EU trade deal with South American bloc on the cards

After being stalled for years, trade talks between the EU and the South American bloc Mercosur are showing signs of life, with a deal that could have major consequences for Ireland's beef sector feasible by the end of next year.

Mercosur, or the Common Market of the South, comprises Brazil, Argentina, Paraguay, Uruguay and Venezuela. At a summit in Caracas last month, the South American bloc indicated it had finally agreed its joint proposal for discussions and was ready to exchange offers with Brussels. EU officials say this could happen before the end of this year.

"Once offers are exchanged, we will establish a calendar for negotiations, which could take anywhere between four months and one year to complete," says Adam Wisniewski of the EU delegation in Brasília. A final deal will seek to liberalise 87 per cent of trade between the two blocs, with the dismantling of tariffs in under 10 years.

Negotiations started back in 1999 but have made little progress. Europe has been reluctant to expose its farming sector to South American competition, while Mercosur's governments, principally Argentina, have become increasingly protectionist in the past decade as they seek to shield local industry from global competition.

Argentine reluctance to pursue a deal limited Brazil's scope for manoeuvre as its relationship with Buenos Aires is at the core of its diplomatic strategy. But in the past year Brasília has increased pressure on its partner to finally agree a joint Mercosur proposal.

Left behind

EU diplomats in Brasília say Brazil’s government is increasingly worried that it is being left behind in global trade discussions. With Mercosur unwilling to sign any meaningful trade agreements and talks on a global deal at the

World Trade Organisation

stalled, Brazil has looked on as competitors sign an increasing number of bilateral accords that are reshaping global commerce.

The recent movement on the Mercosur side follows the announcement of plans for a wide-ranging Transatlantic Free Trade Area between the US and Europe. Brazil is worried that such deals could isolate its industrial sector from global supply chains, further increasing the uncompetitiveness of its exporters. Even Brazil’s historically protectionist business sector is lobbying for a deal with the EU.

If negotiations take place in the coming months, the main area of focus for Ireland will be Brazilian beef exports. As an agricultural powerhouse with huge competitive advantages over EU producers, Brazil's government has made access to EU customers for its beef a red line in negotiations.

This could have serious implications for the Irish beef sector, the largest net exporter in the northern hemisphere. The Irish Farmers’ Association warns that a flood of Brazilian beef and pork imports into the EU could affect the livelihoods of thousands of Irish farming families, as well as jobs in the processing sector.

"IFA is demanding that the Government and our MEPs fully defend Irish agriculture by insisting that beef and pork are off the agenda in Mercosur," says IFA president Eddie Downey.

Any agreement would require unanimous approval from all EU members.

But the core group of EU countries lobbying against Brazilian beef imports has been weakened in recent years. The French government must weigh up the interests of its own farming lobby with a burgeoning strategic alliance with Brazil, by which the South American country has become a major buyer of French military hardware, including a new fleet of nuclear submarines.

German food-processing companies have been on a buying spree in Brazil in anticipation of a trade deal, while the UK government has sought to catch up with its European peers with a series of high-level trade missions to Brazil in recent years.

But the importance of the European market for Brazil's beef exporters is being redefined by recent developments elsewhere that are opening up new horizons. Last month China suspended its ban on imports of Brazilian beef, in place since 2012 after a rare case of mad cow disease in the country.

Brazil's government aims to export $1 billion (€747 million) worth of beef to China next year, up from just $1.5 million last year. Potential Chinese demand is enormous, with Hong Kong, which did not ban imports, already the single biggest destination for Brazilian beef.

Russian opportunity

Hong Kong is followed by

Russia

, and the fallout from EU sanctions against

Moscow

for its support of separatists in

Ukraine

is another new factor in Brazil’s beef equation. Russia has already turned to Latin America for alternative supplies after it banned EU food imports in retaliation for sanctions imposed on it.

Brazil, which has been muted on Russian president Vladimir Putin’s role in the Ukraine crisis, has been quick to seize on the opportunity.

A senior Brazilian agricultural ministry official has said extra Russian demand could represent “a revolution” for the country’s meat sector. But it is unclear how quickly Brazil can boost production to meet additional Chinese and Russian demand, as well as any potential increase in exports to the EU.

Despite the positive signals emanating from South America, sceptics remain to be convinced that a deal with the EU is imminent. Before negotiations start, the expected Mercosur proposal will have to be vetted by EU officials to ensure it is within the parameters for negotiations established in 2010.

Some Brazilian analysts remain sceptical about how serious the Mercosur proposal will be, given protectionist sentiment in the region.

"Brazil's government is talking up hopes of a deal as it is under pressure because of its failure to sign a single important trade agreement," says Rubens Ricupero, a former Brazilian finance minister who also served as secretary general of the UN Conference on Trade and Development.

“But there have been many moments when an agreement with the EU was said to be close, only for expectations to be proved wrong by the facts. I do not see the evidence these have evolved sufficiently.”

Just how serious Mercosur is about concluding a deal will only become clear when its proposal is finally in the hands of the EU’s trade negotiators.