April 8, 2013 7:49 pm

Brazil is reviving long-stalled efforts to negotiate a free-trade agreement with the European Union to offset its growing dependence on China and anticipate a similar pact between the EU and the US.

Brazil is preparing an offer of trading concessions to the European Union, its biggest trading partner accounting for one fifth of its exports and imports, that is expected to be delivered in the second half of this year.

“This is a very opportune moment with a Portuguese-speaking European Commission president who can facilitate [an agreement] through our common language and who holds Brazil in high esteem,” said Carlos Eduardo Abijaodi, director of operations at Brazil’s National Confederation of Industry, referring to EC head José Manuel Barroso. “We have every facility to develop this agreement.”

Brazilian industry is concerned the country is “becoming an island” after its own Mercosul trading block, which also includes Argentina, Venezuela, Uruguay and Paraguay, has failed to conclude any significant free trade agreements outside the continent, except with Israel.

While free trade agreements would force increased competition on Brazilian manufacturers and agricultural exporters, they would also open new markets for their exports as traditional markets in the region, such as Argentina, have become increasingly closed.

Brazil is also keen to avoid becoming too dependent on China, which today is its biggest single-country trading partner. China mainly imports commodities from Brazil while exporting to the Latin American country cheap manufactured goods that Brazilian producers allege undermine domestic industry.

Elmar Brok, member of the committee on foreign affairs of the European Parliament, told the FT during a visit to São Paulo last week that formal negotiations between the two sides would begin midyear.

“We would really like to have this Mercosul one [free trade agreement], especially with Brazil,” he said. “They will prepare an offer and we will prepare an offer so we will see in the late summer or autumn what will be the possibilities.”

The pressure on Brazil to begin negotiating new free trade deals comes as the US, a competitor in traditional agricultural markets such as soy and beef, has also started negotiations with the European Union.

“Today, the US practically encircles us with free trade agreements,” the CNI’s Mr Abijaodi said.

He said Brazil could not negotiate any agreement without consultation with the Mercosul trading bloc. But it could join with other similarly minded Mercosul countries and start the talks, leaving the door open for the others to sign on later.

Brazil’s ministry of external relations, Itamaraty, said that officially Uruguay would take the lead on the talks with the EU during the first phase, with Brazil’s support.

“Brazil cannot be an island, Mercosul cannot be isolated from the rest of the world,” said the CNI’s Mr Abijoadi.

Brazil has been weighed down by its ties with Argentina, which in a bid to protect its markets and prevent foreign currency outflows has increasingly cracked down on imports, even from its giant neighbour.

The last talks between the EU and Brazil foundered in 2004 on disagreements over agricultural subsidies. But the European Parliament’s Mr Brok predicted there would be more room for manoeuvre this time around.

Brazil is the biggest exporter of agricultural goods to Europe while the EU is the biggest investor in Brazil, with a total stock of foreign direct investment of €239bn.