The European Commission is moving towards a new budget fund to compensate farmers for any negative effects of the EU-Mercosur deal, hoping that this action will help overcome French resistance to the trade deal.
Notably, the plan, confirmed by four officials, comes as the EU and the South American bloc aim to finalize the landmark agreement at the G20 leaders’ summit in Rio de Janeiro on November 18-19.
Crucially, according to a Politico report, the compensation fund is already being welcomed by France, the biggest opponent of the Mercosur deal, which hides the worrying possibility that its farmers will suffer from a surplus of imports from South America, such as beef. meat.
“It’s an interesting option that France will necessarily pursue, should there be an agreement,” said a French diplomat, confirming that the Commission was working on such a fundraising system.
The Mercosur deal is expected to open the markets of Argentina, Brazil, Paraguay, Uruguay and Bolivia to European exporters – offering growth opportunities at a time of rising trade tensions with China. In total, some 800 million people on both continents stand to benefit from free trade.
Idea with… precedent
Although France likely does not have the power to block the Mercosur deal in a vote among EU countries, officials in Brussels as well as Berlin stress that they want to avoid imposing the trade deal against the will of the EU’s second-largest economy.
The Mercosur compensation fund, as pointed out in the publication, could also calm concerns in other skeptical EU countries, such as Ireland or Austria.
The idea, which is still in its preliminary stages, has precedent: In 2021 the EU created a €5.4 billion Brexit adjustment reserve to protect industrial sectors such as fisheries from the potential negative effects of the UK’s exit from the EU.
Additionally, a similar compensation fund for the Mercosur deal was already set aside by former EU Trade Commissioner Phil Hogan in 2019. At the time, when Brussels believed it was close to finalizing the South American deal, Hogan claimed he had secure “€1 billion in financial and common market organization support in the event of market disruption” that would result from the trade deal.
The budget is on the “table”.
The EU could create such a compensation fund within its existing budget. That possibility, according to Politico, “could be challenging,” as EU countries appear unwilling to reopen the current deal on the budget.
An easier solution would be to create the fund under the EU’s new multiannual budget from 2028. Budget discussions are expected to start next year.
It is unclear, however, whether the fund would ultimately be needed, as the deal on the table already seeks to address farmers’ concerns, for example by setting a quota on beef imports.
Instead, it could help smooth over concerns about the deal, similar to the Brexit adjustment reserve in 2021, which was ultimately underused.
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