Quarterly Concerns

Mar 24, 2023

EU-Mercosur: An Opportunity Not to Be Missed

The EU-Mercosur agreement has been dormant since 2019. However, it is the key missing piece in the EU’s approach to Latin America and the Caribbean. Its enactment would be an important sign of Brussels’ willingness to engage differently with the so-called Global South.

An illustration showing ships sporting the flags of Brazil, Argentina, Uruguay, Paraguay, and the European Union

In July 2019, the European Union and Mercosur (the “Southern Common Market” formed by Brazil, Argentina, Uruguay, and Paraguay) announced the conclusion of an association agreement; it had taken 20 years of long and often fruitless negotiations.

The EU-Mercosur agreement was the key missing piece to complete the map of association agreements between the EU and the Latin American and the Caribbean (LAC) region that was launched with the creation of the bilateral Strategic Association at the Rio Summit in 1999. It was supposed to mark the beginning of a new dawn of strengthened relations. In fact, Europe’s presence and influence in the region has declined steadily since then. This is not only because of the emergence of China, which has penetrated the economies of most Latin American states and become the most important trade partner, but also because of a growing distance due to the different ways in which Europe and the LAC have adapted to new dynamics and global challenges.

The fact that the EU-Mercosur agreement has met ratification problems has not helped either. Rather, the question mark over whether it will come into force at all has worked to subvert expectations of improving a relationship that has seen considerable decline. Rather, the years since 2019 have shown that, in a world of greater complexity and growing geopolitical competition, the revitalization of the association between the EU and LAC requires a commitment to narrowing positions about the great transformations that the world is facing, such as the technological and energy transition, the fight against climate change, or inclusion policies to counter poverty and inequality.

In fact, the association agreements the EU is seeking with the LAC region are more than just trade agreements; they are instruments through which relations are channeled, an institutional and regulatory framework, and a forum for political dialogue to development joint policies and strategies to deal with the tensions brought about by the international context.

A Declining Relationship in Times of Crisis

At the beginning of the 21st century, Europe was perceived in Latin America and the Caribbean region as an ally with shared values, including commitments to multilateralism, human rights, and democracy. The European integration process was seen as a success story, although far from being the model to be replicated. The 2008 financial crisis undermined the credibility of the EU and reinforced the idea that the hegemonic power of the West was shrinking, while China and other emerging powers were occupying positions of power.

During the commodity boom leading up to the crisis, LAC countries saw the Asian “growth locomotives” as an opportunity to free themselves from EU regulatory demands. With the United Kingdom voting to leave the EU in 2016, Europe’s normative power decreased. The COVID-19 crisis was another moment when the EU's commitment to Latin America was questioned as EU-made vaccines arrived later than those produced by China or Russia.

The European-Latin American distance was also highlighted after Russia’s invasion of Ukraine that started a year ago. Part of the LAC’s political class perceive the war as a foreign conflict that emerged from the dynamics of confrontation between NATO and Russia. Although most countries of the region voted to condemn the aggression at the United Nations, no direct support has been given to Ukraine. It is an example of how Russia's diplomacy and cooperation in strategic sectors has increased its influence in LAC. This adds to the persistence of anti-American sentiment due to its strong interventionism in the region during the Cold War; Russia is seen as a counterweight to US hegemonic power and, in some cases, as a strategic partner against Western sanctions, such as those the EU has enacted against Venezuela and Nicaragua, which are considered unilateral interference.

Most LAC countries see relations with China, Russia, and other regional middle powers such as South Africa and India as a way to reinforce their international insertion through multiple alliances and variable geometry that make up a multipolar vision of the world. They defend a position of non-alignment that provides them with autonomy on the international scene. That autonomy and capacity for agency inspired, for example, the creation of the BRICS—the combination of Brazil, Russia, India, China, and South Africa (which Argentina recently applied to join).

Meanwhile, the economic effects of Russia’s war against Ukraine have exacerbated Latin American countries’ problems of inflation as well as those of food and energy security. The global rise in interest rates has caused their debt to grow, and some attribute them to EU sanctions against Russia. This all means that if the EU wants to recover its ability to interact with the region, it cannot present itself as an antagonistic block to the emerging powers, but rather as a partner with which stable, reliable, and lasting relations can be built.

Interregional Associations

Agreements with associations are the most powerful foreign policy instrument available to the EU. Unsurprisingly, this approach has dominated EU-LAC relations for decades. Europe strengthened relations with organizations in the region such as the Central American Integration System (SICA), the Andean Community (CAN), the Caribbean Community (Caricom), and more recently with the Pacific Alliance, in addition to Mercosur.

This policy has been hampered by the fragmentation of some of the interregional cooperation processes in Latin America due to institutional weaknesses and ideological conflicts. However political changes in Colombia, Brazil, and Chile have propitiated greater cooperation between LAC countries and opened a window of opportunity to hold an EU Summit with the Community of Latin American and Caribbean States (CELAC) in July 2023, at the start of the Spanish EU presidency. It’s the first time since 2015 that the summit is being held, due to previous political tensions.

The association agreements were also the EU response to the expansion of Free Trade Agreements (FTA) between the US and countries in the region. The initial road map began with the negotiations with Mercosur, but while these remained stagnant, progress was made with other countries. Not by chance, the first agreements were with the countries or groups of countries that had previously signed an FTA with the United States: Mexico (1997), Chile (2002), Caricom (2008), Central America (2012), Colombia and Peru (both 2012), and Ecuador (2013). In 2016, there was even an agreement with Cuba, although this had many special characteristics.

The first two, with Mexico and Chile, have since been renegotiated. A new agreement was reached in principle with the Mexican government in 2018, but it is still in the signing process with some final obstacles. A new agreement was also reached with Chile in December 2022, pending legal verifications. These negotiations complement those with Mercosur and speak of the EU’s commitment to adapting the map of agreements to the new international context, in which the reference is not only the US, but increasingly China as well as the trade tensions between them. Chinese exports, which have continued to rise in recent decades, have reduced the relative weight of EU trade with the LAC region. However, exports of services have continued to increase, and the EU continues to be the main source of Foreign Direct Investment (FDI) in the region.

The “trade war” between China and the US affects both the EU and Latin America. It has paralyzed the World Trade Organization and shone a light on the fragility of value chains. It has also laid bare vulnerability due to China's great dependence on basic products and has launched a new debate about whether the economic globalization model that also affects the institutions and rules of world trade has hit the buffers.

Trade governance in the 21st century is based more on regulations than on tariff barriers or other limitations. The EU’s association agreements offer an opportunity to advance a regulatory framework that incorporates sustainability and transition challenges and helps overcome block competition. The negotiation of these frameworks also helps to blur the image of an EU as a regulatory fortress that imposes standards and regulations that affect other countries instead of contributing to general agreements in the multilateral arena to strengthen international regimes, especially in areas which still have little regulation.

The Importance of the EU-Mercosur Agreement

Mercosur is the EU's main economic partner in Latin America with a share of almost 40 percent of total trade; it also absorbs the lion’s share of European FDI in the region. The EU-Mercosur agreement is the crown jewel of the association agreements with the region. However, the ratification of the agreement has been questioned in Europe over allegations of negative effects that it may have in in terms of further deforestation of the Amazon rainforest. However, this agreement, like the ones with Chile and Mexico, contains a chapter on trade and sustainable development that goes far beyond the previous association agreements. It includes provisions explicitly dedicated to sustainable forestry, imposes the commitment to promote trade in products from sustainably managed forests, cooperation on forest conservation, and stipulates the introduction of a subcommittee for cooperation and to resolve any disagreements. These are requirements that go beyond those established in any other EU trade agreements.

The costs of the lack of an agreement with Mercosur over the past two decades is clear: In 2000, when the EU-Mercosur negotiations began, the EU was its main trading partner. Today, China is ahead. The increase in trade with China led to a reprimarization of the Mercosur economies and a greater dependence on extractive industries. The resistance in the EU to ratifying the agreement with Mercosur has damaged its credibility and weakened the confidence the LAC region used to have in the EU.

Faced with China's relentless advance and growing competition with the US, however, Europe’s response must be proactive and not defensive. By enacting the treaty with Mercosur, the EU would be ahead of the US for the first time in the main market of the region.

One shared value between both regions is the defense of multilateralism. However, the understanding of the term is not the same; Europe remains aligned with the values of the liberal world order while in many LAC countries revisionist positions are gaining strength, advocating the need for reforms in line with the multipolar world and reflecting the decolonial vision emerging from the so-called Global South. They call for a greater commitment to advancing the United Nations’ 2030 Agenda, which suffered setbacks during the COVID-19 pandemic. For this, it is necessary to promote alliances between various actors in a multilevel governance structure in which regionalism and interregionalism deserves a place in the reconfiguration of the global order.

Implementing the EU-Mercosur agreement would be a great step in this direction. The Spanish EU presidency during the second half of 2023 wants to give the relationship a new momentum. The signing of the association agreement is an opportunity that should not be missed.

Anna Ayuso is a senior research fellow with the Barcelona Center of International Affairs (CIDOB).