Mercosur and the EU: Still prickly

The many meanings of a trans-Atlantic trade deal

IT RESEMBLED a courtship of porcupines. Mercosur, a four-nation trade block led by Brazil, is traditionally nervous about imports, but eager to sell agricultural products to the rest of the world. The European Union heavily subsidises its farmers, who are politically allergic to extra-European food. The two groupings have been talking about a free-trade deal for four years, but few observers thought they would consummate one soon. Now, suddenly, it looks as if a free-trade area embracing nearly 680m European and Latin American consumers, and $11.6 trillion of GDP, could be signed by October.

Yet the prickliness remains. As talks continued this week, each side was grumbling that the other had failed to present sufficiently alluring offers (indeed, there was some dispute about whether offers had been presented at all). The EU wants Mercosur to offer more liberalisation of trade in services and, more important, a chance to compete for government contracts on an equal footing with local companies. Mercosur wants lower barriers for such products as meat and sugar. They will try to sort out these differences in Brussels in early May. A senior Brazilian diplomat this week said that he is “not overly concerned at this stage”, though he sounded more hopeful a week before.

For both partners, political considerations are as important as strictly commercial ones, if not more so. Europe has long looked warily upon the United States' project of uniting the western hemisphere in a Free Trade Area of the Americas, which would be governed by rules on trade and investment written far from Brussels. With the American election stalling the FTAA, the EU can pull off a coup by striking a deal in the United States' backyard.

Are the Europeans also trying to bribe Brazil to betray fellow members of the G20, the group Brazil co-founded to defend developing-country interests in global trade negotiations? This has been alleged in press reports and hotly denied by diplomats on both sides. Brazil, flushed with a victory in a dispute over American cotton subsidies does not want to surrender its G20 leadership. Alfredo Vallado, who holds the “Mercosur chair” at l'Institut d'Etudes Politiques, a French university, thinks Brazil will continue to press for concessions by rich countries at global talks. That said, though, “in practical terms you cannot...start beating Europe every day” if you become its partner.

For Mercosur, one big political prize will be a stronger hand in negotiating the FTAA. The Americans have been pushing for more economic integration than Brazil wanted, without making clear how far they would reduce barriers to agricultural and other imports. The prospective EU deal “will prod America after the election to perhaps move a little faster to level the playing field with European competitors,” says Jeffrey Schott, of the Institute for International Economics in Washington, DC.

The result may be two deals that achieve less economic integration than the Americans want for the FTAA. But Mercosur, an aspiring customs union that has yet to free trade fully among its own members, may grow up in the process. Mr Vallado points out that the EU will press for its goods to circulate freely within the block. That could force Mercosur's four porcupine-like members to take seriously their own commitment to integration.