EU Nears Finish Line on Trade Deal With South American Bloc in an Effort to Deal Blow to China

The French at least are making their opposition to the proposed EU-Mercosur trade deal abundantly clear, and for once French President and World Economic Forum lackey Emmanuel Macron is listening.

French farmers protests are always laced with interesting strategies; here french farmers are covering Govt offices with manure ! pic.twitter.com/3FR8mFOmSr

— Ramandeep Singh Mann (@ramanmann1974) November 21, 2024

Macron is no stranger to being slapped and hit with eggs by the French, and potentially fearing what the manure protest tactic augurs for his future he continues to voice strong opposition to the EU-Mercosur trade deal.

The problem is that Paris doesn’t look to have enough bloc support to derail the deal, which is sailing towards approval next week.Let’s take a look at the proposed deal, what it means for the average European, and why the EU is so eager to get it finished.

What Is the EU-Mercosur Trade Deal?

Chief negotiators from the EU and the Brazilian-led South American bloc of Mercosur countries are meeting in Brasília this week for final talks on their trade agreement that’s been under discussion for a quarter century. The big push from Brussels to get a deal done now is purportedly to help counter China’s influence in South America. Mercosur also includes Argentina, Paraguay, Uruguay and Bolivia as members.

The talks seek to establish one of the world’s biggest free trade zones that would cover about 750 million people and about one-fifth of the global economy. Here’s Euronews with more:

The FTA aims to remove tariffs on 100% of all industrial goods imported by the EU from the South American bloc. Meanwhile, Mercosur would remove tariffs on 90% of industrial goods imported from the EU, including cars, machinery, IT equipment, textiles, chocolate, spirits and wine.

“The tariffs on cars and car parts to Mercosur are currently 35%, which is very high. Machinery around 14%-20%, chemicals around 18%,” said Li. “So that’s why then countries like Germany will be very happy to see some of those tariffs go down.”

As the country is battling one of its worst crises, German Chancellor Olaf Scholz has repeatedly called for closing the deal saying that: “The Mercosur agreement is groundbreaking for diversifying and strengthening the resilience of our economy.”

It most certainly would strengthen the ailing German automotive industry, including struggling Volkswagen, BMW and Mercedes-Benz, as well as the German chemicals industry with companies like Bayer.

There’s reason to believe that the trade deal will not be a panacea for German industry. Aside from the country’s energy disadvantages due its Russia policy, China already has a heavy presence in South American auto market that appears poised to grow. From the Buenos Aires Times:

Chinese vehicle makers have pushed pedal to the metal in recent years. With multiple brands that combine price and quality they have managed to conquer the Latin American market, rising ahead of the United States and Brazil. In the last five years, China has quadrupled sales to the region. In 2019 it sold US$2.18 billion of cars, in 2023 it hit US$8.56 billion and 20 percent of the market to become the main supplier to Latin America, according to the ITC International Trade Centre.

The United States, which boasted the first position in 2021, reached 17 percent, whereas Brazilian vehicles dropped from 14 to 11 percent of the market last year.

In the budding market of electric vehicles, the dominance is even greater: 51 percent of sales in the region were from the Asian giant, while practically all electric buses are Chinese.

France is leading the opposition to the deal, and demanding that Mercosur farmers be subject to the same requirements as their EU peers. Much like its EU counterpart Germany, which opposed the EU tariffs on Chinese-made EVs, Paris knows its stance is largely symbolic as it doesn’t likely have the votes to shut the deal down.

“The government says publicly that they are opposed, but behind the scenes, they acknowledge they don’t have the strength and pretend to fight,” said Manon Aubry, an anti-Mercosur French MEP from the France Unbowed movement.

The reason France and other countries against the agreement are stuck is due to some clever maneuvering from the Ursula von der Leyen-led European Commission. Under normal circumstances, the deal would need to be ratified by all 27 EU member states, the European Parliament and all bloc national parliaments before taking effect.

The Commission, however, is splitting the deal into two parts: a broad cooperation agreement and a trade pact. This apparently allows it to skate through with a qualified majority of at least 15 member states to approve the agreement.

And according to political watchers, Paris lacks the ability to pull together the qualified minority — representing at least 35 percent of the EU population — that it would need to block the deal when it finally goes to a vote among member countries.

Supporters and Ursula’s Commission are saying the deal needs to get done posthaste. Because if not the Mercosur countries will turn their backs on the EU and march down the aisle with China instead.

“If we don’t do a trade agreement with [Mercosur], then this void will be filled really by China,” incoming EU foreign affairs chief Kaja Kallas said recently.

The European Commission and Mercosur countries aim to conclude their long-running negotiations on a trade accord at a Mercosur summit next week, according to Politico.

Agriculture Risks

European farmers are sounding the alarm about the dangers in the deal not just to their economic well being but the general well-being of all Europeans.

That includes European food safety, animal welfare, and environmental standards and pay higher wages compared to that of the Southern American farmers.

European agricultural organizations are pointing to the lax standards of Mercosur exports compared to EU regulations. From  Tri-State Livestock News:

DG SANTE’s audit highlighted significant gaps in Brazil’s ability to trace hormone use in its cattle exports to the EU, particularly estradiol 17β, a growth hormone widely used in Brazil but banned in the EU for over 40 years due to its potential cancer risks.

Despite these findings, the EU Commission has allowed Brazilian authorities to implement a ‘self-ban’ until they can guarantee hormone-free beef exports to Europe.

This decision has raised serious concerns about the adequacy of oversight and the reliability of Brazil’s self-regulation, especially considering the recent ‘Carne Fraca’ scandal which exposed severe regulatory failures in the Brazilian meat industry.

In addition to the livestock, there a major concerns about the safety of arable products:

Recurring difficulties in Brazil restricting the use of hazardous plant protection products and the increasing differences in terms of phytosanitary standards between Brazil and in the EU, makes the situation unsustainable and unacceptable for EU farmers.

For example, a forthcoming CEPM study shows that 52% of the active substances authorized for use on maize in Brazil and Argentina had been banned in the EU, some of them, such as atrazine, for over 15 years.

As far as sugar beet is concerned, there are around 30 active substances authorized in sugar cane in Brazil that are no longer authorized for use in sugar beet in the EU.

These differences cannot be explained only by different conditions such as climate, soil, or mitigation measures. EU farmers say an active substance considered dangerous for health or for the environment in the EU should also be considered dangerous in Mercosur countries.

No matter, Politico tells farmers to “calm down.” It’s no big deal says the outlet owned by Axel Springer, which excludes Politico employees from the requirement at its other media outlets to sign a mission statement expressing support for Israel transatlanticism:

…the tariff-free quotas Brussels has afforded the South Americans are low. For beef, these account for 1.6 percent of Europeans’ annual consumption by volume and a smidge more by value. It’s even less for poultry and sugar, which by volume weigh in at 1.4 percent and 1.2 percent respectively. Rice is below the single digit.

This of course ignores the fact that multinationals can easily absorb while already-struggling small scale farms could be sunk by even a small increase in unfair competition, which is precisely what free trade agreements do and thereby aid corporate concentration at the expense of small and medium enterprises. And I’m sure they’d never try to increase the quotas.

The deal is a big win for the evermore globally concentrated Big Ag. According to SOMO, “in the last three years, the profits of the five biggest traders in agricultural commodities tripled compared to the years before. Together, ADM, Bunge, Cargill, COFCO and Louis Dreyfuss Company (ABCCD) hold a monopoly position on the global market.”

It’s soon to get even worse. That’s because the EU and Ursula, who loves her tools, isn’t a fan of utilizing the competition policy toolkit. From SOMO:

…since the start of the EU Merger Regulation in 1990, only 88 out of 9243 notified mergers have been stopped. That is less than 1 per cent. Sixty cases that European regulators considered – and approved – involved the ABCCD agricultural commodity traders, including the 34-billion-dollar deal [inked this year and set to close in 2025] between agricultural giants Bunge and Viterra.

On the South American side, there are strong reasons to believe that the deal will lead to the following:

• More fires and deforestation in the Amazon.
• Escalation of invasion of indigenous territories, land-grabbing and violent attacks.
• A disruption of local food production.
• Increased use of dangerous pesticides.

Why Does the EU Ruling Class Want the Deal?

Trade between the two blocks is relatively small. European Commission data shows that in 2023 the EU’s exports to the four Mercosur countries was 55.7 billion euros while Mercosur exported 53.7 billion euros worth of goods to the EU.

European farmers are in effect being asked to sacrifice supposedly for the EU — and America’s — strategic goals. The strategic aspect revolves around China and critical minerals.

While agriculture products are the largest slice of the Mercosur exports to the EU (32.4 percent), mineral products are second at 29.6 percent. The South American countries have plenty of what the EU is looking for, including lithium, graphite, nickel, manganese, and rare earth elements. The EU is currently almost completely reliant on China for minerals needed for EV batteries, solar panels, wind energy, and green hydrogen — all part of the bloc’s flailing green transition.

Even if the EU is able to secure more critical minerals from Mercosur with this trade deal, who will do the processing? There’s still no clear answer. Von der Leyen likes to tout her tools like the bloc’s Net-Zero Industry Act (NZIA), which aims for the EU to process 40 percent of the strategic raw materials it uses by 2030. The NZIA allows projects to bypass many environmental and social impact reviews, but there’s no budget, and the policies do nothing to change Europe’s disadvantages, which include a lack of subsidies compared to the US and China and much higher energy costs thanks to their “de-risking” away from Russian energy.

Yet the “de-risking” — code for the EU’s eager role as a US proxy in the fight against Russia and China — continues.

Thus far, it’s mostly been a disaster on every level — strategically, economically, and environmentally.

The EU has yet to halt the rise of China (and Russia) with its derisking efforts. Far from it as both are likely stronger than before. Meanwhile, the EU is now wholly reliant on the US economically, militarily, and energy-wise.

Everyday brings worse economic news from across the bloc. The Swedish battery developer and manufacturer, Northvolt, last week filed for bankruptcy.

More frequently the bad news comes from the EU’s economic engine: Germany. Thyssenkrupp, the country’s largest steelmaker, proposed on Monday to cut 5,000 jobs and outsource another 6,000 is just the latest example.

The 2024 European Commission State of the Energy Union report touts that “With the Net-Zero Industry Act (NZIA) and the Critical Raw Materials Act, the EU took action to strengthen the competitiveness and the supply chain resilience of its clean energy technologies manufacturers.”

It offers no examples but amazingly notes that it “has swiftly acted by strengthening its international partnerships…but also by inviting strategic reflections of Mario Draghi and Enrico Letta.”

Over to you Signore Draghi. His much-anticipated September report managed to obfuscate the biggest reason the EU is suffering from a competitiveness crisis: its decision to cut itself from pipeline Russian gas. And his solution is not to rethink that choice but to double down on it while also gutting labor laws and embracing AI and more concentration.

On the green front, well, it’s anything but. The EU derisked from Russian pipeline gas, which plays a major role in the economic disaster currently hitting the bloc, and in the process dramatically increased its reliance on liquefied natural gas (LNG). According to the Institute for Energy Economics and Financial Analysis, “since the beginning of 2022, Europe has increased its LNG import capacity by 23%, or 58 billion cubic metres.” Much of it comes from the US.

Here’s the problem: the planet-heating pollution from American LNG exports is worse than that of coal. That’s because the production of shale gas, as well as liquefaction to make LNG and transport it by tanker, is energy-intensive.

Somehow these derisking plans always seem to screw over European workers while simultaneously failing to achieve any of the other goals, but the wealthiest continue to make off like bandits. It’s almost like that’s the point.

It’ll be the same with any EU-Mercosur deal.

That’s a small price to pay, according to the DC-based Center for Strategic & International Studies (CSIS), a think tank funded by the likes of the Charles Koch Foundation, Bank of America Corporation, Northrop Grumman Corporation, BP, Citigroup, Facebook, Johnson & Johnson, Microsoft, Raytheon Company, Amazon, Apple, IBM, and Disney. Here’s Lauri Tähtinen, a non-resident senior associate at CSIS, discarding any concerns with the trade deal and gifting us with his wisdom:

At a higher plane, both parties should wish for the conclusion of an agreement and so should the United States, as it shares an interest in the orientation of both EU and Mercosur countries away from China. This is because the rapid decline of U.S. trade in South America (in both absolute terms and relative to China) has also contributed to democratic backsliding. This does not mean that, in the world of diplomacy, the United States has an easy time advocating for two parties to reach an agreement that it is unwilling to arrive at with either party. In the world of trade diplomacy, it is also clear that some lobbies within the United States will be marginal losers if an EU-Mercosur deal is concluded.

This is why the role of trade diplomacy needs to be placed within a broader context. When Washington itself no longer looks to conclude trade deals, their broader benefits should be sought by proxy, as happened when a Japan-led coalition saved the Trans-Pacific Partnership (TPP). In the case of EU-Mercosur, both blocs have demonstrated that they remain capable of arriving at free trade agreements (FTAs), at least, with the correct, smaller counterparty.

So take comfort, European readers, as your standard of living continues to decline or if your farm goes bankrupt or if the imported agricultural products you ingest give you cancer. You simply don’t understand how trivial your concerns are because you’re not on “a higher plane.”