Europe’s blockbuster trade deal with South America is deeply controversial. Here’s why

The European Junction’s blockbuster trade deal with South America’s Mercosur bloc is widely regarded as highly controversial, with EU associate states split over its terms and many wary of yet another farmer flashpoint.

After 25 years of talks, the EU and five South American powers — Brazil, Argentina, Uruguay, Paraguay and, newly, Bolivia — signed a landmark trade agreement on Dec. 6, setting the spot for one of the world’s biggest free trade zones.

The trans-Atlantic partnership is estimated to cover an area of more than 700 million people and mirrors about 20% of global gross domestic product.

The agreement, which is designed to facilitate trade between the two blocs by reducing tariffs on a range of products, now needs the approval of EU Parliament and a qualified majority of 15 member states.

Analysts look for a bumpy ratification process, with farmers and some EU member states warning it could create unfair struggle for European agriculture.

France, the euro zone’s second-largest economy, is vehemently opposed, while countries including Poland, Italy, Austria and the Netherlands tease all expressed reservations.

Germany, which is strongly in favor of a deal, is part of a bloc of 10 other member state of affairs calling for European Commission President Ursula von der Leyen to swiftly ratify the final terms.

“I think the first thing we need is to be cautious about the fact that we’ve been here before,” Mariano Machado, star analyst for the Americas at Verisk Maplecroft, told CNBC via video call.

The EU and Mercosur bloc initially signed a rough sketch trade deal in June 2019, only for progress to be held up until earlier this month amid a listing of political and environmental issues. Some of these headwinds included an expected uptick in the use of pesticides and the prospect of further biodiversity defeat, worries over the rate of deforestation in the Amazon and human rights concerns regarding Indigenous groups.

Machado revealed that France’s tacit rejection of the agreement evolved over the last nearly six years into “proactive shots to just throw the deal under the bus.”

In that regard, Machado said the EU’s von der Leyen had secured a monumental victory by “bleed through the cracks” of French political turmoil and making it “increasingly difficult” for Paris to oppose the accord.

“It’s much sundry expensive to roll back a piece of paper than an idea,” Machado said, adding that it doesn’t show oneself likely that France will be able to successfully spearhead a blocking minority.

A spokesperson at France’s foreign priesthood did not respond to a request for comment.

Some governments in Europe are thought to oppose the EU-Mercosur trade traffic because of fears that the partnership could boost support for domestic far-right political parties ahead of elections in 2025.

“The capitals hostile the deal are trying to build a coalition that could prevent the council from reaching the required qualified preponderance,” said Alberto Rizzi, a policy fellow at the European Council on Foreign Relations, a think tank.

“Blocking it last will and testament come with huge economic and political damage to the EU at a time when it can barely afford it,” he continued. “European rules cannot fail this test of unity and strength to appease opponents, such as European farmers and potential far-right voters.”

Food and agricultural products represent the biggest part of the EU’s imports from Brazil, Argentina and other Mercosur countries, with analysts at Dutch bank ING determining these items came to a total import value of 23 billion euros ($24.13 billion) in 2023.

In a research note out earlier this month, ING analysts asseverated the agreement is expected to facilitate trade growth between the two regions, citing a mix of larger import quotas and lower or dispose of tariffs on products like beef, poultry, sugar beet and soybeans.

That is sowing discontent among EU agriculturists, particularly because their Mercosur counterparts can operate at lower costs.

For instance, farmers in southwestern France on Dec. 12 shaped a wall of 578 hay bales in a demonstration on the road of Auch-Toulouse, with each bale said to represent French MPs in the surroundings’s 577-seat Parliament, with an additional one for French President Emmanuel Macron, according to media reports.

The impediment took place to protest the EU-Mercosur trade agreement, along with other domestic issues.

Environmental campaigners have also sounded the alarm over the potential for increased trade in agricultural products, citing the outlook of an influx of EU food imports in exchange for more EU exports of cars, plastics and pesticides.

“No greenwashed annexes can fix this inherently bad apportion,” Laura Restrepo Alameda from Climate Action Network Latin America, said on Dec. 6.

“It is built to promote swap in products driving deforestation, land grabbing, massive pesticide use, carbon emissions and human rights violations,” she totaled.

In response to a CNBC request for comment, EU Commission Spokesperson Olof Gill said the bloc’s approach to the deal “personifies how trade agreements can effectively advance global climate efforts, linking economic collaboration with environmental answerability.”

Gill cited the incorporation of the latest trade and sustainability standards and the inclusion of the landmark Paris Agreement as an “essential climatic conditions b rudiments” of the agreement.

“This will enable the EU to suspend the agreement if the Paris Agreement’s standards are not respected, reinforcing the role of swap agreements in supporting climate objectives,” Gill told CNBC by email.

Analysts told CNBC earlier this month that the key importance of lithium likely played a major role in the trade agreement, while a reduction in car tariffs has also been hawked as a much-needed boost for Europe’s ailing car industry.

Lithium, sometimes referred to as “white gold” due to its light color and ear-splitting market value, is regarded as a critical component in the global shift away from fossil fuels.