A trade match made in heaven?

Since 1995, Mercosur and the EU have been holding talks aimed at creating what would be, with a total population of 680 million people, the world's largest free trade area. Unsurprisingly, since negotiations were officially opened seven years ago, enthusiasm for this ambitious project has somewhat dimmed.

Agreeing terms on sticky areas such as agriculture was never going to be straightforward. This year, however, both sides appear determined to seal a deal.

"Peter Mandelson made it clear in Brazil that he would like to see negotiations concluded by the end of this year," says Peter Power, European Commission trade spokesperson, referring to comments made by the trade commissioner last month. "We believe that, with strong commitment from all sides, this is achievable."

Alfredo Valladão, director of the Mercosur Chair at French university Sciences Po, expresses some exasperation with the slow progress made thus far. "What is happening now is that everything has been negotiated. Now it's a question of political decisions and how much we're going to be giving to each other," he says. "We know the products, we know the conditions. It's time to make decisions now."

Trade between the EU and Mercosur, which includes Brazil, Argentina, Uruguay and Paraguay, more than doubled during the 1990s. Brazil, which accounts for a third of EU trade with the region, has the greatest interest in seeing a deal negotiated. Last year, trade between the EU and Brazil grew by 10.6% to EUR 39.1 billion, according to Eurostat figures. Brazil, which mainly exports raw materials and food to the European Union, is a growing market for EU exports such as machinery.

Sticking points between the two regions during negotiations have included the EU's demands for increased access to services and public procurement markets, greater protection for investments and a reduction in industrial goods tariffs. Non-governmental organisations have protested that bilateral demands such as these could undermine progress made at multilateral level in World Trade Organization (WTO) negotiations. Mercosur, predictably, has demanded lower tariffs on agricultural products, particularly sugar and beef. Talks collapsed in 2004, when EU proposals on expanding quotas for imports of beef, chicken and ethanol over a ten-year period were all but laughed out of the room.

"On both sides there is frustration," says Valladão. "Today Mercosur is more eager to go forward on an agreement than the EU." He suggests that, since negotiations for free trade between the US, Canada and Latin American nations (the Free Trade Area of the Americas) broke down, there is less incentive for the EU to press for its own deals in the region.

The EU has often been accused of rushing to follow US initiatives in Latin America.

The forthcoming EU-Latin American summit in Vienna would appear to be the perfect opportunity to make meaningful progress on talks. Trade is one of 12 topics that will be discussed at the meeting this week. "The Commission will use the opportunity at the Vienna summit and bilateral meetings with leaders to continue to push and give political momentum to the deal," says Power.

"We believe that a Mercosur deal is both desirable and feasible by the end of this year. It's an aspiration we're fully committed to."

Valladão believes prog-ress will be "tokenistic". "At Vienna, we will see some lines saying negotiations will continue," he says, pointing out that nothing of significance can be negotiated until WTO talks are concluded. (The Doha Round of trade talks recently missed its self-imposed deadline at the end of last month.) "At the same time, they have a lot to work for," he says. "It is clear that we have already negotiated everything. The question now is: do we want to get married?"

Mercosur/Mercosul

• Mercosur or Mercosul (Spanish: Mercado Común del Sur, Portuguese: Mercado Comum do Sul, English: Southern Common Market
• Mercosur currently consists of four members: Argentina, Brazil, Uruguay and Paraguay
• Bolivia, Chile, Colombia, Ecuador and Peru have associate member status
• Venezuela was accepted as a member on 9 December 2005, but this will only be officialised in late 2006. It will become a voting member

Article reports on negotiations between the European Union and South America's Mercosur on a common free trade area. Negotiations had been opened in 1995 but lost momentum in recent years.
Article is part of a European Voice Special Report, 'EU-Latin America'.

• Primary Source

European External Action Service: Mercosur http://eeas.europa.eu/mercosur/index_en.htm

European Commission: DG Trade: Trade Issues: Bilateral trade relations: Regions: Mercosur http://ec.europa.eu/comm/trade/issues/bilateral/regions/mercosur/index_en.htm

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