EU trade chief cancels Brazil trip as prospects of Mercosur deal recede

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The EU’s trade commissioner Valdis Dombrovskis has cancelled a trip to Brazil to finalise the bloc’s landmark trade deal with the South American group of Mercosur countries as prospects receded of completing the deal this year.

The EU’s trade chief had been due to travel to Rio de Janeiro for a gathering of the Mercosur nations, which include Brazil, Argentina, Uruguay and Paraguay, on December 7.

But the long-awaited agreement has faced setbacks, including a change of government in Argentina and a public expression of opposition by French President Emmanuel Macron.

Macron cast uncertainty over the deal’s completion following a meeting with Brazilian President Luiz Inácio Lula da Silva at the UN’s COP28 climate summit on Saturday. The French leader said he had concerns about a lack of environmental targets.

“I’m against the Mercosur agreement with the European Union. It’s an accord that’s completely contradictory with what [Lula] is doing in Brazil and with what we are doing. It’s a deal that was negotiated 20 years ago and which we’ve tried to mend, and which has been badly mended,” Macron said.

“I can’t ask our farmers, our industrialists in France but also everywhere in Europe to make efforts to apply new rules to decarbonise . . . and then say all of a sudden, ‘I’m removing all the tariffs to allow products to enter which do not apply these rules’.”

Macron’s comments have frustrated EU officials who had hoped they were close to clinching a deal that has been in negotiations for two decades.

An upcoming change of government in Argentina has also raised doubts. President-elect Javier Milei, a radical libertarian, has previously criticised the Mercosur bloc as protectionist. His designated foreign minister said last week that she supported the agreement with the EU, telling a business conference: “It would be much better to have the agreement than not to have it.”

But Milei and his administration are due to take office on December 10, further complicating the timeline for the deal as the new government’s trade appointees will not take office until after the Mercosur meeting in Brazil.

Two EU diplomats said that chances of a deal this year were slipping, while one said talks towards the agreement could collapse altogether by summer 2024.

Negotiators have faced a series of setbacks relating to the EU’s desire to add more environmental commitments since a provisional agreement in 2019.

A senior Brazilian diplomat said Brasília intended to “keep working with the [European] Commission and the new Argentine government, since we are close to an agreement”. Milei’s government had indicated they wanted the agreement to proceed, the diplomat said.

The next few days, which coincide with the end of Brazil’s tenure in the rotating Mercosur presidency, will be vital to finalising the agreement, which would be the first between the Mercosur bloc and one of its trading partners. It would cover countries with a total population of 780mn people.

Paraguayan President Santiago Peña has also warned that Mercosur could walk away if the EU does not finalise the treaty by December 6.

Outstanding issues include competition in public procurement and concerns over the EU’s deforestation legislation and environmental requirements.

President Lula is due to land in Berlin on Sunday for talks with German Chancellor Olaf Scholz. Unlike France, Germany’s coalition government has backed the deal.

Luisa Santos, deputy director general at the industry body BusinessEurope, said the agreement was crucial to the bloc’s economic growth.

“Mercosur is even more important in a moment where our economy is facing headwinds and companies are struggling to remain competitive. Not doing Mercosur is a terrible mistake from a political, economic and sustainable development point of view,” Santos said.

A spokesperson for the commission said that the EU and Mercosur were “engaged in intense and constructive discussions with a view to finalising a political, cooperation and trade agreement”.

“Negotiations will continue in a constructive spirit with an ambition to conclude as swiftly as possible,” they said.

Additional reporting by Michael Stott and Ciara Nugent