The EU and Mercosur escape room: How to unlock the Association Agreement

The Association Agreement between the European Union and the Mercosur countries – Argentina, Brazil, Paraguay and Uruguay – remains in limbo. The text, trapped in Brussel’s bureaucratic machinery over the last four years, awaits the right political momentum to advance in its ratification. As a result of these delays, Europe is risking losing not only its economic leadership, undermined by the advance of China, but also its political influence, in a region of great strategic importance.

Since the end of the negotiations in 2019, the world has changed dramatically. However, the current context makes the ratification of the Association Agreement easier than before. On the geopolitical level, the Russian invasion of Ukraine has forced a review of European trade ties and the decoupling of the Russian economy. On the political level, the Brazilian administration of President Bolsonaro, at odds with most European governments, has given way to the government of Lula da Silva, whose social and environmental objectives are closely aligned with those of Europe.

Internally there have also been changes that favour the ratification of the agreement on the EU side. The EU has put in place trade regulations for environmental, labour and human rights standards that apply to all imported products. In keeping with its objectives of sustainability and human rights, EU laws such as the carbon border adjustment mechanism, the forced labour regulation, the directive on corporate sustainability due diligence, or the deforestation regulation, reduce the pressure on the EU-Mercosur Association Agreement Trade and Sustainable Development Chapter to deliver the necessary environmental safeguards. 

What is missing for the ratification of the Association Agreement to take place? It is mainly a matter of political will. Both the EU and Mercosur must accept that the changes that have occurred since the end of the negotiations are part of the new geopolitical context that frames the relations between the two regions. This is the challenge, and main objective, of the document currently being negotiated: the additional instrument or side letter to the Association Agreement, the text whose approval will unblock the ratification.

This additional instrument must recognise that the new EU regulations are part of the acqui communautaire and focus on ensuring an implementation that lowers, as much as possible, the compliance costs of these regulations for the Mercosur companies. The objective of the new EU regulations mentioned before should not be to restrict trade in goods produced in deforested areas, or with forced labour. The objective is to reduce or eliminate illegal deforestation and forced labour. If the EU does not facilitate the implementation of its policies by exporters, the increase in EU trade barriers will result in trade diversion rather than better environmental and human right outcomes. 

The additional instrument must also incorporate the contribution to the fight against climate change and the protection of biodiversity of the South American countries. This is the case of Brazil, which dedicates more than 52 million hectares – an area similar to Spain – to low-emission agricultural production and where 48 percent of energy comes from renewables, more than double that of the EU. The motivation behind these policies was not a response to external pressure but came from within: it arises in response to the preferences of civil society in Mercosur. These contributions should be recognised. 

The ratification of the agreement will not be easy. From the environmental side, pressure will continue to introduce greater commitments to sustainability. On the other hand, the commercial and industrial sectors that consider that the agreement threatens their economic activity, due to increased competition, will always be against it. 

Given these arguments, it is important to highlight that the Association Agreement offers mechanisms to reduce EU and Mercosur trade dependency with third countries and to promote the complementarity of their economies in the energy transition. It is estimated that the Association Agreement will generate economic growth in both regions, exports of Argentina and Brazil will increase more than 4 percent, and private consumption of Paraguay and Uruguay will rise by 1.5 and 2.5 percent respectively. 

The ratification of the EU-Mercosur Association Agreement presents a historic opportunity, not only for the economic integration of both regions, but also to establish a continuous political dialogue, as necessary as it is strategic, that allows aligning EU and Mercosur’s geopolitical visions and climate policies. The EU and Mercosur need to rediscover the benefits of the agreement and recuperate the energy of 2019, when the negotiations concluded. Otherwise, both regions are bound to keep going in circles, chasing their tails, stuck in the EU-Mercosur escape room.

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This blog post is largely based on an article published in El País on the 4th of June 2023 with Isabel Pérez del Puerto. The original article can be found here