Will They Kill the EU and Mercosur Deal Once Again?

Twenty years ago, the European Union (EU) and the South American Common Market, known as Mercosur (its Spanish-language acronym), founded by Brazil, Argentina, Uruguay, and Paraguay, later joined by Venezuela (now suspended) and Bolivia, began negotiating a free-trade agreement. The story of these negotiations is a case study in protectionism and economic nationalism, and plain political stupidity. Finally, and miraculously, last September, the European Commission, the executive branch of the EU, approved the deal. It is expected to be signed by the ministers of the 27 member countries of the EU within a matter of days, but France, its main opponent, has just secured the support of Italy against the deal. If we add Poland and Hungary, the conditions for preventing the accord from going through are met—a minimum of four countries representing at least 35 percent of the population of the EU are needed. 

Several lobbies, most significantly the agricultural interests (as seen in the violent demonstrations in Brussels, the latest in a series of protests that have been ongoing for years), have thus far successfully deterred their governments from doing the right thing. The deal, supported by the likes of Germany and Spain, would benefit one-fifth of the world economy and 750 million consumers (and producers) by eliminating more than 90 percent of the barriers currently standing in the way of commercial exchanges between the two blocs of countries. One way to consider the potential benefits of the accord is to examine the existing trade between the EU and Mercosur.

Last year, they exchanged 111.2 billion euros, equivalent to 130.5 billion USD, while a decade ago, commercial exchanges between the two blocs amounted to barely more than 74 billion euros. Imagine how many more goods and services would be crossing the Atlantic in both directions if these accords had been signed ten or fifteen years ago.

Animal and food products constitute about one-fifth of Mercosur’s exports to the EU, followed by raw materials and minerals, while the EU exports primarily transport equipment and chemical products to Mercosur countries, which is why trans-Atlantic trade is often labeled “cars against cows”.   

Mercosur has been one of the worst trading blocs since these entities became fashionable. It was born in the early 1990s with the aim of integrating South America countries by eliminating barriers to the free circulation of goods, services, ideas and people, but it soon became a protectionist, bureaucratic, politicized labyrinth in which from time to time a reasonable leader of one of the member countries would try to steer the others towards the bloc’s original intent and fail miserably. So much so, that Uruguay’s previous president, Luis Lacalle Pou, threatened with, and actually kicked off, unilateral negotiations with countries outside of the trading bloc, arguing that Mercosur was shackling his country’s economy and severely limiting its trading options.

It is quite surreal that today, despite the fact that the bloc’s main country, Brazil, still has a protectionist, bureaucratic and interventionist government, Mercosur is ready and eager to sign a deal with the EU that would eliminate most barriers, while the Europeans are the ones preventing the accord from going through. And not even all Europeans—just four countries out of a total of 27 that are supposedly center-right or right-wing countries that pay lip service to economic freedom.

It would be tragic if France, Italy, Poland, and Hungary were to hinder one of the most promising commercial initiatives in a long time, especially now that the world, led by the United States, is undergoing a phase dominated by economic nationalism.