New scenarios for the EU-Mercosur talks

By Alfredo Valladão

Waiting one more year to start doing serious business doesn’t look like a good start. But it is also true that UE-Mercosur negotiations are stuck into two deep potholes. One is the South American block lack of consensus on this matter, with some members (Argentina and Venezuela) deeply opposed to any free trade agreement with anybody. The other is the European agriculture lobby, hostile to any concessions and powerful enough to hold hostage Brussels’ and European national authorities alike.

For Brazil, the dilemma is quite straightforward: how to advance towards an agreement with Europe without jeopardizing the strategic relationship with the presently über-protectionist Argentinian government. Mercosur is not only a trade integration scheme that holds together by the constraints of a Customs Union. It is also the political mechanism that seals the nearly three decades old cooperative relationship between Brasilia and Buenos Aires, after nearly two centuries of strategic competition (including a fledging nuclear arms race in 1970-80). This Southern Cone integration process is the key to a peaceful and stable South American environment free from the dangerous potential rivalry between the two biggest regional powers. Brazil today will not put at risk this foundation of its neighborhood stability, neither by pushing Argentina too hard nor by prospecting a bilateral FTA with Europe, which could implode Mercosur. But it is also true that the economic and power gap between the two countries has been widening steadily, so Brasilia now has more strong arguments to “persuade” Buenos Aires to come along.

What could be the scenario for squaring this Brazil-Mercosur circle? Presently there are two possible parallel paths that could reinforce each other. The first is to go ahead with a set of bilateral EU-Brazil agreements on “anything but trade” (more precisely: anything but tariffs): rules, standards, SPS, investment, taxation, regulations, business facilitation, the whole arsenal of TBTs and non-tariff barriers to trade… With some political will, this can be done without endangering Mercosur, and it would strengthen the Brazilian hand in promoting the second path: the sequencing of the biregional talks. Mercosur would be kept as a negotiating umbrella under which each member country could adopt faster or much slower liberalization commitments and schedules. The EU has already experienced this kind of solution in its negotiations with the Andean Community. In any case, these two complementary courses should be greatly facilitated by a fresh look at the worn-out stumbling-blocs of the biregional talks. It is time to take into account the new perspectives offered by the lessons of the OECD-WTO “TIVA” research, which stress the importance of interdependent production networks and services.

To have any chance of success, this double-track negotiating strategy has to crack two hard nuts. Brasilia has to convince Buenos Aires (and eventually Caracas) to follow its lead on that matter without embarking upon a dramatic Mercosur mid-life crisis. For any “sequenced” negotiations, the initiative has to be taken by the “Mercosurians” – the EU will never flaunt such idea for fear of being labeled a Mercosur demolition squad. Brazil by itself has been growing a lot of muscle in the region. But will it flex it? The second problem has to do with the EU itself. There will be no possibility of an agreement if Brussels don’t put on the table a much better offer on agriculture, particularly on beef and poultry. More access to the EU’s agriculture market is practically the sole main advantage that Mercosur member countries could trade for opening their domestic markets for Europe’s industrial products and services. But that means a lot of political willpower from Brussels and the more free-trade oriented EU members, specially in the present times of deep economic crisis and with a struggling Socialist government in France, which has to deal with the most over-powerful agri-lobby of the whole continent. If these two nuts can be cracked, all the other issues – even if still difficult to negotiate – will be cherries on the cake.