EU-Mercosur: an opportunity not to miss

In July 2019, the European Union and Mercosur (the “Southern Common Market” made up of Brazil, Argentina, Uruguay and Paraguay) announced the conclusion of an agreement of association. It had taken 20 years of long and often fruitless negotiations.

The EU-Mercosur agreement was the key piece that was missing to complete the map of association agreements between the EU and the Latin American and Caribbean (LAC) region that was launched with the creation of the bilateral Strategic Association at the Summit of Rio in 1999. It was supposed to usher in a new dawn in relations. However, the presence and influence of Europe in the region has not stopped diminishing since then. This is due not only to the emergence of China, which has penetrated the economies of most Latin American states and has become the most important trading partner, but also to a distancing due to the different ways in which Europe and LAC they have adapted to the new dynamics and global challenges.

The fact that the EU-Mercosur agreement has encountered ratification problems has not helped either. Rather, the question of whether it will ever come into force has contributed to subverting expectations of improvement in a relationship that has experienced considerable decline. The years since 2019 have shown that, in a world of greater complexity and growing geopolitical competition, the revitalization of the partnership between the EU and LAC requires a commitment to bring positions closer together on the great transformations that the world is facing, such as the technological and energy transition, the fight against climate change or inclusion policies to counteract poverty and inequality.

The association agreements that the Union seeks with the Latin American and Caribbean region are more than just trade agreements, they are instruments through which relations are channeled, an institutional and regulatory framework, and a forum for political dialogue to develop joint policies and strategies to face the tensions brought about by the international context.

A relationship in times of crisis

At the beginning of the 21st century, Europe was perceived in the Latin American and Caribbean region as an ally with shared values: a commitment to multilateralism, human rights and democracy. The European integration process was seen from outside as a success story, although far from being the model to replicate. The financial crisis of 2008 undermined the credibility of the EU and reinforced the idea that the hegemonic power of the West was shrinking, while China and other emerging powers occupied positions of power.

During the commodity boom that preceded the crisis, LAC countries saw Asian “growth engines” as an opportunity to free themselves from EU regulatory demands. With the UK voting to leave the EU in 2016, Europe’s regulatory power waned. The COVID-19 crisis was another moment in which the EU’s commitment to Latin America was called into question, as vaccines made in the EU arrived later than those produced by China or Russia.

The European-Latin American distance was also revealed after the Russian invasion of Ukraine that began a year ago. Part of the LAC political class perceives it as an alien conflict arising from the confrontational dynamics between NATO and Russia. Although most countries in the region voted to condemn the aggression at the United Nations, no direct support has been given to Ukraine. It is an example of how Russia’s diplomacy and cooperation in strategic sectors has increased its influence in LAC. This adds to the persistence of anti-American sentiment due to its strong interventionism in the region during the Cold War; Russia is seen as a counterweight to US hegemonic power and, in some cases, as a strategic partner in the face of Western sanctions, such as those the EU has enacted against Venezuela and Nicaragua.

Most of the countries in the region see relations with China, Russia and other emerging powers such as South Africa and India as a way of strengthening their international insertion through multiple alliances and variable geometry that make up a multipolar vision of the world. They defend a position of non-alignment that gives them autonomy on the international scene. That autonomy and capacity for agency inspired, for example, the creation of the BRICS, the combination of Brazil, Russia, India, China and South Africa (to which Argentina requested its membership last May).

«The global rise in interest rates has caused the increase in its debt, which some attribute to Brussels sanctions against Moscow»

Meanwhile, the economic effects of Russia’s war on Ukraine have exacerbated Latin American countries’ inflation problems, as well as food and energy security. The global rise in interest rates has led to an increase in its debt, which some attribute to Brussels’ sanctions against Moscow. All this means that, if the EU wants to recover its negotiating capacity with the region, it cannot present itself as an antagonistic bloc to the emerging powers, but rather as a partner with which stable, reliable and lasting relations can be built.

interregional associations

Agreements with associations are the most powerful foreign policy instrument available to the EU as they have dominated EU-LAC relations for decades. Europe strengthened relations with organizations in the region such as the Central American Integration System (SICA), the Andean Community (CAN), the Caribbean Community (Caricom) and, more recently, with the Pacific Alliance, in addition to Mercosur.

This policy has been hampered by the fragmentation of some of the interregional cooperation processes in Latin America due to institutional weaknesses and ideological conflicts. However, political changes in Colombia, Brazil and Chile have fostered greater cooperation between LAC countries and have opened a window of opportunity to hold an EU Summit with the Community of Latin American and Caribbean States (CELAC) in July 2023, at the beginning of the Spanish presidency of the EU. It is the first time since 2015 that the summit has been held, due to previous political tensions.

The association agreements were also the EU’s response to the extension of the Free Trade Agreements (FTA) between the US and the countries of the region. The initial road map began with the negotiations with Mercosur, but while these remained stagnant, progress was made with other countries. Not by chance, the first agreements were with the countries or groups of countries that had previously signed an FTA with the United States: Mexico (1997), Chile (2002), Caricom (2008), Central America (2012), Colombia and Peru (both in 2012) and Ecuador (2013). In 2016, there was even an agreement with Cuba, although it had many peculiarities.

The first two, with Mexico and Chile, have since been renegotiated. In 2018 a new agreement in principle with the Mexican government, but is still in the process of being signed with some final hurdles. A new agreement with Chile was also reached in December 2022, pending legal verifications. These negotiations complement those held with Mercosur and speak of the EU’s commitment to adapt the agreements to the new international context, in which the reference is not only the US, but increasingly China and the trade tensions between the two. Chinese exports, which have not stopped increasing in recent decades, have reduced the relative weight of EU trade with the LAC region. However, exports of services have continued to increase and the EU continues to be the main source of Foreign Direct Investment (FDI) in the region.

The “trade war” between China and the United States affects both the EU and Latin America. It has paralyzed the World Trade Organization and shed light on the fragility of value chains. It has also exposed vulnerability to China’s heavy reliance on commodities and launched a new debate about whether the pattern of economic globalization affecting world trade institutions and rules has peaked.

The governance of trade in the 21st century is based more on rules than on tariff barriers or other constraints. The EU Association Agreements offer the opportunity to advance a regulatory framework that incorporates the challenges of sustainability and transition and helps to overcome block competition. The negotiation of these frameworks also helps to blur the image of an EU as a regulatory fortress that imposes rules and regulations on other countries, instead of a contributor to multilateral agreements that reinforce international regimes, especially in those areas that have little regulation.

The importance of the EU-Mercosur agreement

Mercosur is the main economic partner of the EU in Latin America, with a share of almost 40% of total trade; it also absorbs most of the European FDI in the region. The EU-Mercosur agreement is the jewel in the crown of association agreements with the region. However, the ratification of the agreement has been questioned in Europe due to accusations of the negative effects it may have in terms of further deforestation of the Amazon rainforest. However, this agreement, like those concluded with Chile and Mexico, contains a chapter on trade and sustainable development that goes far beyond previous association agreements. It includes provisions explicitly dedicated to sustainable forestry, commits to promoting trade in products from sustainably managed forests, cooperation on forest conservation, and stipulates the creation of a sub-committee for cooperation and to resolve any disagreements. These are requirements that go beyond those established in any other Union trade agreement.

«Increased trade with China led to a reprimarization of the Mercosur economies and a greater dependence on extractive industries»

The cost of the lack of an agreement with Mercosur during the last two decades is evident: in 2000, when the EU-Mercosur negotiations began, Europe was its main trading partner. Today, China is ahead. The increase in trade with China led to a reprimarization of the Mercosur economies and a greater dependence on the extractive industries. The EU’s resistance to ratifying the agreement with Mercosur has damaged its credibility and weakened the trust that the LAC region used to have in the Union.

However, in the face of China’s relentless advance and growing competition with Washington, Europe’s response must be proactive and not defensive. By promulgating the treaty with Mercosur, the EU would be ahead of the US for the first time in the region’s main market.

A shared value between both regions is the defense of multilateralism. However, the understanding of the term is not the same; Europe remains aligned with the values ​​of the liberal world order while in many LAC countries revisionist positions are gaining strength that advocate the need for reforms in line with the multipolar world and that reflect the decolonial vision emerging from the so-called Global South. They demand a greater commitment to promote the United Nations 2030 Agenda, which suffered setbacks during the pandemic. For this, it is necessary to promote alliances between various actors in a multilevel governance structure in which regionalism and interregionalism have a place in the reconfiguration of the global order.

The application of the EU-Mercosur agreement would be a big step in this direction. The Spanish presidency of the EU during the second half of 2023 wants to give new impetus to the relationship. The signing of the association agreement is an opportunity that should not be missed.

Article translated from English from the website of Internationale Politik Quarterly (IPQ).