The Brazilian and French presidents are locked in a political feud rooted in trans-Atlantic trade negotiations. Brazil’s Jair Bolsonaro and France’s Emmanuel Macron have been sparring for several months over what each considers acceptable terms for a free trade deal between the European Union and the Mercosur trade bloc. Of particular concern is the extent to which Mercosur countries’ agricultural sectors can access EU markets. Paris had initially said it would accept the agreement on three conditions: that the pact mention implementation of the Paris Agreement on climate change; that it respect EU environmental and sanitary standards; and that it protect sensitive value chains through limited and progressive quotas. But the spat came to a head last weekend during the G-7 summit when Macron threatened to block the agreement over Brazil’s failure to control the fires raging in its portion of the Amazon. France considers the Brazilian response to the fires a breach of the French conditions – and potential grounds for breaking the agreement.

France is the eurozone’s second-largest economy and the EU’s third-largest, following Germany and the United Kingdom. Agriculture still plays a key role in the French economy, making Paris a gatekeeper when it comes to opening EU markets to foreign agricultural products. But Brazil packs a punch on the Mercosur side; it is disproportionately larger than every other member state, so it can make or break a trade deal. This may explain why Brazil didn’t blink at the French threats to block the agreement. Bolsonaro told Paris not to interfere in Brazil’s sovereign affairs and refused outside help in handling the Amazon fires. The free trade agreement, which has been decades in the making, is bringing to the fore critical national interests of both France and Brazil – and without their assent, the deal cannot pass.

Brazil: Mercosur Power Player
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Aligning Interests

Efforts to negotiate a free trade deal between Mercosur and the EU first began in 2000 and have continued haltingly since. Mercosur and the EU were in radically different positions in 2000 than they are today. The EU had a robust economy and was preparing for a massive membership expansion. Brazil, meanwhile, was still trying to overcome its economic crisis of the 1990s – and Argentina’s economy would collapse just one year later. By the time the South American economies recovered, the EU was reeling from the 2008 financial crisis. And then as Europe stabilized, Mercosur governments began leaning toward protectionist trade policies as they wrestled with further economic crises. Unfailingly, domestic problems overshadowed negotiations, and the two blocs were unable to reach a deal.

For the final EU-Mercosur free trade agreement to be viable, several geopolitical interests needed to align. Sure enough, in 2019, the two sides find themselves on more even footing and with complementary goals. Brazil and Argentina both elected governments that support free markets, a change from their predecessors’ protectionist policies that impeded the negotiations’ progress. Their initial market reforms have indeed put Mercosur in a better negotiating position. At the same time, the EU is facing uncertainty over Brexit, trade with the U.S. and talk of an imminent economic downturn. It’s more vulnerable – and therefore more open to reaching some kind of a trade agreement. That puts both sides in a position where they’re eager to strike a deal at the same moment. But it doesn’t mean their differences have disappeared.

Mercosur's Trade with European Union(click to enlarge)

Unresolved Differences

To smooth over the remaining differences, particularly on agriculture, two safeguards were introduced in the draft agreement. The first was a mechanism that, in theory, works to protect economic sectors from “significant or unexpected increases in exports.” The second was a precautionary measure that allows a country to reject agricultural imports from another if the imports are deemed harmful to health. But the two sides’ interpretations of these provisions differ significantly. Brazil believes these measures can be applied only with scientific evidence to back them up, and that the burden of proof lies with the country that lodges the complaint. Brussels, however, believes it’s the EU’s prerogative to regulate food safety.

France, in particular, seems unsatisfied with the terms and continues to threaten to scuttle the deal. Its reasons for doing so may go beyond the EU-Mercosur agreement itself. The French government, with the disruptions caused by the yellow vest movement fresh in mind, wants to avoid provoking social unrest among groups like farmers. In addition, the eurozone’s future growth is in question and there are fears of recession – and dealing with a downturn will likely pit France against other countries in Europe. (France would likely be among those footing the bill for an economic recovery package.) Perhaps most important, the EU has other important upcoming negotiations to consider, not least of which will be trade talks with the U.S. Conceding to Brazil in the Mercosur talks will set a bad precedent for other potential deals. But if France can draw a line in the sand with Brazil now, it will gain important leverage both with other EU members and in future trade negotiations for the bloc. In this sense, the French position is about much more than just Brazilian agricultural products.

The European Union's Trade With Mercosur
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Brazil, on the other hand, is caught between the competing imperatives of maintaining complete control over the Amazon and expanding its trade relationships. The Amazon corridor, which traverses through northern Brazil, is both a vulnerable and strategic area for the country. It is sparsely populated and minimally developed, meaning the state presence there is quite limited. Brasilia is staunchly opposed to any foreign involvement in the management of the Amazon, fearing that foreign presence could overpower the Brazilian government’s control of the region and segment its national territory. So, while environmental concerns over the Amazon fires are significant, for Brazil, so too are national security concerns.

But Brazil has also made it a priority to develop strong and diversified trading relationships. It needs to stimulate economic activity to avoid a slowdown, and increased trade is a key pillar in these efforts. In particular, the country needs to expand beyond its top three trading partners (China, the U.S. and Argentina) whose own economic woes have made them less reliable. The Bolsonaro administration is working on multiple fronts to achieve this diversification. On Aug. 24, Mercosur and the European Free Trade Association (comprised of Switzerland, Liechtenstein, Norway and Iceland) announced they had reached a free trade agreement “in substance.” Mercosur is also in talks with Canada, South Korea and Singapore over trade, and Brazil has entered formal trade negotiations with the United States.

The EU-Mercosur free trade talks have been riddled with challenges, and even if the blocs today seem in a better position to make a deal, threats to an agreement persist. France and Brazil, in particular, will have to weigh the benefits of an agreement against other pressing national needs. It will be several more years before the deal comes into force. In the meantime, Paris and Brasilia will seize on issues like the Amazon fires to strengthen their own positions and to hedge their bets.

Allison Fedirka
Allison Fedirka is a senior analyst for Geopolitical Futures. In addition to writing analyses, she helps train new analysts, oversees the intellectual quality of analyst work and helps guide the forecasting process. Prior to joining Geopolitical Futures, Ms. Fedirka worked for Stratfor as a Latin America specialist and subsequently as the Latin America regional director. She lived in South America – primarily Argentina and Brazil – for more than seven years and, in addition to English, fluently speaks Spanish and Portuguese. Ms. Fedirka has a bachelor’s degree in Spanish and international studies from Washington University in St. Louis and a master’s degree in international relations and affairs from the University of Belgrano, Argentina. Her thesis was on Brazil and Angola and south-south cooperation.