EU-Mercosur pact opens up new trade zone

European Union (population: 450 million) and Mercosur, comprising Brazil, Argentina, Paraguay and Uruguay (population: 268 million), have signed a free trade agreement after 25 years of procrastinated negotiations.

The trade volume between the regions in 2024 was 111 billion euros. The agreement was signed at Asuncion in Paraguay on Saturday. It was attended from the EU side by European Commission President Ursula von der Leyen and European Council President Antonio Costa and Mercosur represented by the presidents of the member countries excepting Brazil. The agreement will create the largest free trade zone. Von der Leyen said, “This agreement sends a very strong message to the world. It reflects a clear and deliberate choice. We choose fair trade over tariffs. We choose a productive long-term partnership over isolation.”

Costa said, “This agreement help both our blocs navigate an increasingly turbulent political environment without abandoning our values, marking a true milestone in shoring up our economic security.” The Brazil government said that the agreement was emblematic of President Luiz Inacio da Silva’s efforts to “expand and diversify markets”.

The EU-Mercosur free trade agreement comes at the very moment when an angry US President Donald Trump has announced that increased tariffs of 10 per cent will be imposed on several European countries like France, the United Kingdom, Norway, Poland, the Netherlands for not agreeing to facilitate the sale of Greenland to the US.

The EU is preparing to invoke the Anti-Coercive provision to counter Trump’s punitive measure. Trump’s aggressive foreign and trade policy is based on simplistic politics, and in the bare-knuckles mode of diplomacy he has adopted ever since he has come into the White House for his second term in office last January. He also realizes that the US is in economic doldrums and he wants to pull the country out of a debt-trap in which it finds itself.

There is a trade agreement of sorts between the US and EU, and another between the US and the UK. But there are enough hiccups hidden in the agreements between the two sides, and each has agreed to accept them as provisional provisions. Trump’s bull-in-the-China-shop manner of dealing with things at home and abroad is not helping matters at all even as the world faces economic challenges at various levels.

The question is whether the rest of the world can engage with each other leaving the US, the largest economy, with a large share of the global trade out. Some of the trading trends show that something of the sort is happening. China has managed to achieve a $1 trillion trade surplus despite America’s hostility because China has found alternative markets in south-east Asia and other regions.

And the EU-Mercosur free trade agreement and that between Canada and China are examples that other countries are finding ways to sidestep a truculent Trump. And this is being done without issuing any kind of ultimatum to the US and to Trump that the rest of the world can continue to do business with each other and the Americans can be left in the cold.

There is a need to restructure the world economy in the face of the climate change crisis and the fallout arising from it on peoples and countries. Rising temperatures will affect the survivability of peoples in hostile weather and the food production systems because of the changing climate patterns.

The manufacturing system and the energy needs of the people and the economy have to be met in innovative ways. This requires new thinking and the Trump style of bullying is the most unhelpful in dealing with the future needs of the world.