Opinion

A reflection on the Mercosur agreement

The EU accepts the deal because it is worried about the catastrophic scenario of a world without the WTO.

By: and Date: July 26, 2019 Topic: Global economy and trade

Just as Jean-Claude Juncker is leaving his post as President of the European Commission, and after 20 years of waiting, the European Union has signed a free trade agreement with Mercosur – the so-called single market, which is far from it given the recurrent differences in the economic policies of its Member States, especially between Argentina and Brazil but also of the smaller Paraguay and Uruguay.

Despite the large imperfections of this single market, its size – whether in population, with 260 million inhabitants, or in gross domestic product, of some EUR 2.2 billion – makes it undoubtedly of interest to the EU. This is because old Europe is increasingly dependent on other markets for growth in the face of an ageing population and a lack of structural reforms, factors that continue to reduce its already very limited potential growth.

Although the size of the Mercosur bloc well deserves Europe’s attention, the truth is that the more than 20 years of difficult meetings and the current transition of power in the European institutions made it seem unlikely that an agreement would be reached. The question, therefore, is how this has been possible?

The reality is that the EU, with the Commission alone responsible for trade policy, is increasingly concerned about what, until recently, was a catastrophic but highly unlikely scenario: a world without an arbitrator in multilateral trade rules, a role that until now was played by the World Trade Organisation (WTO) Court of Appeal.

But, by the end of this year the court will not be able to exercise its functions if Donald Trump’s administration continues to block the appointment of its judges. Faced with such an abyss, the European Commission can no longer wait to reform the WTO against the position of the US and a China that does not want to transform itself into a market economy. This pushes it to dust off stagnant free trade agreements such as Mercosur.

Thus, faced with the reality of an increasingly protectionist world, the finalisation of the Mercosur agreement, just before the very important G20 summit in Osaka – where the only main actors seemed to be Trump and Xi Jinping – has allowed Juncker to give a signal to the major world powers that the EU, which remains the world’s main exporter, is not prepared to keep knocking on the WTO door without preparing for a new lawless world, at least in the area of trade.

The signing of trade agreements with relevant areas of the world (before Mercosur, the EU also reached a similar agreement with Japan that also seemed impossible), is therefore the European response to the prevailing protectionism. In this sense, the trade agreement with Mercosur is undoubtedly good news for Europeans, despite the fact that some sectors lose and others win. It shows that Europe is waking up from lethargy. Better late than never.


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