The Latin American Report # 391

What now?

Finally, in principle, Mercosur and the European Union have signed an agreement establishing potentially advantageous trade bases for both blocs, the result of a long, back-and-forth negotiation with several chapters—where the protagonists, positions, and issues have changed—that somehow will continue to take place. European Commission President Ursula von der Leyen traveled to the Uruguayan capital to seal the controversial pact at a summit of the South American trade bloc—formed by Brazil, Uruguay, Argentina, Paraguay, and now Bolivia as full members. “This agreement is not just an economic opportunity, it is a political necessity,” the top EU officer said. “I know that strong winds are coming in the opposite direction, towards isolation and fragmentation, but this agreement is our near response.” Trump's recent threats on tariffs and the trade battle between Europe and China have dynamically crept in among the arguments of those defending the agreement. European businesses would benefit from savings of about $4.3 billion in duties each year, it is estimated.

While Europe put the brakes on the agreement due to a currently halted law prohibiting the import of agricultural products from deforested lands, countries such as Paraguay and Uruguay advocated forgetting the old continent and opening up to Asia or relaxing the rules that require consensual negotiation within Mercosur, a point on which the Argentine Javier Milei, a critic of the results of the bloc, agrees. The head of the Planalto Palace, Brazilian President Lula da Silva, was the most committed to shaking hands with the Europeans in a photo for history. All this is extremely interesting if one wants to try these positions from an ideological prism. Is it not a contradiction that conservatives like Santiago Peña and outgoing Uruguayan President Luis Lacalle are interested in markets like Vietnam and China, respectively? Or is it that ideology does not count when it comes to trade? Milei's shifting narrative regarding China offers clues to answer the last question—the previous Peronist, left-leaning government of Alberto Fernández refused the negotiations anchored in a protectionist narrative.

But to strike a deal inaugurating the world's largest free trade zone was a milestone not being discussed now in South America, unlike in Europe, where the base document is still exposed to a long obstacle course—the main one from France, which remains firmly opposed along with European farmers in general—, with no guarantees that cross-shipments of beef and autos with safe tariffs for both markets will materialize. “This came out but [...] by the skin of its teeth,” one person involved in the negotiations acknowledged to Reuters. “We have to be very realistic, we have a long way to go,” Peña also warned. Italy and Poland are two other nations that have opposed the agreement, while Germany and Spain have embraced it more enthusiastically, as the trade balance is almost ideal for them. France is hoping to get the necessary votes to veto the agreement, which must also receive the blessing of a simple majority of European parliamentarians. The ratification process could take years, while the drums of protest are already beating in Brussels, again.

And this is all for our report today. I have referenced the sources dynamically in the text, and remember you can learn how and where to follow the LATAM trail news by reading my work here. Have a nice day.