(Bloomberg) — Ursula von der Leyen was supposed to sign the European Union’s largest free trade agreement on Saturday, proving the bloc’s position as a geo-economic force.
Instead, the European Commission president will have to find a way to save the Mercosur pact by rallying last-minute support from countries including Italy, which helped delay the deal — once again — over fears it would hurt domestic agricultural sectors.
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Negotiations on the trade deal – with Argentina, Brazil, Uruguay and Paraguay – have dragged on for 25 years, crippling the South American countries. Brazilian President Luiz Inacio Lula da Silva said earlier this week that the time is now or never.
Officials say they will try again to sign the agreement on January 12, but there is no guarantee.
The continued failure to ratify the agreement is a blow to the EU, which wants to use the transatlantic deal as proof that it could be a global power. In particular, it wants to demonstrate that it can move outside the orbit of China and the US, which have increasingly antagonistic trade relations with Europe.
“This is the moment of European independence,” von der Leyen said earlier this week ahead of a summit where EU leaders will address funding options for Ukraine as well as Mercosur.
Photographer: Simon Wohlfahrt/Bloomberg
The EU views China as both an economic competitor and a systemic rival and has navigated a growing trade showdown in which both sides impose tariffs on the other’s imports. Earlier this year, Beijing announced plans to tighten controls on its exports of rare earths and other critical materials, showing the EU how vulnerable its industries are.
And this summer, the EU agreed to what it saw as an unbalanced trade deal with the US, agreeing to a 15% tariff on most of its exports while pledging to eliminate all tariffs on US industrial goods.
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“Not authorizing the deal would hurt Mercosur more than the EU economically, but would be a geopolitical setback for Brussels at a time of increasing American and Chinese pressure.”
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The EU-Mercosur trade pact could help Europe escape its sour dynamics with the US and China. The pact would create an integrated market of 780 million consumers, phase out tariffs on goods including cars, and give Europe easier access to Mercosur’s vast industry and agricultural resources.
Critically, this would give the EU economic links and supply chains beyond the US and China. The deal would also show the region that Europe can offer a credible economic alternative to the two superpowers.
Failure to secure the Mercosur partnership “would surely be a blunder of epic proportions for Europe’s ambitions to position itself as a relevant player on the global economic stage,” said Agathe Demarais, senior policy collector at the European Council on Foreign Relations, a think tank.
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So far, the EU has failed to find the majority support needed for passage, largely because of deep anxieties that the new trade dynamic would only undermine Europe’s agricultural sector. During a summit in Brussels on Thursday, EU leaders faced thousands of protesting farmers burning tires and throwing potatoes in the streets.
After the summit ended, however, the leaders expressed optimism that they could move forward in January.
Another three-week wait is “tolerable” after 25 years of negotiations, von der Leyen told reporters. “I’m very confident we’ll bring her home.”
The fate of the deal may come to Italy. Italian Prime Minister Giorgia Meloni said she needed more time to get national approval.
“Other developing economies are watching and would note how hard it is to get something over the EU line,” Demarais said.
Photographer: Alessia Pierdomenico/Bloomberg
For Berlin and many others, however, the Italian leader was trying to extract the maximum price for his role as director by seeking more concessions for his agricultural sector.
Lula said Meloni told her she needed a few more days.
“She explained to me that she is not against the agreement. She is simply facing a certain political embarrassment because of the Italian farmers,” Lula told reporters in Brasilia on Thursday. “But she’s confident she can get them to accept the deal.”
But while some expect Italy to eventually give its blessing given the potential benefits for its exporters, others were more disappointed.
“If there is no signature on December 20, then the deal is dead, and this will have consequences for the EU in future trade relations with countries around the world,” Bernd Lange, chairman of the European Parliament’s trade committee, said last week.
In a bid to finalize the deal this week, the European Parliament and EU capitals agreed to add new protections for European farmers to protect them from sudden fluctuations in prices or imports.
It didn’t work. And if things persist without a conclusion, the two blocs can shift their focus elsewhere.
Mercosur wants to strike a deal with the United Arab Emirates and is exploring possible partnerships with Canada, Britain and Japan. The EU, for its part, is trying to strike a deal with India, which is also nearly two decades in the making.
“If the EU wants to remain credible in global trade policy, decisions must be made now,” German Chancellor Friedrich Merz said on his way to the summit in Brussels.
–With the assistance of Michael Nienaber and Donato Paolo Mancini.
