Opinion & Analysis

Exclusive interview: Brazil’s Ambassador to EU on the future of EU-Mercosur relations

Against the background of rising trade protectionism (which led to the deadlock of the EU-US trade deal – TTIP), the Europeans try to look for traction elsewhere.

After 17 years since the negotiations between the EU and Mercosur started, all the cards are finally on the table.  With a market of more than 250 million people, Mercosur is gaining more and more the attention of the European investors. The President of the European Commission is trying to build momentum for a positive conclusion of the negotiations with Mercosur. At the end of last week’s EU summit, Juncker declared the EU ”will do everything it can” to finalise the negotiations by the end of 2017.

However, as CETA has showcased, final agreements might end up facing strong political challenges in Europe. Trade deals are increasingly under scrutiny by the public opinion of the Member States and the French are especially concerned about the possible negative impact of the EU-Mercosur deal on their own economy. Moreover, after a series of disastrous electoral results in key EU Member States, the Socialist and Democrats are reconsidering their positions on free trade in order to recover their votes from the working class and this could toughen S&D opposition to far-reaching trade agreements. The balance of power in the European Parliament among supporters and opponents of free trade is very thin, and (some) S&D EU Parliamentarians are particularly important, as they are the kingmakers in the EP plenary when it comes to voting on trade issues. Farm lobbying is also very powerful in Brussels and can swing the positions of several members of groups that usually support free-trade, such as the EPP (contact VoteWatch Europe at secretariat@votewatcheurope.eu for in-depth mappings of MEPs’ positions on free-trade and other key topics).

For all these reasons, the outcome of a trade agreement is never certain until the very end, as political challengers can easily derail what the negotiators have achieved so far. Now more than ever, the negotiators involved are eager to explain the benefits of a trade agreement to the public, therefore recognizing the rising importance of the public opinion for the success of negotiations.

Ambassador Everton Vieira Vargas, Head of Mission of Brazil to the EU and the current leading negotiator on behalf of Mercosur, has told VoteWatch, in this exclusive interview, how he sees the current state of affairs and the likely developments.

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The interview

VoteWatch Europe: Your Excellency, the date of 14 October is an important moment in your mandate: this time last year, you presented the letters of credentials to President Tusk. How would you describe the first year of activity as Ambassador of Brazil to the European Union?

Everton Vieira Vargas: It has been a very productive first year. Heading the Mission of Brazil to the EU is at the same level of intensity as the posts where I have previously served as ambassador, namely the Brazilian embassies in Argentina (2013-2016) and Germany (2009-2013). The past 12 months have been marked by a concentration of defining developments of varied nature in Brazil, in the EU as well as in the world.

This period witnessed a palpable improvement in the Brazilian economy, which is currently on a growth trajectory again, with indicators pointing to very favourable estimates for inflation, investments and trade, among others. Work still remains to be done – and the agenda of reforms is underway -, but we can see very clear signs of recovery. This should also lead to an improvement in the living standards of the Brazilian population.

It is therefore natural that these positive prospects attract increased attention of our partners, both at the official level as well as in the market, with investors focusing on the sound foundations of our economy and of our institutions, more broadly.

With the EU, with which we have a Strategic Partnership since 2007, our relations have maintained a high level of priority. High-level dialogues have taken place during this year, like Dialogue on Human Rights. The Brazil-EU Joint Commission also met this year, when both sides agreed to modernise the framework of our Strategic Partnership.

In 2017 alone, we have had visits to the EU by our Ministers of Foreign Affairs, Aloysio Nunes Ferreira; Finance, Henrique Meirelles; and Culture, Sérgio Sá Leitão. The exchange of visits and the interaction at the technical and political levels remain very active. Soon we will host in Brazil a delegation of MEPs in a visit to a number of Brazilian institutions, aside from their counterparts in the National Congress.

For obvious reasons, the ongoing Mercosur-EU negotiations are perhaps where a sizeable share of our attention is turned to presently, but this by no means implies that the other files in the wide and dense bilateral agenda are not making progress. On the contrary, we are of the view that the current global challenges call for an increased Brazil-EU collaboration.

We converge in recognizing the importance of multilateralism and of a rules-based global order so as to ensure prosperity and stability for all. This is expressed, for example, in the cooperation between Brazil and the EU with a view to a successful WTO Conference in Buenos Aires, next December. In the lead up to Buenos Aires, Brazil and the EU co-sponsored a proposal to discipline domestic support for agriculture, thus avoiding distortions in international trade. Furthermore, earlier this year, at the UN General Assembly, Brazil joined the EU and Argentina in an initiative to end trade in goods used in torture and capital punishment.

VoteWatch Europe: Over the past decade the Brazil-EU Strategic Partnership framework facilitated bilateral investments’ growth. Only in the first 6 months of this year, bilateral trade reached more than US$ 30 billion. How will the figures look like if the Commission concludes negotiations with Mercosur by the end of the year, as they announced? What are the opportunities for the European businesspersons who want to invest in your country?

Everton Vieira Vargas: I believe investments provide the perfect example of the mutual importance of Brazil and the EU. Brazil is one of the main destinations for EU investment. In terms of investment flows (according to Eurostat), Brazil was the number 1 destination for European investments in 2016 (EUR 33 billion). The EU has larger stocks of investment in Brazil (EUR 327 billion, Eurostat/2015) than it has, for example, in China. European companies have been present in Brazil for a long while – some for more than 100 years! Some facts highlight the importance of the Brazilian market for European companies: (i) São Paulo hosts one of the largest concentrations of German businesses in the world– with over 900 German-Brazilian companies in that city alone; (ii) São Paulo is also the second largest Swedish industrial hub after Gothenburg; (iii) Brazil often provides a relevant – in some cases the largest – share of the profits achieved by European companies. We are the third largest market for beauty and cosmetic products in the world.

At the same time, Brazil is an important investor in the EU. Also according to European 2015 statistics, our stock of investments here (EUR 127 billion) accounted for 2.2% of the total of foreign direct investments in the EU – more than China, for example (which accounted for 2%). Among other products, Brazilian companies manufacture airplanes and engines in the EU, thus generating innovation and creating high quality jobs.

Trade is another segment of the bilateral relations where the mutual relevance of Brazil and the EU is very pronounced. A number of ongoing shifts – at the local, regional and global levels – may, however, affect how Brazil interacts with the global economy and the EU, as well, in the near future. At the domestic level, Brazil is implementing much needed reforms aimed at putting in place conditions for economic growth and enhanced competitiveness. Ultimately, these reforms seek to provide, in a sustainable manner, jobs, education and decent living standards for the Brazilian people.
Some of the measures already being put in place – such as concessions for infrastructure – will lead to an increased internationalization of the Brazilian economy.

Just a couple of weeks ago, for instance, hydropower generation plants were acquired by companies from China and France. Earlier this year, bids for 4 airports were won by operators from France, Germany and Switzerland. Brazil has traditionally ranked as one of the top 10 destinations for foreign investment in the world. But, with the measures being put in place, the investment flow to Brazil in 2017 is expected to reach a very significant volume, with estimates ranging around US$ 80 billion.

On the trade front, in 2017 China became our number one trading partner. This means the EU – which has traditionally held this place – is now in second place. And this seems to be a trend that will intensify, since the gap in trade volume between Brazil and China and Brazil and the EU is already sizable. Also on trade, along with the Mercosur countries, Brazil has begun negotiating a trade agreement with EFTA (Iceland, Liechtenstein, Norway and Switzerland). On Monday, Brazil and Canada announced the decision to start a joint exercise to define the scope of possible negotiations on free trade. We are also working to expand our Preferential Trade Agreement with India.

In Latin America, Mercosur has increased its collaboration with the Pacific Alliance countries (Chile, Colombia, Mexico & Peru), in a move that will further contribute to the economic integration of the region. Some results are already visible, such as the agreements on services and investments that Brazil has signed with Chile, Colombia and Peru. We are also working with Mexico to enlarge the scope of our free trade agreement. In fact, by 2019 most of the South American region will become a virtual free trade area, as a result of the network of trade agreements signed under the ALADI – the Latin American Integration Association.

Finally, but no less important, Brazil has presented its bid for accession to the OECD. This process, when completed, should produce impacts at different levels in Brazil – and in the global economy. All these events are likely to challenge the relative economic position the EU currently enjoys in Brazil. Brazil is of the view that now is the moment to take decisions that will shape our relation with the EU in the years to come. And we have a unique opportunity to act, as Mercosur and the EU approach a crucial stage in the negotiations for an Association Agreement.

VoteWatch Europe: the EU and Mercosur have been negotiating a free trade agreement since 1990s. What do you think is the reason for the current setback in concluding the agreement between the two actors? 

Everton Vieira Vargas: It would not be appropriate to depict the current stage of the negotiations as a ‘setback’. All negotiations have a moment when parties need to address those issues that are more complex to reach agreement. We believe the negotiations are proceeding as expected for a process of this magnitude. In fact, progress in 2017 has been quite fast. It is important to put the Mercosur-EU trade negotiations in context: We are talking about one of the largest ongoing trade negotiations in the world today, with a combined GDP of approximately US$ 19 trillion and a market of 750 million people. Among the EU trade negotiations, Mercosur is second only to the EU-Japan trade deal, in terms of GDP.

This agreement could not only grant the EU a first-mover advantage in the Mercosur goods market, but also pave the way for European companies to provide services and participate in public procurement in the Mercosur countries. This is not a minor consideration: in Brazil alone, public procurement at the federal level is estimated to correspond to 8% of our GDP – that is, 8% of US$ 1.8 trillion: close to US$ 150 billion.

Another figure: in 2016, despite the crisis, e-commerce in Brazil increased by more than 7%, reaching sales of around EUR 12 billion to 48 million consumers, nearly a quarter of Brazil’s population.

Furthermore, since most of the major European economic operators are already present in Brazil, this trade agreement will perhaps have a more palpable effect on small-scale economic actors. These actors will be able to access the Mercosur market on better competitive terms with the removal of tariffs and the establishment of mutually agreed trade rules. They, therefore, stand to gain significantly.

This negotiation has enormous economic potential, if both sides succeed in achieving an ambitious and balanced agreement. But it also makes sense from a strategic perspective, for Brazil, for Mercosur and for the EU.

In order to achieve this, we must make progress also in agriculture. On this issue, the ball is squarely in the EU court. Its offer on beef and ethanol, presented during the most recent trade round (Brasilia, 2-6 October 2017) is out of step with the opening the EU expects from Mercosur in industrial goods, IPRs, services, public procurement and other disciplines. In a way, the agreement is an insurance policy aimed at preserving what Brazil and the EU have built together over the years. But its success depends on determination and political will on both sides of the Atlantic.