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Latin American Presidents Under-Fire Celebrate a Big Win on EU Trade Deal

Latin Presidents Under-Fire Celebrate a Big Win on EU Trade Deal

(Bloomberg) --

The breakthrough in free-trade talks between the European Union and Mercosur after 20 years of efforts is a boost for the presidents of the two largest South American nations, both of whom are struggling with dismal economic outlooks.

The negotiations between the EU and the bloc formed by Argentina, Brazil, Paraguay and Uruguay pave the way for an agreement to expand goods shipments worth almost $102 billion a year. Argentina’s President Mauricio Macri shared audio of his foreign minister weeping with joy at the breakthrough. President Jair Bolsonaro posted a series of tweets celebrating the “historic” deal. “Great day!” he tweeted, alongside a thumbs-up emoji.

Latin American Presidents Under-Fire Celebrate a Big Win on EU Trade Deal

For European leaders the agreement bolsters their defense of free trade amid protectionism championed by President Donald Trump.

“Negotiations started twenty years ago," European Commission President Jean-Claude Juncker told reporters on Saturday in Osaka on the sidelines of the G-20 summit. "They have been long, often tough, and we have come closer before, but today, we finally deliver.”

For South America’s presidents the triumph is more visceral. Macri faces a tough re-election campaign amid a second recession in four years, while Bolsonaro’s poll ratings are on the slide just six months in, as growth forecasts fall and unemployment remains sky-high.

“The Mercosur-EU trade deal is nothing short of historic," Jason Marczak, a Latin America expert at the Atlantic Council in Washington, said in a statement. “It will open up a new wave of trade and investment for Mercosur and the EU, while giving new momentum to the importance of rules-based free trade with G-20 leaders together in Japan”.

Bolsonaro told reporters in Osaka on Saturday that Brazil was "very happy" with the deal. He predicted it would have a domino effect -- "certainly other countries will have interest in negotiating with us, like Japan."

A press statement released by the Brazilian economy ministry said the pact would boost the country’s gross domestic product by $87.5 billion over the next 15 years, a number that could rise to $125 billion.

Macri told reporters in Osaka on Saturday the agreement was the most important "ever signed in our history."

"This deal will strengthen the region’s growth not only thanks to trade but also for the investment influx," Macri said. "This deal will bring clearer rules and more stability for those who want to develop our region."

The deal is also a plus for Uruguay’s President Tabare Vazquez, whose ruling left-wing Broad Front party faces its toughest electoral test in October elections since sweeping to power in 2005.

What Our Economist Says

“There is much left to dissect, but the early takeaway is that the agreement should be a net positive for both Argentina and Brazil in terms of welfare, exports, and productivity -- even if these benefits only manifest over the long term.”
-- Adriana Dupita, Bloomberg’s Latin America economist
-- To read the research, click here

Mercosur-EU negotiations enjoyed the full support of the Paraguayan governments of President Mario Abdo Benitez and his predecessor, also of the ruling Colorado Party, Horacio Cartes.

Next Steps

While the South Americans believe there will be an immediate boost to investment after the breakthrough, the actual deal won’t come into effect until it’s ratified in the congresses of the participating countries.

“It’s a game-changer for Argentina,” Horacio Reyser, Argentine Foreign Ministry Secretary for International Economic Relations and the country’s top negotiator in this deal, said in an interview. “We only have commercial deals with 10% of global GDP. This takes us to 30% of world GDP. Our economy will grow faster.”

Reyser estimates it may take between two to three years for the whole agreement to pass in all levels of the Argentine parliament. In Brazil, the deal requires a simple majority to pass both the lower house and the senate. Lawmakers are not permitted to change a single line. Once voted through, the last tariff will expire after 15 years.

Business groups were quick to cheer the deal. Argentine crop export chamber Ciara-Cec head Gustavo Idigoras said it has a "very significant" impact for Argentina and Mercosur. Exports of edible, bottled soybean and sunflower oil are expected to soar.

Brazil’s National Industry Confederation said that the agreement was the most important ever signed by Latin America’s largest economy. “This deal could represent Brazil’s passport to entry into the league of great economies in international trade,” said Robson Braga de Andrade, the CNI’s president.

--With assistance from Patrick Gillespie, Simone Iglesias, Ken Parks, Jonathan Gilbert, Samy Adghirni and Yuko Takeo.

To contact the reporters on this story: Jorgelina do Rosario in Buenos Aires at jdorosario@bloomberg.net;Bruce Douglas in Brasilia Newsroom at bdouglas24@bloomberg.net;Mario Sergio Lima in Brasilia Newsroom at mlima11@bloomberg.net

To contact the editors responsible for this story: Juan Pablo Spinetto at jspinetto@bloomberg.net, Carolina Millan, Rosalind Mathieson

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