South American Leaders Issue Ultimatum on EU Trade Pact

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The EU must finalise a long-delayed trade treaty with the Mercosur bloc of South American nations by December 6 or the Latin Americans will walk away and negotiate with Asian countries instead, Paraguay’s president Santiago Peña has said. Expressing frustration with negotiations that have dragged on for more than 20 years, Peña told the Financial Times that the time had come for European leaders to take a political decision on whether they wanted a deal with the four full Mercosur member nations — Brazil, Argentina, Paraguay and Uruguay.

“This is no longer a technical issue,” he said. A treaty was agreed in principle in 2019 but the EU has not enacted the deal because some member states, including France, want additional environmental commitments from South America before signing. The Mercosur nations have rejected this as protectionism from European nations scared of competition from South American beef and wine exports. European Commission president Ursula von der Leyen said in July that a Mercosur deal was “within reach” but progress since has been minimal and diplomats say the window of opportunity is closing. Argentina holds presidential elections next month and the libertarian economist leading the polls, Javier Milei, has pledged to dissolve Mercosur and freeze relations with Brazil if elected.

Peña, who was in New York for the UN General Assembly, said he had agreed there with Brazil’s president Luiz Inácio Lula da Silva that if an EU trade deal had not been finalised by the time Lula handed over the rotating Mercosur presidency to him in early December, Peña would break off the negotiations.

“Either we close by December 6 or we don’t close,” Peña said in an interview. “I am the one who is going to take the presidency afterwards and I told [Lula] ‘Enough is enough’.” “If there is someone who can close this deal, it’s Lula . . . it will be this year, or if not, it won’t happen at all,” he added. “I am super firm about this. Super firm. We either do it now or we don’t do it at all.” The Paraguayan president, who took power last month for a five-year term, said Mercosur had other trade deals in the pipeline with the United Arab Emirates and Singapore. “With Singapore, we will close a deal in two months,” he added. “I can assure you it will be very fast.”

A former finance minister and central bank board member who studied in the US, Peña has ambitious plans to catapult Paraguay’s economy into the ranks of South America’s small group of high-income nations, such as Chile and Uruguay. His conservative Colorado party controls congress and has dominated Paraguayan politics for most of the past 75 years. He is confident that the South American beef and soyabean exporter can achieve an investment-grade rating for its modest external debt within a couple of years as it establishes a solid record. “Our conversation with the credit rating agencies is: ‘What more do you need?’ and they say: ‘We need time to see the consistency of [economic performance],” he said.

Paraguay is one of the dwindling band of countries that has full diplomatic relations with Taiwan and it is Taipei’s geographically largest ally. Paraguay’s farmers have questioned the alliance because it precludes exports to the vast Chinese market but Peña expressed strong commitment to Taiwan. “The future of Paraguay is not food. The future of Paraguay is industry,” he said. “So we have to think how we are going to develop industrially. Who is going to help us get closer to an industrial future: a giant which will only buy food from us . . . or Taiwan, which is going to help us improve, just as they did themselves?” Paraguay has sent about 600 engineers to Taiwan to study advanced electronics and Taipei has helped establish a technical university in Asunción, Paraguay’s capital. Peña wants to leverage the enormous supply of cheap renewable electricity from the giant Itaipú dam on the border with Brazil to power a growing manufacturing sector for export. Brazil and Paraguay are renegotiating part of the Itaipú treaty and Peña hopes to win agreement to issue tens of billions of dollars of green debt secured against Itaipú’s future income to use for infrastructure and development projects, now that the dam’s construction cost has been paid off. Funds would be split equally between the two nations. “We’re talking about a huge investment potential . . . $100bn. The numbers are gigantic,” the president said of the debt issuance.

Peña also has ambitious plans to build new roads across his vast, landlocked nation to boost the economy. Construction is already under way on the final stretch of a new highway running across the central Chaco region, linking it to Argentina in the west and Brazil in the east. Once this is completed in about two years, it will open up a new trade route from Brazil’s Atlantic coast to the Pacific port of Antofagasta in Chile. Peña, who at 44 is one of the region’s youngest leaders, said he wanted Paraguay to “leapfrog” in its growth and leave behind an image of being landlocked and isolated. “Paraguay is on an ascending curve but I want to steepen the curve,” he said. “The image of Paraguay is very different to the reality. That’s the gap I want to close in five years.”

Source: Financial Times