By the Blouin News Business staff

Mercosur-E.U. free trade talks gain (some) traction

by in Americas, Europe.

President Dilma Rousseff with Jose Manuel Barroso and Herman Van Rompuy (unfocused) after a meeting on October 4, 2011. Photo: AFP/Getty Images

President Dilma Rousseff with Jose Manuel Barroso and Herman Van Rompuy on October 4, 2011. Photo: AFP/Getty Images

South America’s trading bloc, Mercosur, and the European Union have made some progress in advancing on a free trade agreement. A high-level technical meeting has been scheduled for March 21 between both sides, in which they are expected to present concrete proposals. It might be a symbolic step but one that has the potential to ignite an agreement. If anything, it constitutes a positive momentum for the talks, which have been stalled for months (or 14 years, depending on how you look at them — the talks started in 2000 and have made no real progress since).

The free trade agreement was an important issue at a Brazil-E.U. summit held in Brussels on Monday — even if a Mercosur member doesn’t officially have the authority to speak on behalf of all of the bloc’s members (Argentina, Brazil, Uruguay, Venezuela — left out of talks with Europe as it is not ready to compete — and Paraguay). “I believe that we are, for the first time, close to achieving our goal. For Brazil’s part, we are keen to make this happen, as are the other member countries of Mercosur,” said Brazil’s President Dilma Rousseff. Her excitement and confidence seem somewhat optimistic since Mercosur’s common voice and position are matters of contention.

Handshake between Herman van Rompuy, Dilma Rousseff and José Ma

(L-R)  Durao Barroso, Rousseff, Herman van Rompuy

It’s well-known that Brazilians are far more interested in reaching a deal than any of the other Mercosur countries — though junior members Uruguay and Paraguay are strong supporters of an agreement. Brasilia has emerged as Mercosur’s de facto representative in the discussions with the E.U and is happy with that responsibility (Brazil represents over 70% of Mercosur’s GDP and 80% of its population). But Argentina remains the biggest uncertainty in the trade talks. Its protectionist and internationally defiant attitude are clear indicators that it will be the biggest impediment within the bloc. If Buenos Aires were to open up to the E.U. for greater imports and exports it could be a way to reenergize its decaying economy. Argentina even appears to be cleaning its world image up, especially after the government and Spain’s Repsol officially reached an agreement on Tuesday in which the energy giant accepted a $5 billon compensation offer over the nationalization of Repsol’s operations in the country. This move comes only days after the country debuted a new inflation index with which it says will present more accurate economic data.

Another lingering issue is Venezuela and the ongoing political uproar there. Caracas is set to host Mercosur’s President’s summit on March 7, two weeks before the technical Mercosur-E.U. meeting, since it temporary holds the presidency of the trading bloc. Delaying it again — it has been postponed in up to three occasions in recent months — would signify that the bloc’s common stance will also be threatened again. Both sides have work to do in order to present the lists of imports that each side would be willing to liberalize in a potential pact that would encompass 750 million people and $130 billion in annual trade. Brazil, Paraguay and Uruguay have agreed to lift tariffs on E.U. imports for more than 90% of goods, while Argentina reportedly stands at between 80 and 90%.

So it’s clear the talks are headed somewhere. European elections in May give the Western bloc a reason to push harder and faster for an agreement. E.U. investments in Mercosur amounted to more than €285 billion in 2012, more than the Union’s investments in China, India and Russia combined. By exchanging offers both sides will show that they are on board to reach a deal yet it is also a reminder of a similar situation in 2004, when plans were also presented only to see the negotiations freeze afterwards. Both sides should work to see the story have a different ending this time around.