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EU, South American bloc strike long-sought free trade deal

Buenos Aires: South America's Mercosur bloc and the European Union struck a free-trade deal Friday after two decades of negotiations that concluded amid global trade tensions and rising protectionism.

Argentina’s Foreign Minister Jorge Faurie attends a meeting at the Itamaraty Palace, in Brasilia, Brazil in 2017. Credit:AP

The agreement announced by both sides came as trade talks between the EU and the United States have stalled with the Trump administration threatening to impose tariffs on all autos, a major European export to the US.

"In the midst of international trade tensions, we are sending today a strong signal with our Mercosur partners that we stand for rules-based trade," European Commission President Jean-Claude Juncker said following the clinching of the deal in the Belgian capital of Brussels.

Juncker described the pact with the bloc made up of Argentina, Brazil, Paraguay and Uruguay as "an historic moment" that came 20 years after talks were launched. It shows the European bloc is determined to remain a flag-bearer of the global trade system at a time when it is being challenged by a Trump administration skeptical of free trade.

Argentina's Foreign Ministry said the agreement "will mean the integration of a market of some 800 million people, nearly a fourth of the world's gross domestic product and more than $US100 billion in bilateral trade of goods and services."

It shows the European bloc is determined to remain a flag-bearer of the global trade system at a time when it is being challenged by a Trump administration skeptical of free trade.

The ministry said the deal also is aimed at strengthening political and cultural ties with the EU, improving access to goods, services and investments by reducing restrictions and easing access to technology and raw materials.

Juncker said the deal would remove most tariffs on EU exports to Mercosur, saving more than €4 billion ($6.5 billion) worth of duties each year, four times as much as Europe's pact with Japan.

The commission, which negotiates trade deals on behalf of the 28-nation EU, said the agreement is particularly important for industrial sectors like cars and car parts, machinery, chemicals, pharmaceuticals as well as clothing and footwear. Mercosur hopes to benefit with more exports of agricultural products including beef, poultry and sugar.

The EU's farm and food sector also stands to gain, particularly products like chocolates, wine and spirits.

"The basics of this deal have been quite clear for some time. It's cars and machinery and agriculture. But in the past, politics have stood in the way. Particularly in Brazil, which has had a very protectionist policy focusing on domestic production," said Jacob Funk Kirkegaard, senior fellow, at the Peterson Institute for international economics. "And at the same time, the Europeans have been very protective of their agricultural sector."

The commission said the deal, which still must be ratified by the legislatures of all the countries involved, will also ease border checks and cut red tape.

The agreement brings to 15 the number of pacts the EU has concluded since 2014, most recently with Canada and Japan, and comes as the bloc pushes ahead with international trade deals.

Brazilian President Jair Bolsonaro called it one "of the most important trade agreements of all times."

The Brazilian government said the deal would boost Latin America's largest economy by slashing tariffs for some agricultural products like orange juice, fruit and instant coffee, and expanding access via quotas for beef, ethanol and sugar.

"Brazilian companies will benefit from the elimination of tariffs on exports of 100 percent of industrial products. That will equalize the conditions of competition with other partners that already have free trade agreements with the EU," it said.

The deal is "a game changer in Latin America as a whole, which historically has been very protectionist," Kirkegaard said. "This could herald in a new era for Mercosur."


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