(Bloomberg Opinion) -- The trade deal between the European Union and four of Latin America’s biggest economies is a sharp riposte to both U.S. President Donald Trump and Britain’s Brexiters.
The agreement, reached on Friday after 20 years of negotiations, will end tariffs on 93% of Mercosur’s exports to the EU over time, with the rest getting “preferential treatment.” European companies – including those exporting cars and their parts, chemicals and textiles to Brazil, Argentina, Paraguay and Uruguay – would eventually save more than 4 billion euros ($4.5 billion) a year.
Mercosur’s first major deal, and the EU’s potentially most lucrative in terms of tariff savings, shows that parts of the international trading order are resisting Trump’s disruptive pressure. It’s also a reminder of the difficulties Britain will have in signing similar trade deals after leaving the EU: Such agreements are complex and take many years.
Timing, of course, is everything in politics. If the election of Argentinian President Mauricio Macri in 2015 gave the talks fresh impetus, the uncertainty surrounding his bid for re-election later this year added pressure to finish them. For Jean-Claude Juncker’s European Commission, it was also an opportunity to put another big trade feather in its cap before handing over the reins to its successor in November.
Another impetus for the EU, though, was surely the rise of protectionism and populism. The pressure of Brexit and Trump’s constant lobbing of grenades at the rules-based trade system has focused minds in Europe. If the EU cannot use its trade heft to achieve something tangible for its members, more will question what purpose it serves. Since Trump’s election, though, the bloc has inked deals with Canada, Mexico and Japan. A major new deal sends a defiant message.
There are other reasons to cheer the deal. For free-traders, it marks a significant demotion of the EU’S powerful farm lobby and other vested interests – no small feat in a bloc that has rightly been criticized, especially in Britain, for being protectionist, bureaucratic and slow-moving.
It has also given the EU leverage to push Brazil on climate climate. After Bolsonaro threatened to withdraw from the Paris Agreement on climate change, French President Emmanuel Macron said he would reject any deals with countries that stay outside that framework; indeed, it was reportedly only after a meeting between the two men to discuss environmental concerns that the deal was unblocked.
The agreement upholds the precautionary principle, which gives EU authorities the right to act to ban products to protect human health or the environment even if the scientific evidence isn’t conclusive. That won’t give much hope to U.S. negotiators hoping to persuade the EU to accepts its lighter-touch approach.
For Brexiters, the new deal is a reminder that it can be chilly outside the EU’s big trade tent. They had argued breezily that they could just roll over the EU’s existing trade deals and then strike their own more advantageous agreements. Those assumptions are looking shaky. Out of some 40 trade pacts to convert, only a handful have been rolled over for the U.K., and then often only partially. For those hoping for a quickie free-trade pact in the event of a no-deal exit, the Mercosur deal is a reminder that nothing about these things is ever quick.
The Latin American agreement could run aground, of course. It still needs to be approved by all member countries as well as the European Parliament; there are plenty of opponents. Irish farmers have described the deal as “reckless and wrong.” Europe’s ethanol industry says the EU is throwing it under a bus. It’s uncomfortable for agricultural powerhouse France, too.
Still, it says something about the desire for a market-opening deal of this size that protectionist interests didn’t win out, as they have in the past. For all the talk of Global Britain, it’s Global Europe that is making the headlines.
To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Therese Raphael writes editorials on European politics and economics for Bloomberg Opinion. She was editorial page editor of the Wall Street Journal Europe.
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