Why Europe’s trade agreement with South America is so controversial

of the European Union blockbuster trade deal with the South American bloc Mercosur widely seen as highly controversial, with EU member states divided over its terms and many wary of another flame point farmer.

After 25 years of negotiations, the EU and five South American countries — Brazil, Argentina, Uruguay, Paraguay and, most recently, Bolivia — signed landmark trade agreement on December 6, setting the stage for one of the world’s largest free trade areas.

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

The deal, which is designed to ease trade between the two blocs by lowering tariffs on a range of products, now needs approval from the European Parliament and a qualified majority of the 15 member states.

Analysts expect a difficult ratification process, and farmers and some EU member states warn that it could create unfair competition for European agriculture.

France, the second largest economy in the Eurozone, is strongly opposedwhile countries including Poland, Italy, Austria and the Netherlands all expressed reservations.

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

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

EU bloc and Mercosur initially signed a draft trade agreement in June 2019, only for progress to be delayed until early this month amid a litany of political and environmental issues. Some of these headwinds included an expected increase in pesticide use and the possibility of further biodiversity loss, concerns about the rate of deforestation in the Amazon and human rights issues related to indigenous groups.

Machado said France’s tacit rejection of the deal had evolved over the past nearly six years into “proactive attempts to simply throw the deal under the bus.”

In that sense, Machado said the EU’s von der Leyen secured a monumental victory by “slipping through the cracks.” French political turmoil and making it “increasingly difficult” for Paris to oppose the agreement.

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

A spokesman for the French foreign ministry did not respond to a request for comment.

“Capitals opposed to the deal are trying to build a coalition that could prevent the council from reaching the necessary qualified majority,” he said Alberto Rizzi, political associate at the European Council on Foreign Relations, a think tank.

“Blocking would cause great economic and political damage to the EU at a time when it can hardly afford it,” he continued. “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 represent the largest part of imports into the EU from Brazil, Argentina and other Mercosur countries, say analysts from the Dutch bank ING evaluating these items reached a total import value of 23 billion euros ($24.13 billion) in 2023.

In a research note published earlier this month, ING analysts said the deal is expected to facilitate trade growth between the two regions, citing a combination of higher import quotas and lower or eliminated tariffs on products such as beef, poultry, sugar beet and soybeans.

This is sowing discontent among EU farmers, especially as their Mercosur partners can operate at lower costs.

For example, farmers in southwestern France built a wall of 578 hay bales in a demonstration on the Auch-Toulouse road on December 12, with each bale said to represent French representatives in the country’s 577-seat parliament, with an additional one for French President Emmanuel Macron , according to media reports.

The obstruction occurred in protest against the EU-Mercosur trade deal, along with other domestic issues.

Environmental campaigners have also warned of the possibility of increased trade in agricultural products, citing the possibility of an influx of food imports from the EU in return for greater exports of cars, plastics and pesticides from the EU.

“No greenbacks can fix this inherently bad deal,” Laura Restrepo Alameda of Climate Action Network Latin America, he said December 6.

“It was built to promote trade in products that fuel deforestation, land grabbing, massive pesticide use, carbon emissions and human rights violations,” she added.

In response to CNBC’s request for comment, EU Commission spokesman Olof Gill said the bloc’s approach to the deal “demonstrates how trade agreements can effectively advance global climate efforts, linking economic cooperation with environmental responsibility.”

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

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

Analysts told CNBC earlier this month that lithium is strategically important probably played a major role in the trade agreement, while the reduction in car tariffs has also been touted as a much-needed boost for Europe the faltering automotive industry.

Lithium, sometimes called “white gold” because of its bright color and high market value, is consider as a key component in the global shift away from fossil fuels.

Mercosur countries such as Argentina, Bolivia and Brazil have large reserves of lithium, at a time when EU demand for this critical raw material is predicted to increase significantly.

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

“The country already accounts for approximately 80% of total Mercosur 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.

“Brazilian politicians hope that the agreement will help expand Brazil’s export base to new products and encourage European investment in Brazil, especially in the energy transition segment,” she added.