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Cars v cows: German automakers call to split EU-Mercosur deal to bypass French ‘non’

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Euractiv | 31 January 2024

Cars v cows: German automakers call to split EU-Mercosur deal to bypass French ‘non’

By Jonathan Packroff and Paul Messad

The EU-Mercosur trade agreement should be split into two distinctive parts to circumvent French resistance based on agricultural issues, the German car industry has proposed, in a bid to boost export markets other than China.

As protests by farmers have spread across the country, the French government has reaffirmed its opposition to the EU-Mercosur trade agreement, a deal that would see trade boosted between the EU and the Latin American bloc (Brazil, Argentina, Uruguay and Paraguay).

French President Emmanuel Macron on Tuesday underlined that France was “asking for the agreement, as it stands, not to be signed”. This comes after earlier statements that he couldn’t impose environmental standards on farmers while allowing more agricultural imports of goods which would not have to follow the same rules.

However, the German car industry, which hopes for the agreement to boost its exports to Latin America through lower tariffs, calls for the agreement to be concluded as soon as possible.

“The negotiations for a Mercosur agreement have been dragging on for over 20 years,” Hildegard Müller, head of the German Automotive Industry Association VDA told journalists on Tuesday (30 January). While official negotiations on the EU-Mercosur deal have been finalised in 2019, its conclusion currently hinges on a side agreement in which the EU wants to address some environmental concerns, including for the protection of forests.

“There is practically no progress on free trade agreements,” Müller lamented, referring not only to EU-Mercosur but also the failed conclusion of a trade deal with Australia, a planned update of the EU-Mexico agreement as well as difficult negotiations with India.

“There is talk of ‘de-risking’, but it is not made possible,” she said, in reference to the EU’s strategy to reduce its economic dependence on China, the world’s largest car market and one of German automakers’ key export destinations.

“Every agreement that is not concluded strengthens others and weakens us,” Müller warned. Member states of the Mercosur bloc have already signalled the aim to advance a free trade agreement not only with the EU, but also with China.

Split the deal into two?

As a potential solution to accelerate the deal, Müller proposed to split the EU-Mercosur agreement into two, which could see parts of the deal, including customs duties, provisionally applied while more controversial parts could initially be left out.

“We make overly complex agreements and end up harming ourselves because we can’t achieve anything in any of the economic areas,” Müller said.

“You can sometimes see that people get bogged down in one issue. In [the negotiations with] Mexico it’s energy policy, in Mercosur it’s agricultural policy, and all other sectors suffer as a result,” she said.

“We should therefore also consider whether these trade agreements should be divided into parts so that they can have an effect,” she said, adding that this could make critics see the positive impact of the deal so that “concerns in other areas can also be reduced”.

A similar idea has previously been floated by Germany’s Economy Minister Robert Habeck, who in November said that broad agreements dealing with multiple sectors, known as ‘comprehensive agreements’ would often complicate negotiations.

“I make no secret of the fact that these Comprehensive Agreements, meaning doing everything together, mechanical engineering and services and agriculture, only ever cause problems, and in fact it is always the agricultural sector which causes problems,” Habeck said in response to the EU’s failure to conclude a deal with Australia over disagreements on beef and sheep meat.

A similar approach had been pursued with the trade and investment agreement with Canada, known as CETA, which provisionally entered into force in 2017 with regard to customs duties, though more controversial parts of the agreement still need to be officially ratified by all member states before they can enter into force.

It’s unclear, however, whether the idea to split the agreement could work with the EU-Mercosur deal as well.

“For France, splitting the agreement is not an option,” a European diplomatic source said.

“The German government continues to be firmly committed to concluding the negotiations with the Mercosur countries Brazil, Argentina, Uruguay and Paraguay as soon as possible,” a spokesperson of the German economy ministry told Euractiv, referring to the European Commission which is leading the negotiations.

Unlike France, the German government has always been a strong supporter of the EU-Mercosur free trade agreement, which it hopes can boost the country’s export-oriented industries such as car and machinery makers.

Earlier this month, German Chancellor Olaf Scholz held a phone call with Argentinian president Javier Milei, the support of whom for the deal was previously unclear, where they both “agreed that the negotiations on the agreement should be finalised swiftly”.

French farmers on the streets

On Monday, a French official spoke about an end to the negotiations with the Mercosur bloc, conducted by the European Commission due to its competence for trade issues.

“The Commission understood that it was impossible to conclude talks in this context,” a French official said. “Our understanding is that it has instructed its negotiators to put an end to the negotiating sessions that were underway in Brazil, and in particular to the visit that had been envisaged by the vice president of the Commission in the event of a conclusion,” the official added.

However, according to Michael Hager, head of cabinet of the European Commissioner for External Trade Valdis Dombrovskis: “There is no stop. It’s certainly not the case that we suddenly tear up our papers, go home and lie down in a deckchair,” Politico reported.

 source: Euractiv