Mercosur proposal is to establish some “common parameters”.

Much of the dialogue revolved around the Green Pact’s potential impact on Mercosur exports. Therefore, in this proposal for a “revised agreement”, alternatives are being considered to reduce the damage it will have on Argentine, Brazilian, Uruguayan and Paraguayan producers.

New scenario

The government believes Lula da Silva’s return to power in Brazil creates a new scenario in which to rethink the association between the blocs. An official explained that after 20 years of negotiations “the governments of Macri and Bolsonaro granted all the points Mercosur had stated conditions for in the past two decades.”

Meanwhile, the official explained that “the agreement was never implemented”, and therefore there is “room to negotiate on issues that are sensitive for local production”. In dialogue with EFE news agency, Cafiero said that EU officials were “very receptive” and described the meetings as “constructive and sincere.”

Argentina holds the pro-tempore presidency of Mercosur until June, when it will transfer control to Brazil. According to the Argentine foreign minister, Spain –who will lead the EU Council in the next semester– wants to give a “big boost” to relations with Latin America. The issue is, once again, on the table, and all the stakeholders seem interested in moving forward.

Originally published in / Translated by Agustín Mango


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