June 28, 2019 / 5:15 PM / 19 days ago

EU, Mercosur strike trade pact, defying protectionist wave

BRUSSELS/OSAKA (Reuters) - The European Union and South American bloc Mercosur agreed a free trade treaty on Friday, concluding two decades of talks and committing to more open markets in the face of a rising tide of protectionism.

France's President Emmanuel Macron, Germany’s Chancellor Angela Merkel, Brazil's President Jair Bolsonaro, Argentina's President Mauricio Macri and European Commission President Jean-Claude Juncker during a news conference at the G20 summit in Osaka, Japan, June 29, 2019. REUTERS/Jorge Silva

The EU becomes the first major partner with which Mercosur has struck a trade pact, offering EU firms a potential head start. The European Union is already Mercosur’s biggest trade and investment partner and its second largest for goods trade.

The two regions launched negotiations exactly 20 years ago and stepped up efforts to reach an accord after Donald Trump’s presidential victory led the Europeans to freeze talks with the United States and seek other global trading allies.

The opening to Europe also offers more avenues for development in South America, which has been tugged in recent years between the ascent of top trading partner China and enduring U.S. influence in the region.

“This deal delivers a real message in support of open, fair, sustainable and rule-based trade because trade creates jobs for all concerned,” European Commission President Jean-Claude Juncker told a news conference in Japan’s western city of Osaka.

He was among the European leaders and Argentine President Mauricio Macri, gathered for the Group of 20 summit, who shared a podium at the event.

“This deal promotes our values and supports a multilateral, rules-based system,” Juncker said, adding that the commitment spoke a “lot, louder than 1,000 communiques”.

His remarks came as some G20 leaders signaled difficulty in efforts to draft a summit communique, with disagreements ranging from trade to climate change. The deal stands in contrast to the Trump administration’s aversion to multilateralism.

The EU’s drift away from the United States has spurred on a free trade deal with Canada and helped to reach accords with Japan and Mexico.

Now, after some 40 rounds of talks, the Europeans have reached a provisional deal with the trade bloc founded by Argentina, Brazil, Paraguay and Uruguay.

The EU and Mercosur are together responsible for 720 million people and a quarter of global gross domestic product, says the government of Brazil, whose president, Jar Bolsonaro, hailed the deal on Twitter as historic and one of the most important trade pacts of all time.

If ratified, the deal will be a victory for Bolsonaro, whose right-wing politics face a chilly reception in much of the world, as well as Argentine President Mauricio Macri, who is battling for reelection this year amid a steep recession.

WINE AND CHEESE

In terms of tariff cuts, the trade deal could be the EU’s most lucrative to date, with about 4 billion euros ($4.55 billion) of duties saved on exports, four times more than its deal with Japan.

Europe has its eyes on greater access for manufactured goods, notably cars, which face tariffs of 35%. It wants its firms freed to compete for public tenders, and to sell more wine and cheese. Mercosur aims to boost exports of farm commodities.

Brazil said the pact would remove import tariffs on several farm products, such as orange juice, instant coffee and fruit. It will also get a new 99,000-tonne quota of beef at a 7.5% tariff, phased in over five years, and tariff-free 180,000-tonne quotas each of sugar and poultry.

“It is true that the agreement will make us compete with the best, but the agreement gives us room to maneuver,” Miguel Braun, Argentina’s economic policy secretary, said on Twitter.

“Europe will eliminate the bulk of its barriers in five years, and Mercosur will apply a gradual tariff reduction over a period of up to 15 years, which will allow the private sector to adapt.”

EUROPEAN NERVES OVER BEEF, ENVIRONMENT

Before it takes effect, the deal needs final approval from Mercosur, the European Parliament and constituent countries, which Brazil’s government has conceded could take years.

France is one of the European countries expressing concern about a surge in beef imports, while environmental groups, whose influence is stronger in the new European Parliament, say the pact could worsen deforestation.

The parties both committed to adopt the Paris climate change pact and a special chapter on sustainable development will cover issues such as forest conservation and labor rights.

Argentina's President Mauricio Macri speaks next to leaders during a news conference at the G20 summit in Osaka, Japan, June 29, 2019. REUTERS/Jorge Silva

EU Agriculture Commissioner Phil Hogan said he recognized the concerns of farmers, including those from his country, Ireland, but that the bloc’s free trade pacts were opening markets for EU farmers.

($1=0.8794 euro)

Additional reporting by Cassandra Garrison and Adam Jourdan in Buenos Aires, Marcelo Teixeira in Sao Paulo and Robin Emmott in Brussels; Editing by Hugh Lawson, Peter Graff and James Dalgleish

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