Latin America threatens to end the EU’s successful run of big free-trade deals.

In recent months, European Commissioner for Trade Cecilia Malmström has been on a winning streak. A major deal with Japan this summer boosted the EU’s credentials as the global leader in free trade and was the third big trophy for the commissioner, who has also concluded pacts with Canada and Vietnam.

Her luck, however, may be about to run out, among the cattle ranches of the Pampas and the vast sugar plantations of Brazil.

Malmström has set herself the ambitious goal of reaching political agreement on deals with Mexico and the South American Mercosur bloc by the end of the year. It’s a huge ask.

Of the two agreements, Mexico is the easier proposition as it centers on upgrading an existing agreement to include more sectors, such as processed food and financial services. Mexico’s fears about U.S. President Donald Trump’s protectionism, and his promise to build a border wall, also greatly increase the likelihood of an agreement with Brussels.

It is Mercosur that presents a far more daunting challenge. The biggest problem is that the bloc includes the farming superpowers of Argentina, Brazil, Paraguay and Uruguay, which all have strong interests in Europe.

Malmström was able to build momentum for the EU trade deal with Japan precisely because Europe’s influential farmers were onside and saw an opportunity to sell more food in Asia. They are far more defensive about dealing with the Americas and the Swedish commissioner will face strong headwinds if she tries to close sensitive talks over access for beef, sugar and biodiesel to the European market by December.

Malmström is not without influential supporters in Europe, though. The opposition from farmers is sparking frustration among big European manufacturers in sectors such as cars and machinery, who argue that their ambitions in attractive Latin American markets must not be held back by a small number of clamorous farmers.

Beyond the farmers

“I know there is huge opposition” from EU farmers, said Sandra Gallina, the EU’s chief negotiator for the South American trade bloc, just before the summer recess. “I will not deny it.”

Talks (and tussles) with Mercosur are nothing new: The negotiations have already dragged on for about 20 years and have repeatedly stalled, partly because of South America’s unwillingness to open up to EU machinery and car exports. Only a change of government in Argentina and Brazil revived the negotiations last year.

A senior Commission official said the two sides were making “good progress” toward an agreement at the end of the year.

However, the talks have so far omitted the true sticking point: market access for highly competitive South American beef. When the Commission proposed offering an eye-popping annual tariff-rate quota of 78,000 tons for Mercosur beef last year, this caused upheaval among EU countries, forcing the Commission to withdraw the offer.

For machine builders, a Mercosur deal would be “bigger than Japan.”

This fall, after the German election on September 24, Brussels hopes for a window of opportunity to push through a compromise on beef imports. A new quota proposal will be discussed ahead of the next negotiation round in Brasília in early October, the Commission official said.

“We have already made clear that the EU has strong sensitivities in agriculture which must be respected in a reasonable manner,” European Commissioner for Agriculture Phil Hogan said recently. “This means that Mercosur needs to moderate its expectations to what is manageable and acceptable to the EU in agriculture.”

Brazilian chief negotiator Ronaldo Costa Filho, whose country holds the rotating Mercosur presidency, showed willingness to compromise. “I have expectations, which I am sure will be frustrated,” he said in July. “And the EU has expectations of its own, which I know will also be frustrated.” This was “the nature of the game” of trade talks.

However, Europe’s agricultural lobby Copa & Cogeca adamantly opposes any deal that includes meat imports from Mercosur.

“South American meat producers already have substantial market access to the EU and they are very competitive,” said Secretary-General Pekka Pesonen. The Mercosur bloc was the biggest beef exporter to the EU, he added: “Any increase would be catastrophic for European farmers.”

But Europe’s engineers are striking back.

“We’re talking about a few percent more market opening, not the decline of the West,” said Ulrich Ackermann, head of foreign trade at the German engineering association VDMA. Some of the arguments, he said, had “a smack of protectionism.”

For machine builders, a Mercosur deal would be “bigger than Japan,” Ackermann said. European carmakers, who export €790 million of vehicles to Mercosur each year, also see “a real potential for growth,” according to the European Automobile Manufacturers’ Association.

¡Viva México!

For Mexico, the waters look calmer. Here even the farmers’ lobby strikes a different tone. “We see some opportunities,” said Pesonen.

The mood could become more tense this autumn.

France’s overseas territories produce bananas, rum and sugar, which would struggle to compete with Mexico’s larger producers, and one diplomat insisted the EU should “not completely liberalize these product lines,” in a trade agreement with either Mexico or Mercosur. Denmark also has strong concerns over fisheries competition, the diplomat added.

The European Parliament also wants to add a sanctions mechanism to the trade deal to enforce the implementation of strict labor, environment and anti-corruption standards — an idea that hasn’t gone down well on the Mexican side.

Sorin Moisă, the European Parliament’s rapporteur on the deal, defended the need to make free trade “fairer” by enforcing standards, but recognized that the talks had “an imbalance problem.”

The EU has a long list of interests, from stringent food safety standards and geographical indications to better access to public procurement contracts and banking services.

“The Mexicans already argue that our demands are much higher than theirs,” Moisă said. This makes it more difficult to reject Mexican demands such as exporting beef, sugar or bananas to the EU — goods that are sensitive to some countries, like France. President Emmanuel Macron’s reaction will prove critical.

“This agreement still has to pass the Macron test,” Moisă said.

Emmet Livingstone contributed reporting.