Why is the European trade deal with South America so controversial?

European Union Huge business deal The Mercosur bloc in South America is widely seen as highly controversial, with EU member states divided over its terms and many concerned about the possibility of another rift. Farmers' flashpoint.

After 25 years of talks, the European Union and five South American countries – Brazil, Argentina, Uruguay, Paraguay and, most recently, Bolivia – signed an agreement. teacher Free trade agreement on December 6, paving the way for one of the largest free trade areas in the world.

The transatlantic partnership is estimated To cover an area of ​​​​more than 700 million people and represents about 20% of the global gross domestic product.

The agreement, which aims to facilitate trade between the two blocs by reducing customs tariffs on a range of products, requires the approval of the European Union Parliament and a qualified majority of 15 member states.

Analysts expect the ratification process to be difficult, with farmers and some EU member states warning that it could create unfair competition for European agriculture.

France, the second-largest economy in the eurozone, is as well Strongly opposedWhile countries including Poland, Italy, Austria and the Netherlands expressed their reservations.

Germany, which strongly supports a deal, is part of a bloc of 10 other member states calling on European Commission President Ursula von der Leyen to quickly ratify the final terms.

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

The European Union and the Mercosur bloc first Signing a draft commercial agreement in June 2019, only for progress to be delayed until earlier this month amid a series of political and environmental issues. Some of these headwinds included an expected rise in pesticide use, the potential loss of further biodiversity, and concerns about the rate of Deforestation in the Amazon region and human rights concerns regarding indigenous groups.

Machado said France's implicit rejection of the agreement had evolved over the past six years into “preemptive attempts to throw the deal under the bus.”

In this regard, Machado said that the EU's von der Leyen achieved a tremendous victory by “squeezing through the cracks.” French political unrest It makes it “increasingly difficult” for Paris to oppose the agreement.

“Retracting a piece of paper is much more expensive than an idea,” Machado said, adding that it did not seem likely that France would be able to successfully lead the obstructionist minority.

A French Foreign Ministry spokesman did not respond to a request for comment.

He added, “The capitals opposing the agreement are trying to build a coalition that may prevent the Council from reaching the required qualified majority.” He said Alberto Rizzi is a political fellow at the European Council on Foreign Relations, a think tank.

He continued: “Obstructing this will cause enormous economic and political damage to the European Union at a time when it can barely afford it.” “European governments cannot fail this test of unity and strength to appease opponents, such as European farmers and potential far-right voters.”

Food and agricultural products account for the bulk of EU imports from Brazil, Argentina and other Mercosur countries, according to analysts at Dutch bank ING. appreciation The total value of imports of these items will reach 23 billion euros ($24.13 billion) in 2023.

In a research note issued earlier this month, ING analysts said the agreement is expected to facilitate trade growth between the two regions, citing a combination of larger import quotas and lowering or eliminating tariffs on products such as beef, poultry, sugar beets and soybeans.

This is sowing seeds of discontent among EU farmers, especially because their Mercosur counterparts are able to operate at lower costs.

For example, on December 12, farmers in southwest France built a wall of 578 hay bales in a demonstration on the Oche-Toulouse road, with each bale said to represent French representatives in the country's 577-seat parliament, plus one extra For members of the French Parliament. French President Emmanuel Macron, according to media reports.

The obstruction came in protest against the trade agreement between the European Union and Mercosur, in addition to other local issues.

Environmental activists have also sounded the alarm about the possibility of increased trade in agricultural products, citing the potential flow of EU food imports in exchange for more EU exports of cars, plastics and pesticides.

“No whitewashed supplements can fix this inherently bad deal,” said Laura Restrepo Alameda of the Latin American Climate Action Network. He said On December 6th.

“It is designed to promote trade in products that lead to deforestation, land grabbing, extensive pesticide use, carbon emissions and human rights violations,” she added.

In response to CNBC's request for comment, European Commission spokesman Olof Gehl said the bloc's approach to the deal “exemplifies how trade agreements can effectively advance global climate efforts, linking economic cooperation to environmental responsibility.”

Gill cited the incorporation of the latest trade and sustainability standards and the inclusion of the landmark Paris Agreement As an “essential element” of the agreement.

“This will enable the EU to suspend the agreement if the Paris Agreement standards are not respected, strengthening the role of trade agreements in supporting climate goals,” Gill told CNBC via email.

Lithium's strategic importance, analysts told CNBC earlier this month He likely played a major role In the trade agreement, while it was reduced Car definitions It has also been described as a much-needed boost in Europe The faltering automobile industry.

Lithium, sometimes referred to as “White gold“Due to its light color and high market value It is considered As a critical element in the global transition away from fossil fuels.

Mercosur countries such as Argentina, Bolivia and Brazil possess large reserves of lithium, at a time when the European Union's demand for this important raw material is expected to increase significantly.

Elizabeth Johnson, head of Brazil research at economic consultancy TS Lombard, said Brazil was likely to be one of the biggest winners of the agreement.

“The country already accounts for nearly 80% of Mercosur’s total exports to the EU, and the bloc is currently Brazil’s second-largest trading partner,” Johnson said in a research note published on December 11.

She added: “Brazilian politicians hope that the deal will help expand Brazil's export base to include new products and boost European investments in Brazil, especially in the energy transition sector.”