Officially, the free trade agreement between the EU and the four states of the Mercosur economic bloc — Brazil, Argentina, Uruguay and Paraguay — has not yet been shelved for good. But at the Mercosur summit that is taking place until Thursday in the Brazilian city of Rio de Janeiro, a declaration that the agreement to create the biggest free trade zone in the world has once again been postponed is currently being drafted.

According to a report in the Brazilian daily newspaper Folha de S. Paulo the message will be that the "negotiations for the deal did not fail but will be continued despite the controversies of recent days."

The idea is to resume talks immediately after the right-wing populist Javier Milei is inaugurated as the new Argentinian president on December 10, after winning this year's general election by a landslide.

Lula: 'I am Brazilian and I never give up'

The failure of the negotiations is a setback for Brazilian President Luiz Inacio Lula da Silva, who was apparently hoping to conclude the free trade agreement before the end of Brazil's temporary presidency of Mercosur this week.

"I felt that Lula would have preferred to sign today rather than tomorrow," German lawmaker Knut Gerschau from the Free Democrats (FDP), who is the chair of the Committee on Economic Affairs in the German Bundestag, told DW.

The Brazilian president was in Berlin for intergovernmental consultations between Brazil and Germany. He said that he would continue to fight for the deal as it would be irrational not to sign it after more than 20 years of negotiations. 

"I am Brazilian and never give up," he pledged at a press conference with German Chancellor Olaf Scholz. "So long as I have not spoken with each individual president, I will not give up."

Twenty years of talks in vain?

Negotiations between the EU and Mercosur were launched in 2000. The latest setback can reportedly be attributed to the presidential elections in Argentina. On November 30, the Argentinian government informed members of Mercosur that a decision on free trade agreement would not be made before the new president took office. According to reports in the media, this led to European Commissioner for Trade Valdis Dombrovskis cancelling his planned trip to the Mercosur summit in Rio de Janeiro at short notice.

A few days later, French President Emmanuel Macron criticized the free trade agreement for being "old-fashioned," and "incoherent," after a meeting with Brazilian President Lula on the sidelines of the COP 28 Summit in Dubai. 

Biggest free trade zone in the world

If it were signed, the EU-Mercosur agreement would create a free trade zone boasting more than 743 million inhabitants (448 million in the EU, 295 in the Mercosur bloc) that would thus be the largest in the world. The two blocs already have very close trade relations, and according to EU statistics, EU investment into Mercosur states increased from €130 billion ($140 billion) in 2000 to 330 billion ($356 billion) in 2020.

However, the agreement is about more than about dismantling trade barriers: Samina Sultan, an economist at the German Economic Institute (IW) in Berlin, explained in her analysis that "the democracies of the Mercosur states are important partners in terms of values."

She said that the EU could not afford to decrease its efforts. Because by contrast with the EU, China has continuously expanded its role in the region in recent years. 

According to the UN Comtrade database, exports from the region to China climbed 112% between 2012 and 2022, from $47 billion per year to $100 billion. Imports from China to the region also rose by 80%, from $51 billion to $92 billion, in the same period. Trade with the EU on the other hand has stagnated, with both imports and exports between the two blocs remaining at level of around $60 billion per year.

Blame lies with EU, say South American critics

Santiago Pena, the president of Paraguay, which takes over the Mercosur presidency from Brazil this week, blames the EU for the failure of the negotiations. He told the Paraguayan television channel Gen that the EU was not interested in an agreement and was, therefore, imposing conditions that were impossible to fulfill, particularly regarding the environment.

"It goes so far as its questioning our authorities and their monitoring and wanting to make its own assessments," Pena was quoted as saying by the Argentinian business paper Ambito Financiero. "To me, this signifies a loss of sovereignty, and that is practically inacceptable."

In September, Pena had already announced that Paraguay would be looking for other trade partners, citing Saudi Arabia, the United Arab Emirates and Singapore.

Brazilian Environment Minister Marina Silva has also voiced criticism of the EU.

In September, she told DW that she regretted that the "EU always treats President Lula's government as if it were the government of ex-President [Jair] Bolsonaro." She pointed out that while the latter had not cared about the "Paris Agreement on climate change, the environment and indigenous rights," the current government had "reduced deforestation in the Amazon by 48% in the first seven months of the year."

Many environmental groups and human rights organizations are actually relieved that the free trade agreement has been postponed. Dozens of civil society organizations have called for an alternative agreement to be negotiated.

"It is good news for the climate and human rights that the agreement has not been adopted in a rush job for the time being," said Armin Paasch, a trade expert at the Catholic relief organization Misereor. 

This article was translated from German.