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Brazilian Contract for Jet Fighters, Another Chip in the EU/Mercosur Trade Talks

Monday, May 10th 2010 - 18:19 UTC
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French resistance to negotiations could yield to the 6.5 billion USD contract French resistance to negotiations could yield to the 6.5 billion USD contract

French resistance to the resumption of Mercosur European Union trade talks caused great disappointment among the block’s members, but Brazil believes it has a strong bargaining chip for a greater opening of the European agriculture market: the several billions US dollars fighter planes contract for the Brazilian Air Force.

According to press reports in São Paulo, the winner of the bid will not be made public until May 17, when the Latin America, the Caribbean and the European Union (LAC-EU) Summit in Madrid, the event chosen by Spain to make the official announcement of the resumption of EU/Mercosur trade talks begun in 1999 and stalled since 2004.

If the winner of the contract for which the French are favourites with Dassault Aviation's Rafale fighter jet, closely followed by the US Boeing F/A-18 Hornet and Sweden’s Saab JAS 39 Gripen, is to be announced, as planned by the Brazilians at the summit, “it will put great pressure on Paris to think twice about trade talks.”

The contract involves 36 jets and at least 6.5 billion US dollars and France’s Dassault needs the order. On the other hand, France is the main beneficiary of the 55 billion Euros in subsidies granted annually to European Union farmers.

“We have a strategic agreement with France. All decisions are concentrated on that contract which is most important for both sides. If the Rafale fighter jets order is important for the French, agriculture is equally important for Mercosur,” said a source of the Brazilian government quoted in the São Paulo press. “We know that an agreement at that level has an impact beyond the specific industry”, added the source.

However, the Brazilian Ministry of Defence in an official release denied any influence in the EU/Mercosur negotiations and the contract to purchase the Rafale fighters. “There is no logic in speculations about alleged links between the F-X2 program and trade negotiations in which Brazil is involved. They are absolutely different issues,” said the Ministry.

When the original announcement of the European Commission of Mercosur/EU talks the French ministers of Agriculture Bruno Le Maire and Commerce, Anne-Marie Idrac sent a strong note to Brussels anticipating they would try “to stop the agreement”.

“The EU can’t retake negotiations with Mercosur under the risk of damaging European agriculture,” said the letter adding that the Doha Round should be first concluded. However, later it was confirmed that French Foreign Affairs Minister Bernard Kouchner included trade talks with Mercosur in the agenda of an EU ministerial meeting or its 27 members.

The moves (rejection and agenda-inclusion) are interpreted as a strategic movement of President Nicolas Sarkozy’s ahead of negotiations.

“Currently the EU has a mandate to retake negotiations,” insisted Brussels press office relations. An EU internal document shows a potential farm agreement with Mercosur could represent losses between 3.5 and 13 billion Euros for European farmers. Brazil’s Foreign Affairs Ministry, Itamaraty, defends the strategic alliance with France and the trade agreement with the EU is crucial since World Trade Organization negotiations are paralyzed.

Itamaraty is convinced it has on its side EU top exporters such as Germany and the UK that are pushing strongly to increase sales to Mercosur. The Brazilian Air Force is also believed to favour the Gripen fighter plane, since Sweden has promised a greater technology transfer than France’s Dassault.

Financial Tags: AM, Saab B, BA.

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