Lula holds up EU trade deal in bid to protect Brazil’s domestic industry

Brazil’s president Luiz Inácio Lula da Silva has ruled out signing a trade deal with the EU unless Brussels eases requirements for Brasília to open up its manufacturing industry to foreign competition.

Lula, who is in Brussels to try to speed up progress on a trade deal between Brussels and the Mercosur bloc of four South American countries, said he wanted to change rules that would prevent signatories handing government contracts to domestic companies without a competitive process that would be open to foreign firms.

A proposal circulated between the Brazilian, Argentine, Uruguayan and Paraguayan officials that are working on the deal would, Lula said, allow governments to continue to award contracts to smaller domestic firms, as “every country in the world” does, and support a “sovereign industrial policy”. 

It would be presented in Brussels “within two to three weeks”, Lula said at a press conference, saying he believed the EU officials would bend to the Latin American countries’ demands.

The remarks are a fresh obstacle to completing a process that has been beset by delays since a deal was provisionally agreed in 2019 — despite claims by the Brazilian president on Wednesday that he was “for the first time” optimistic of concluding talks before the end of this year.

Brussels has also irked the Mercosur quartet by sending a letter that required the group to make binding commitments to protect the rainforest and labour rights. Lula reiterated his objections to the missive.

“The Amazon is the sovereign territory of Brazil. We have a sovereign commitment to end deforestation,” he said. “The letter threatens us with sanctions and punishments if we do not fulfil certain requirements.”

However, Valdis Dombrovskis, EU trade commissioner, told the Financial Times in an interview that the “sustainability instrument” was necessary to provide assurances to member states, which must ratify the deal, and civil society groups that the destruction of the rainforest under Lula’s predecessor Jaír Bolsonaro would not happen again.

The trade commissioner also suggested that the EU was unlikely to support Mercosur’s attempts to loosen competition requirements, warning against reopening an agreement that took more than 20 years to negotiate. “That would distract us once and would lead us again to very long negotiations with an unpredictable outcome.” 

Despite the disagreements over the trade deal, Lula hailed the first summit between EU and Latin American and Caribbean leaders in eight years. 

“There are very few times I have seen EU countries showing so much interest in Latin America,” he said. “It is possibly because of the dispute between the US and China or possibly due to Chinese investment in Africa and the Latin American region.”

China has overtaken the EU as the biggest trading partner for Latin America after the US and is investing in mines, infrastructure and other projects. Lula said if the US and the EU stepped back, there were “other countries that want to invest.”

He welcomed an EU commitment to provide €45bn in development aid by 2027, but added that the region still needed to contribute to the $100bn pledge, made in 2009 by developed countries, to help poorer countries fight climate change.

The leaders in attendance agreed to condemn the US economic embargo on Cuba.

Europe was also “succeeding” in its bid to convince Latin American leaders “that a total alignment of their side with Russia would be a huge mistake”, an official said, adding that Lula and Argentine president Alberto Fernández had led efforts to secure a summit declaration expressing “deep concern on the ongoing war against Ukraine”.

European officials said they had seen “an evolution” in Lula’s position on Russia.

However, on Wednesday Lula did not call for Russia to withdraw from Ukraine and refused to cast it as the aggressor. “The world is getting tired of this conflict,” he said, but it would only end when neither side believed it could win. 

The leaders have committed to meeting once every two years, with the next summit due to be held in Colombia in 2025.