Japan holds back on Mercosur talks as global free trade withers
Nikkei Asia | 21 March 2025
Japan holds back on Mercosur talks as global free trade withers
by SHIGERU SENO
TOKYO — Ahead of a visit by the Brazilian president to Japan next week, and amid an intensifying trade war instigated by U.S. President Donald Trump, the Japanese government is grappling with how and whether to begin negotiations on joining a South American trade bloc.
The Southern Common Market, or Mercosur, is a large economic zone with a population of about 300 million. Its five full members are Brazil and Argentina — South America’s largest and second-largest economic powers — as well as Bolivia, Paraguay and Uruguay.
A possible economic partnership agreement between Japan and Mercosur has been called the "last mega-FTA" free trade agreement. The Japanese and South American business communities have lobbied heavily to make it a reality.
A major milestone came when the European Union and Mercosur concluded FTA negotiations in December. The European Commission had been trying to finalize a deal since 2000 despite member state objections. It may have made an extra push at the end in an effort to establish a free trade zone before Trump’s inauguration in January.
After the EU concluded its agreement, expectations grew in Japan’s business circles that the country would be next.
But with upper house elections coming this summer, the Japanese government and ruling parties find themselves unable to make major political decisions.
While it is likely that Brazilian President Luiz Inacio Lula da Silva, who arrives in Japan on Monday, will voice his hopes for a Japan-Mercosur EPA, he and Prime Minister Shigeru Ishiba are less likely to reach an agreement on starting the talks.
First, Japanese politicians need to give consideration to the country’s farmers. Brazil and Argentina are agricultural powerhouses, with strength in exports of beef, chicken and more. An EPA could let cheap South American agricultural products flow into Japan, harming Japanese farmers.
"The government and ruling parties’ rejection of the term ’EPA’ was stronger than expected," a Japanese government official said.
Second, there is a subtle difference in mood within Mercosur. The bloc is now chaired by Argentina, whose President Javier Milei calls himself a libertarian and has clashed publicly with the leftist Lula.
In November, when the opportunity for Ishiba and the leaders of Mercosur to meet together at the Group of 20 summit in Brazil did not materialize, a lack of coordination between member states may have been to blame.
The leaders of Japan and Brazil have been gradually narrowing the gap between them regarding Japan-Mercosur EPA negotiations.
In May 2024, then-Prime Minister Fumio Kishida visited Brazil and agreed with Lula to consider ways to strengthen economic relations with Mercosur in a wide range of fields. That November, Ishiba and Lula agreed to discuss and cooperate on a Japan-Mercosur strategic partnership framework.
On both occasions, the politically sensitive term "EPA" was deliberately avoided, with the word "framework" used instead to imply measures to strengthen economic relations — including EPAs.
Diplomatic officials from both countries worked hard to smooth over the language but could not reach an agreement that would allow the start of negotiations on said framework.
The next potential turning point will be the 30th United Nations climate change conference, or COP30, in northern Brazil’s Belem this November. Brazil will also chair Mercosur for the second half of the year.
Will Ishiba be able to visit Brazil and reach an agreement on framework negotiations, including an EPA? The answer will depend partly on the results of Japan’s summer elections — but if autumn comes and goes without even a start to negotiations, it will likely be seen as a major loss for Japanese business opportunities and Japan’s economic diplomacy.
Before concluding FTA negotiations with the EU, Mercosur had signed one with Singapore. It is also negotiating with South Korea, Canada and Indonesia. Some in the Japanese business community complain that Japan has not even made it to the starting line, putting it at risk of being left far behind in competition with European and Asian companies.
"Brazil’s attitude has changed dramatically from 10 years ago," a Japanese government official said. In the past, some were cautious about an EPA with Japan out of concern over increasing inflows of Japanese-made automobiles and electrical appliances.
But for Brazil, which has significantly increased its trade with China over the last decade, Japan is now a major potential export destination for soybeans, beef and more. The rest is up to the Japanese side.
The world is now at the mercy of Trump’s trade war. If Japan can agree to start EPA negotiations with Mercosur, it would strongly highlight the country’s role as a guardian of free trade in a world of rising protectionism.
During Trump’s first term, the U.S. withdrew from the Trans-Pacific Partnership. There are high expectations from overseas for Japan, which led the effort to revive the TPP as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Uruguay also seeks to join the CPTPP.
Restarting the country’s economic diplomacy with the re-expansion of the CPTPP and an EPA with Mercosur. Isn’t that the kind of toughness that Japan needs now?
