We sat with His Excellency Pedro Miguel Costa e Silva, Brazilian Ambassador to the EU. He has served in Geneva, Madrid and Ottawa, with previous roles in Brasilia, the Special Advisory Office of the President and as a leader of the Economic Department. In Brussels since 2022, he’s living through the eventful phase of trade negotiations between the EU and Mercosur (economic bloc involving Argentina, Brazil, Paraguay and Uruguay).
If you have followed #TradeViews for long, you know that this one of our favourite topics due to the magnitude of the deal (it would be EU’s biggest FTA in terms of population covered) and the big debate it has sparked around the bloc. Also, check out the report we prepared with our partners in Mexico City!
The Ambassador shared insights on the opportunities the deal would bring EU and Brazilian companies. Aside from the FTA, new energy and digital partnerships are taking shape. Yet, obstacles are around the corner, as regulatory barriers grow in Brussels. This and more in this special edition!
What do you consider as main export opportunities for Brazil to the EU? Which sectors can then benefit the most from the EU-Mercosur trade agreement?
Brazil is already the EU’s main external supplier of agricultural products, which attest the quality of Brazil’s food production. Agriculture is, therefore, the first and obvious export opportunity for Brazil in the EU market. In addition to agriculture, we are focused on increasing and diversifying Brazil’s exports in the industry sector. The agreement may play a role in that regard. It would liberalize 91% of the tariff lines in MERCOSUR and 95% in the EU. The trade expansion will not necessarily be concentrated in agriculture, since the EU offers very limited TRQs for beef, sugar, poultry and ethanol, all major Brazilian interests. We hope that the agreement will create new opportunities for sectors such as tropical fruits and for products from the bioeconomy and the forest. As regards industry, the agreement cannot do much in terms of tariff reduction, considering that industrial tariffs are already generally low in the EU. But the agreement could benefit our industrial sectors, by promoting investments and deeper integration between supply chains. Brazil has an important industrial infrastructure, a significant domestic market and presents several comparative advantages when it comes to the green and digital transitions, such as an energy and electricity matrix based on renewables.
Even with an agreement in place, non-tariff barriers could still hinder bilateral trade, as the EU has been increasing its regulatory standards. How do Brazilian institutions and businesses view these regulatory challenges?
Both the Brazilian government and private stakeholders, from business to academia, are deeply concerned with the current trends in EU trade policy. We regret that trade is now mostly viewed in a negative light within the EU, leading not only to a significant slowdown in the bloc’s agenda of trade negotiations, but also to an increasing focus on defensive measures and non-tariff barriers to trade. Even more worrisome is the EU’s departure from multilateral discussions on how to address climate change and environmental challenges, in favor of pursuing unilateral and trade restrictive measures. It is understood that this approach disregards national legislation and practices in partner countries as well as imposes heavy costs on producers, especially for small and medium-sized enterprises. Several business and industry associations have already begun to question whether it is worth pursuing an FTA with the EU considering the impact on market access of legislations like the EUDR, CBAM, CSDDD, [deforestation regulation, Carbon Border Adjustment Mechanism, Corporate Sustainability Due Diligence Directive] mirror clauses in agriculture, among others.
While an EU-Mercosur agreement is not there yet, bilateral cooperation initiatives are being announced, for instance on energy, critical minerals and the digital economy. What is the state of play of such initiatives and how can they improve?
Brazil has a remarkable trajectory when it comes to renewable energy. Last year, 92% of the electricity in our national integrated power system came from renewable sources. Solar and wind combined provide 15% of our power and there is immense potential for growth, including with offshore wind. We also have large stocks of critical and strategic raw materials and a large experience with mining operations. We are talking with the EU to see how we can cooperate in these areas, especially in the context of our Strategic Partnership.
Regarding the digital economy, we are part of the bi-regional EU-LAC Digital Alliance. We do, however, hope to engage in a bilateral dialogue that would enable us to discuss more ambitious projects and results.
There are, of course, many other areas where we can maintain and enhance our dialogue with the EU, such as human rights, education and health. At the G20, which we will preside over this year, we will put forward discussions on climate change, the fight against hunger and the reform of global multilateral institutions.
Let’s come to the million-dollar question. When do you expect a conclusion to the talks and what issues remain unsolved?
The political will on both sides to conclude negotiations is clearly there. Both President Lula and President Von der Leyen have reaffirmed their interest in reaching a political agreement before the end of the year. I will not make any predictions about the conclusion of the negotiations, but the negotiators are working daily with this objective in mind. Since September, several meetings have taken place in Brasilia and Brussels and more in-person and virtual meetings are being scheduled every week. We cannot underestimate, however, the complexity of the issues at stake. The most important outcome sought by both parties is a balanced and mutually beneficial agreement. We need to reach a balanced approach on sustainability issues, as well as make sure that the agreement affords sufficient policy space for MERCOSUR countries to undertake development policies. We also need to take into account developments since 2019, not only lessons from the COVID pandemic but also likely trade imbalances and restrictions resulting from the EU autonomous measures.
We are all well aware that it will take time to have the green light of all 27 EU parliaments to the agreement. Do you foresee obstacles in the ratification process in the Mercosur bloc too?
I will not speak for the other MERCOSUR countries, but in Brazil the agreement has received, for a long period, wide support from Brazilian stakeholders, including the main political parties, civil society, academia, industrial and business associations, even the agricultural – despite the restricted quotas offered by the EU – and automotive sectors. Unfortunately, the EU autonomous measures threaten to erode part of that support as they are seen not only as punitive and intrusive, but also as measures that may neutralize the market access promised by the EU. The EUDR and the CBAM together can impose restrictions and additional costs on goods responsible for a significant part of the current Brazilian exports to the EU. More are still to come if we consider new rules on pesticides, mirror clauses or the EU-US Global Arrangement on Sustainable Steel and Aluminium. So, the EU is today a cause as much for concern as it is for positive anticipation in Brazil, including for sectors which have been supportive of the agreement.
Let’s conclude on a more general point. What are your priorities as Brazilian Ambassador here, also in engaging with stakeholders in the EU bubble?
While the Agreement is obviously one of the priorities, the revitalization of the Brazil-EU Strategic Partnership is one of my main objectives. Brazil and the EU are longstanding partners with a deep and multifaceted relationship. The Strategic Partnership, established in 2007, provides a political and institutional framework to the bilateral relationship and favors regular high-level and expert meetings, as well as permanent coordination on issues on the international agenda. This Partnership was dormant for a few years, and we are now seeking to strengthen it by resuming or creating new high-level dialogues on key areas such as environment and climate change, energy, health, digital agenda, science and technology, agriculture, investment, among others. The continuation of these dialogues will help us identify priority interests and guide our actions towards more concrete results within a reasonable time. For example, an enhanced partnership in the digital area would definitely increase the access of citizens of both regions to the benefits of trade and investment. In this sense, we are working with the EU towards a possible Brazil-EU Summit next year, which could be a significant step towards these objectives.