Brexit up in the air but deal with Mercosur under threat

Brexit up in the air but deal with Mercosur under threat

In a week when farmers and the food industry live in hope of avoiding the worst effects of Brexit, they can take encouragement from the increasing possibility that the EU-Mercosur free trade agreement will be rejected or substantially watered down.

The agreement must be ratified by all the parliaments of 27 or 28 (depending on Brexit) EU countries, and four South American countries, plus the European Parliament and Council.

The Mercosur deal could be doomed even before the Brexit deadline of October 31.

On October 27, Alberto Fernández is the out-and-out favourite to win the presidential election in Argentina, ousting President Mauricio Macri, a leading advocate of the EU-Mercosur deal.

In contrast, Fernandez has promised to reject the EU deal.

In mid-September, the Austrian parliament’s EU subcommittee almost unanimously voted to reject the free trade agreement, thus obliging their government to veto it at EU level.

So it will be a very tough task for the EU’s new Trade Commissioner, Phil Hogan, to stem the tide of opposition to the deal, when he takes office next month.

The likes of Argentina and Austria are powerful additions to the ever-present fierce resistance of the EU’s agricultural sector to the deal.

That resistance is led by France, where the agriculture minister, Didier Guillaume, has said the EU-Mercosur deal cannot be ratified in its current form.

Belgium, Ireland, and Poland have joined France in criticising the trade agreement.

Brazil’s environmental policies may also derail the ratification process.

Their president, Jair Bolsonaro, has pledged many times to open the Amazon up for mining and agricultural exploitation, an attitude reflected in his apparent disregard for devastating fires in the Amazon rainforest.

France has threatened to veto the deal if Brazil does not respect its environmental commitments under the Paris climate agreement, such as fighting deforestation.

Even European Commission President-elect Ursula von der Leyen said she is ready to quit the deal if Mercosur countries do not live up to their environmental commitments, though she initially backed the deal, and its potential to open a giant new market to EU car and machinery manufacturers and services and construction companies.

On the other hand, the new tariff war with the US piles pressure on the European Commission to secure the Mercosur trade deal.

With ratification of the deal in the Council of the EU still most of 12 months away, it remains to be seen how Brexit and the trade dispute with the US affect decision making.

It will also be interesting to watch how the Committee on Foreign Investment in the US reacts to a request by two US senators that it review transactions by JBS, the world’s biggest meat processor, based in Brazil, likely to be a major beneficiary of a trade deal with the EU.

Mercosur deal protests back in July of this year.
Mercosur deal protests back in July of this year.

In their request, Senators Marco Rubio of Florida and Bob Menendez of New Jersey alleged that JBS used bribery of public officials to finance acquisitions in the US including Swift & Co, the Smithfield Foods beef unit, and poultry supplier Pilgrim’s Pride Corp, and warned of implications for national security and the American food system.

The senators said they are also concerned about JBS links to the Venezuelan Corporation of Foreign Trade which has been cited for “public corruption.”

In 2017, JBS admitted bribing hundreds of politicians, and was also implicated in the two-year police investigation which revealed a complex corruption scheme in the Brazilian meat sector, in which health inspectors and politicians were bribed to approve the sale and export of meat unfit for human consumption.

Since then, JBS has recovered, benefiting from the African Swine Fever devastation of China’s pork industry, and from the EU-Mercosur trade deal, after which the JBS share price reached a new high, and a market capitalisation of nearly €16bn.

But the latest allegations could add to the rising tide of opposition to a trade deal that promises to make JBS even richer.

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