BERLIN/PARIS — The European Commission is working on a new budget fund to compensate farmers for any negative impact from the EU-Mercosur agreement, hoping the cash pot will help overcome French resistance to the trade deal.
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 Nov. 18-19.
Crucially, the compensation fund is already being welcomed by France, the biggest opponent of the Mercosur deal, which harbors concerns its farmers will suffer from a glut of South American imports such as beef.
“It is an interesting option that France will necessarily seek, in case there is a deal,” a French diplomat said, confirming that the Commission was working on such a cash scheme. The diplomat, like all other officials in this story, was granted anonymity to discuss the sensitive matter.
A spokesperson for the Commission declined to comment.
The Mercosur deal would crack 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 freer trade.
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Although France likely lacks the power to block the Mercosur agreement in a vote among EU countries, officials in Brussels as well as Berlin stress they want to avoid having to impose the trade deal against the will of the EU’s second-largest economy — which could fuel Euroskepticism.
The Mercosur compensation fund could also placate concerns in other skeptical EU countries like Ireland or Austria.
The idea, which is still at the preliminary stage, has a precedent: In 2021 the EU set up a €5.4 billion Brexit adjustment reserve to shield industrial sectors, such as fisheries, from the potentially negative impacts of the U.K.’s exit from the EU.
What’s more, a similar compensation fund for the Mercosur deal was already floated by former EU Trade Commissioner Phil Hogan in 2019.
At the time, when Brussels thought it was close to finalizing the deal with South America, Hogan claimed he had secured “€1 billion in financial support and common market organization support in the event of a market disturbance” resulting from the trade agreement.
The EU could set up such a compensation fund under its existing budget, although this may be challenging as there is little appetite among EU countries to reopen the current budget deal.
An easier solution would be to establish the fund within the new multi-annual EU budget from 2028. Talks on the budget are expected to start next year.
It’s unclear, though, whether the fund would ultimately be needed, as the deal on the table already seeks to address the concerns of farmers, for example by setting a quota on beef imports.
Instead it could help placate concerns about the agreement, similar to the Brexit adjustment reserve in 2021, which was ultimately little used.
Hans von der Burchard reported from Berlin and Giorgio Leali from Paris. Camille Gijs and Bartosz Brzeziński contributed reporting from Brussels, and Judith Chetrit contributed reporting from Paris.
