South American, EU negotiators race to close divisive trade deal

By Lucinda Elliott, Lisandra Paraguassu and Anthony Boadle

MONTEVIDEO/BRASILIA (Reuters) -South America's Mercosur trade bloc will meet in Uruguay on Thursday with fresh signs the group could use the event to announce a long-delayed deal with the European Union after last-minute negotiations to get it over the line.

Uruguay's president penciled in a meeting with European Commission President Ursula von der Leyen at the presidential residence in Montevideo for Thursday afternoon, in a positive signal for trade talks.

The trade deal, supported by most of the South American countries and being pushed by Germany and Spain, has met strong opposition from France due to fears about agricultural imports to Europe that would hit the nation's powerful farming sector.

Negotiators from all sides came together in Brazil last week, senior diplomatic and government sources told Reuters, with plans that delegations could travel to Montevideo if a deal is clinched during virtual talks continuing this week.

All four founding members of Mercosur support the current terms, two sources told Reuters on Wednesday.

Their support has further raised hopes the EU chief will travel to the Dec. 5-6 summit in Uruguay's capital with the intention of finalizing the agreement, two European sources said, though most cautioned that nothing was likely to be signed. One source said von der Leyen had reserved a plane ticket just in case.

"The last round of negotiations ended with important progress," Mauricio Lyrio, secretary of economic affairs at the Brazilian foreign ministry, said on Monday.

"We're hopeful. Pending issues are being submitted to the leaders to be finalized."

Bernd Lange, a German Social Democrat who chairs the European Parliament's trade committee, on Tuesday said the domestic situation in the EU was the main obstacle to a deal and the decision whether to travel this week remained uncertain.

"They are discussing on the 13th floor (office of the Commission president) taking the luggage and going to the airport or not. It's a little bit complicated," Lange said during a briefing.

In the works for over two decades, the trade deal has been delayed by European concerns over farming competition, while Brazil, Argentina, Paraguay and Uruguay, all major producers of soy, corn and beef, have criticized European protectionism.

Brazilian President Luiz Inacio Lula da Silva said last week, however, that the deal was being negotiated directly with von der Leyen as a new round of in-person talks took place in Brazil. He is confident a deal will be finalized this year.

Others voiced skepticism. "If Ursula goes to Montevideo it will be to show EU commitment to concluding the deal, but it will not be signed," one European diplomat in Brasilia said.

Another diplomat in Uruguay said: "I'm still 60-40 that it fails to go anywhere."

DEAL OR NO DEAL?

Paris, which is in crisis after lawmakers passed a no-confidence vote against the government, has tried to convince other EU members to form a blocking minority. Poland recently joined in opposition. France needs a minimum of three countries making up over 35% of the EU's population to jam up the deal.

Other EU countries including Germany and Spain are leading a coalition of 11 member states in favor. They want new trade routes that would reduce reliance on China and insulate members from U.S. President-elect Donald Trump's planned trade tariffs.

An EU-Mercosur deal was initially struck in 2019, but never ratified due to EU demands for commitments on deforestation and climate change. Some officials feared the same could happen again now even if a final text is agreed.

"While we will applaud if something is signed in Montevideo this week, let's see when it actually takes effect," said Ignacio Bartesaghi, from Uruguay's Catholic University.

A final and legally binding version of the agreement would also need to be carefully reviewed and translated into some two dozen languages before it could be formally signed, Brazilian negotiator Lyrio said. That could take months still.

ARGENTINA'S MILEI MAY MAKE DEBUT

The Montevideo summit is also expected to see Argentine libertarian President Javier Milei debut at a Mercosur event, following thinly veiled threats to pull out of the bloc unless allowed to pursue bilateral trade deals outside it, including with the United States.

Like outgoing Uruguayan President Luis Lacalle Pou, Milei wants the group to be more flexible. Uruguay under Lacalle Pou had entered into formal negotiations on a free-trade agreement with China, a decision that his successor is unlikely to pursue.

Some diplomats said the EU-Mercosur talks would impact Milei's likely approach to the group.

If the EU-Mercosur deal goes ahead, Uruguayan foreign policy adviser Bartesaghi said it would "pour cold water" on any plans Milei has to break ties with the bloc because it would prove it could achieve something.

A deal strengthens the "argument to keep the group together, it buys time and calms Milei down," he said, adding that if it fell apart it could however boost Milei's argument.

(Reporting by Lucinda Elliott in Montevideo, Lisandra Paraguassu and Anthony Boadle in Brasilia; Additional reporting by Philip Blenkinsop in Brussels; Editing by Adam Jourdan, Alistair Bell and Leslie Adler)