Austria has rejected the free trade pact between the EU and South America’s Mercosur trade bloc, a heavy blow to the 20-year-in-the-making deal.

Nearly all parties in the Austrian parliament’s EU sub-committee voted against the EU-Mercosur free trade agreement draft, which looked to slash tariffs, making imported products cheaper while also boosting exports for firms on both sides. Without backing from every government in the EU, the Mercosur deal cannot be passed.

The decision was triggered by mounting pressure from the EU on Brazil’s far-right President Jair Bolsonaro over the country’s environmental policies and the actions taken regarding the rampant forest fires in the Amazon basin. Concerns about adverse effects on European product standards and the farming sector also played a part.

The Mercosur trade bloc is made up of Argentina, Brazil, Paraguay and Uruguay. Venezuela’s membership is currently suspended, and Bolivia is still complying with agreement details. The bloc, launched in 1991, set out to promote free trade and the fluid movement of goods, people, and currency, but has been subject to scrutiny for not securing any major trade deals.

“I’ve always been extremely sceptical of it,” says Jill Hedges, deputy director of analysis at Oxford Analytica, talking to GTR about the deal. “It’s dragged on and then a drafted deal was finally agreed in June, but there was always going to be much opposition on both sides.”

Last year, Mercosur’s biggest exports to the EU were agricultural products, including beverages and tobacco (20.5% of total exports), vegetable products such as soya and coffee (16.3%) – soybeans are Brazil’s biggest export – and other animal products (6.1%). The EU’s exports to Mercosur include machinery (28.6%), transport equipment (13.3%) and chemicals and pharmaceutical products (23.6%), according to the EU Commission.

Environmental groups like Greenpeace have warned that increased sales of agricultural goods in Europe from Mercosur countries could cause farmers in Brazil to step up deforestation as they look for more land. “Trading more cars for cows is never acceptable when it leads to the destruction of the Amazon, attacks on indigenous peoples, and escalating hostility towards civil society,” says Greenpeace trade expert Naomi Ages.

Hedges adds: “Certainly, the EU has got a very strong card to play with Brazilian agricultural policy, as the Brazilian government has expanded commercial agriculture by deforesting the Amazon.” Bolsonaro has pushed back on external interference in Amazon policy, which Hedges says has given opponents in the EU a “weapon” to use.

Other countries in Europe are also against the deal. France’s environment minister, Elisabeth Borne, has said that the country will not sign the deal under current conditions. “We can’t sign a trade treaty with a country that doesn’t respect the Amazon forest, that doesn’t respect the Paris treaty. France will not sign the Mercosur deal under these conditions,” Borne told BFM TV, according to Reuters.

The trade pact not only faces scrutiny from EU countries, but also from their South American counterparts.  “From the Mercosur side, it sounds nice for consumers on paper, but it’s very problematic especially for Argentina and Brazil, which account for around 95% of Mercosur’s GDP. Their industries are not going to be competitive if they have to face more manufactured imports from the EU,” says Hedges.

She believes that deal talks lasted as long as they did because of the legitimacy a potential EU trade deal would give to Mercosur as a bloc, even though she says, “it isn’t really [a trade bloc], it’s never been good at integration”. Another weakness of Mercosur is that there is much competition between Argentine and Brazilian industries. “In spite of Mercosur supposedly being a trading bloc, there have been a lot of bilateral agreements,” Hedges adds.


Fear for farmers

The deal would be the biggest EU agreement in terms of tariff cuts, saving exporters around €4bn in tariffs, according to the European Commission. However, farmers in the EU have opposed the deal, fearing increased competition from South American agriculture.

“This is probably an exceptionally bad moment for [the Amazon fires] to have come to a head. It is hard to see how governments in countries like Ireland and France can go against their farm lobbies, which are very strong,” says Hedges. “I think it’s very unlikely a deal will ever go through because of this.”

Indeed, the Irish Farmers’ Association (IFA) – Ireland’s largest farming representative organisation – has said that it is time the European Commission told Bolsonaro “bluntly” that Europe will not tolerate the burning of the rainforests to clear land for more beef exports as part of the Mercosur deal.

The agreement could also be considered controversial in Argentina for other reasons. The latest global poverty figures published earlier this month reveal that 32% of the population are living below the national poverty line. “There’s much focus in the current presidential elections on how to reduce hunger in Argentina. One of the main points being raised is that the country is a big food exporter, and really, should it be exporting its food products, as opposed to feeding the domestic population first?” Hedges says.

Mercosur may carry on “bumping along the bottom” as Hedges puts it. But with Argentina and Uruguay both facing general elections this month, the trade bloc could face some “serious political division”, she adds. With the EU-Mercosur deal under fire from Austria, Ireland and France, and many questioning the effectiveness of Mercosur more generally, the trade bloc looks set to lie dormant for a good while.