Analysis-Spain Hatches Plan To Win Macron Over To EU-Mercosur Trade Pact

Spain will appeal to President Emmanuel Macron's ambition to make the European Union a "third pole" in world affairs in its bid to secure vital French backing for a stalled EU trade deal with South America, according to three senior government and diplomatic sources.

Spanish Prime Minister Pedro Sanchez believes he has a window of opportunity to revive the Mercosur free trade agreement (FTA) - which has been frozen for four years - during Spain's forthcoming presidency of the EU because of his close relationships with Brazil's President Luiz Inacio Lula da Silva and Argentine President Alberto Fernandez, government and diplomatic sources said.

Sanchez, who will be campaigning for reelection at home, plans to announce the next steps at a regional summit on July 17-18 as his presidency of the EU begins, according to two diplomatic EU sources and two Spanish government sources.

Macron has championed boosting the EU's "strategic autonomy". He said in April the union of 27 nations could become a "third pole" in world affairs, alongside the United States and China.

Sanchez will attempt to persuade him the Mercosur pact would help the EU to broaden its alliances with other open, democratic nations and to "rebalance" the geopolitical map, according to two senior Spanish government sources and two EU diplomatic sources.

The EU agreed the trade deal in principle in 2019 after two decades of on-off talks with Mercosur - which groups Brazil, Argentina, Paraguay and Uruguay. But before it takes effect, blocs are negotiating a so-called "side letter" that pushes for more commitments on climate change and biodiversity.

In economic terms, Europe stands to gain greater access for manufactured goods, notably cars, which face tariffs of 35%. It wants its firms freed to compete for public tenders, and to sell more wine and cheese. Meanwhile, Mercosur aims to boost its exports of farm commodities and minerals to Europe.

Foremost among Macron's concerns is the impact on French farmers, who have bitterly opposed the deal due to the harm that lifting trade barriers on South American beef could do to the domestic cattle industry. Macron has already faced fierce protests in recent months over raising the retirement age.

"The hardest partner to convince is France and, with Macron at such a low point, it will be very difficult to get it done," said Anna Ayuso, a senior analyst at the Barcelona Centre for International Affairs (Cidob).

France says is it not against the deal but warned against rushing negotiations. "We obviously need to wrap up. The fact it took 23 years means it can take a couple of extra months too," Olivier Becht, France's trade minister, told Reuters on Wednesday in an interview from Brazil.

France wants the agreement to be aligned with the Paris climate deal, and has insisted on adding the additional document that calls for Mercosur countries to respect EU deforestation rules for commodities and agree to a tax on carbon intensive goods entering the union, which has been met with resistance in Mercosur.

Spain thinks it could bypass resistance by Macron's opponents by splitting the treaty and implementing only the trade section, which does not need ratification by the EU's national parliaments, a senior government source said.

The option has not yet been officially proposed, but it would be an opportunity to fast track the trade agreement. France, however, has already voiced its opposition to the idea.

UKRAINE WAR

Resistance to the pact within the EU more broadly is fading due to a growing desire to diversify the bloc's network of allies in the wake of the Ukraine war, according to several diplomatic and government sources of the countries involved.

Finalizing the trade deal would give Europe more direct access to South America's raw materials from grains to lithium and nickel - minerals needed to make EV batteries - which have grown in strategic importance since Russia's invasion of Ukraine disrupted global trade flows.

Spain, one of the countries with the closest economic and cultural ties to South America, also wants to reverse a decline in relations between the two regions in an increasingly polarized world, said a Spanish government source directly involved in the talks.

"An agreement with Mercosur goes far beyond access to its raw materials," the source said. "It's also about diversifying allies and friends: the EU needs new friends."

The European Commission (EC) says Latin America has been neglected and wants to establish closer trade and political ties with a region that is aligned in democratic values with the EU, according to two European diplomatic sources.

In recent years, China has vastly expanded its trade footprint in Latin America and mopped up some of the influence Europe enjoyed there by offering investment and cheap loans-for-commodities.

"Ratifying the Mercosur deal would represent a major break-through for the EU in its relations with the so-called Global South," said Miguel Otero, a senior analyst at the Elcano Royal Institute, a think tank in Madrid.

EC President Ursula Von der Leyen will visit Brazil and Argentina in the coming days to hammer out the details of Mercosur negotiations, in preparation for the next round of talks starting on 15 June.

The environmental commitments in the annex are key, but Von der Leyen will also try to secure access for European companies to Latin American countries' procurement processes, as well as to persuade political leaders of the need for a unified condemnation of Russia's invasion of Ukraine.

LULA A KEY PLAYER

Momentum for the agreement had fizzled out after Brazil's former leader Jair Bolsonaro, who shared former US President Donald Trump's mistrust of free trade deals, took power in 2019. But his successor, Lula da Silva, has a close relationship with Sanchez and has been directly involved in reviving the deal.

"We want to be more influential in this geopolitical shift that is taking place," Lula said on a visit to Spain in April. "If there is an opportunity, it is now. Europe needs allies."

Sanchez's own political future has been plunged into doubt after he called a snap general election for July 23 following a poor performance by his Socialist party in local polls last month.

But Spain's conservative People's Party - favourite for that election - supports the Mercosur deal and two European diplomatic officials and a senior PP source said they do not see much change in policy if Sanchez goes.

There is some resistance to reviving the pact, however, in South America.

Brazil's Foreign Minister Mauro Vieira told the Brazilian senate in May that there were concerns the annex document would open loopholes for applying sanctions and could be used for retaliation by the EU if Brazil failed to meet its environmental protection goal.

Brazil is carrying out an assessment and will then contact the other Mercosur partners to present to Brussels a counter-proposal, Vieira said. In recent days, Lula has firmly rejected the participation of European companies in Brazilian government tenders, and said no deal will be reached unless the EU takes Brazil's position into account.

Argentina's left-leaning government also says the 2019 agreement - negotiated by a previous centre-right administration - is unbalanced because it favours European exports.

It thinks that while the addendum does not help negotiations, it could open discussions to fix other imbalances in the agreement, according to a government source participating in talks.

"Since they want to reopen the negotiated package with the environment, the Brazilian government has a few ideas of its own," a Brazil government spokesman said.