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FILE PHOTO: Brazilian president Lula da Silva hugging Ursula von der Leyen the President of the European Commission at the 3rd EU-CELAC Summit in Brussels, Belgium on 17 July 2023.
EU and Mercosur near trade deal (at last)
It has been a long four years since the free trade deal between Brussels and Latin America’s largest trade bloc was agreed in principle, but all sides now, finally, look close to signing on the dotted line.
European Commission President Ursula Von der Leyen and Brazilian President Luiz Inácio Lula da Silva plan to meet on the sidelines of the COP28 summit in Dubai to push through the final hurdles. If all goes well, the European Commission’s vice president for trade may attend the Mercosur summit in Rio de Janeiro on December 7 and bring an early Christmas present home for EU exporters.
The deal would create an integrated market of over 780 million consumers, one of the largest in the world. The European Commission estimates it will save over $4.4 billion in tariffs alone, and give Europe better access to minerals crucial for renewable energy applications. Farmers in Mercosur countries meanwhile – that’s Brazil, Argentina, Paraguay, and Uruguay, with Venezuela suspended, and Bolivia joining soon – are expected to get a nice boost, too, especially for their exports of beef, coffee, and soybeans to the EU.
So what’s the holdup? Environmental concerns, mostly. Some European member states have pushed for stricter external monitoring and protections against Amazon deforestation than Brasilia can stomach.That said, Lula has signaled he is ready to compromise in order to make good on his earlier pledges to revitalize Mercosur as a formidable trade power.
And Brussels has its own reasons to be flexible: after failing to land big potential deals with India and Australia, a third major trade failure could pose problems for the centrist coalition presently in charge as it tries to fend off surging right-wing challengers in upcoming EU parliamentary elections.
The effort could still fall short, but Eurasia Group expert Julia Thomson says all sides are aware the moment of opportunity is ephemeral.
“Even if they can't get everything they're expecting,” she says, “negotiators will try to advance the deal.”
But if they don’t, she warns, “it will probably go back into the fridge and take ages to be rediscussed.”
Argentine presidential candidate Javier Milei gestures during the closing event of his electoral campaign ahead of the November 19 runoff election, in Cordoba, Argentina, November 16, 2023.
Milei’s win raises pressure for completion of EU-Latin America trade deal
Javier Milei’s victory in Argentina’s presidential election could rapidly accelerate negotiations for a trade treaty between the Mercosur trade bloc and the EU. Milei, a self-declared anarcho-capitalist, vowed to pull Argentina from Mercosur altogether if he won. His victory raises questions about the future of the bloc and talks surrounding the treaty.
A trade pact between the bloc — Argentina, Brazil, Paraguay, and Uruguay — and the EU has been in the works for years, and the two sides reached an agreement in principle in 2019. But talks have been stalled ever since thanks to disagreements over environmental commitments pushed by the EU.
The Milei effect: There now appears to be a mad dash to complete an agreement before Argentina inaugurates Milei, a far-right libertarian who’s drawn comparisons to former US President Donald Trump. Diplomats involved in the negotiations told the Financial Times they’re hoping to wrap things up by early December.
“The talks are moving ahead fast,” a Brazilian official taking part in the negotiations told Reuters.
As a climate-change denier, the Argentine president-elect could complicate negotiations on environmentally related matters. While it would be tough to finalize the deal before his inauguration, this might be the incentive all parties need to get to the finish line. We’ll be watching to see whether they can reach a deal before Milei takes office on Dec. 10.
Brazil's President Luiz Inacio Lula da Silva and Portugal's PM Antonio Costa during a press conference in Lisbon.
Brazil & EU tussle over war but want to talk trade
On his first European trip since taking office in January, Brazil's President Luiz Inácio Lula da Silva was hoping to win final support for a free trade agreement between the EU and Mercosur (Argentina, Brazil, Paraguay, and Uruguay) that’s been stuck since 2019. So far, he’s been booed in Portugal for his controversial remarks on the war in Ukraine following a visit to China, but he doubled down on this rhetoric in Lisbon over the weekend.
Still, neither Lula's position nor the European backlash to his Ukraine balancing act is the real story here. The bigger issue is whether the EU and Mercosur will ever sign on the dotted line amid troublesome LatAm politics and Green jitters across the pond.
Lula is worried that if he waits too long to close the deal on Brazil's terms, the fast-approaching October election in Argentina could soon start to complicate things, not to mention Uruguay pursuing a separate FTA with China. For their part, France and Germany seem to have given up their reservations about Amazon deforestation during the Bolsonaro years, but environmentalists in Europe remain skeptical of Lula walking the talk.
When the Brazilian president meets Spanish PM Pedro Sánchez on Tuesday, don't be surprised if they talk more about trade than war. After all, Lula is still eager to trade more with the EU, and Spain takes over the EU presidency in July.Smoke billows from a fire in an area of the Amazon rainforest near Porto Velho, Rondonia State, Brazil.
Who controls the “lungs of Earth”?
Those fighting to halt climate change call the Amazon rainforest the "lungs of Earth," and they're frustrated that Brazil's current president has made his country a chain-smoker.
A healthy Amazon is crucial for the global fight against climate change. Human activity is pumping unsustainable amounts of carbon into the atmosphere, trapping enough heat to warm the planet in ways that profoundly disrupt the climate. Trees, and the soils they grow in, store carbon that might otherwise reach the atmosphere, but trees that are cut down or burned release more carbon into the air.
That makes rapid deforestation of the Amazon an urgent problem for the entire planet. Clearcutting of trees in the region has been a problem for decades, but the January 2019 inauguration of Jair Bolsonaro as president of Brazil, home to more than 60 percent of the remaining Amazon tree cover, has made matters much worse.
Bolsonaro has stripped environmental protection agencies of funding and manpower, which flashes a bright green light to those who want to cut and burn trees to open land for farms and cattle ranches. Bolsonaro's bid to use Brazil's military to police the Amazon has failed, perhaps because the president himself and some of Brazil's army brass may not believe in the mission.
The results speak for themselves. In 2019, more than one-third of all destruction of the world's tropical forests took place inside Brazil alone. The Amazon lost more trees in 2019 than at any point in the previous decade, and then, despite the pandemic, beat that record again in 2020. When confronted with evidence that the number of fires in the Amazon has spiked sharply on his watch, Bolsonaro accused "greenies" –environmental activists — of setting the fires deliberately to "bring problems to Brazil."
Bolsonaro and his supporters in Brazil don't like it when outsiders demand new protections for the Amazon. "OUR SOVEREIGNTY IS NON-NEGOTIABLE," he tweeted last year in response to threats of economic sanctions over the Amazon from then-US presidential candidate Joe Biden.
But outsiders concerned about the climate are increasing their pressure. The EU has warned that failure to protect the rainforest is an important obstacle to completion of a blockbuster trade deal between Europe and Mercosur, a Brazil-dominated South American trade bloc. Institutional investors are pushing too. But Brazil has (so far) been able to resist these pressures, in part because it exports far more to China than to either the US or Europe, and Beijing isn't pushing for change.
That said, economic threats have helped mobilize Brazil's business community. Many companies have promised to cut carbon emissions and to remove products produced via deforestation from their supply chains. An alliance of Brazilian CEOs and scientists has called for investment in sustainable development.
But so far, Bolsonaro has shrugged off external and internal pressure for a change of course, in part, perhaps, because a challenging election campaign next year might depend on the continued support of his political base — including farmers and ranchers in the Amazon, who say that their industry is important for feeding Brazil and maintaining the country's position as an agriculture superpower. In particular, Brazil is now the world's top exporter of soy beans.
Joe Biden hopes a mix of carrots and sticks might help. The new US president has asked his climate envoy John Kerry to lead an international effort to raise $20 billion for the Amazon, though there are plenty of debates to come over how that money should be used. The money won't flow unless deforestation is reduced, but the new US president hopes that engaging, rather than threatening, Bolsonaro can produce a better result.
In the end, the size and density of the Amazon is itself part of the problem. The ground it covers is larger than all of Western Europe, so whatever agreements are forged and promises made, it will never be easy to police Amazon deforestation.
But Ibama, Brazil's civilian environmental protection agency, must be given the resources to try, climate experts warn, because those trees are crucial for all of us.