Mercosur Nears Completion of EU Trade Deal

Welcome back to Foreign Policy’s Latin America Brief.

The highlights this week: Mercosur moves closer to inking a key trade deal at an Uruguay-hosted summit, Mexico’s president navigates relations with Donald Trump, and a Brazilian team wins South America’s club soccer championship.

Updates from Uruguay

Uruguay has long played an outsized role in Latin American regional politics. The country of around 3.4 million people was among the four founding members of customs union Mercosur in the 1990s; in more recent years, it became the first country in the world to legalize recreational marijuana and one of the first in the region to allow same-sex marriage.

Uruguay’s Nov. 24 presidential runoff election was widely watched across South America. It delivered a victory to center-left presidential candidate Yamandú Orsi, a former mayor of the Canelones department and a protégé of former leftist President José “Pepe” Mujica. Orsi is a member of the Broad Front alliance, which led Uruguay for 15 years before the current center-right administration took over.

Like many in Uruguayan politics, Orsi eschews radicalism and has vowed to govern for all Uruguayans. That disposition extends to his foreign policy, too. Orsi has a friendly relationship with Argentine Foreign Minister Gerardo Werthein, who serves in far-right President Javier Milei’s administration.

“Nothing in the world is more similar than Uruguayans and Argentines,” Orsi said this week.

Although he doesn’t take office until March, Orsi’s victory could change the political dynamic within Mercosur. Milei and outgoing center-right Uruguayan President Luis Lacalle Pou have lambasted the bloc for being slow to make new trade deals in recent years. They have threatened to break its rules to negotiate bilateral deals, such as a potential agreement between Uruguay and China. Orsi said during his campaign that he would not make such threats as president.

Meanwhile, even Milei is backing Mercosur’s largest potential deal: a draft trade agreement with the European Union that would create one of the world’s largest free trade areas.

The deal has been 25 years in the making and has overcome several dramatic stumbles in recent years. Many hoped it would be finalized in 2019, and then in 2023, but it was blocked in large part due to opposition from France. Advocates of the trade deal argue that it would give both Europe and Latin America more strategic autonomy in a world of U.S.-China trade tensions and rising U.S. protectionism; they kept talks alive over the past 12 months.

All Mercosur members green lit the deal before the bloc’s summit this week in Montevideo, Uruguay’s capital. While Paris still opposes the agreement, the French government collapsed on Dec. 4. European Commission President Ursula von der Leyen appeared convinced enough that the deal would prevail that she flew to Montevideo that same night.

Beyond the EU deal, Panama this week becomes the first Central American country to join Mercosur as an associate member, suggesting it seeks to boost trade with South America. El Salvador and the Dominican Republic are considering doing the same. Currently, Latin America’s interregional trade ranks among the lowest in the world.

Further afield, Mercosur is exploring a trade deal with Japan, having inked one with Singapore in 2023. After years of rifts and stasis within the bloc, it is slowly adapting to the changing world around it.

Upcoming Events

Friday, Dec. 6: The Mercosur summit concludes in Montevideo, Uruguay.

Wednesday, Dec. 11: Brazil’s monetary policy committee is due to issue an interest rate decision.

What We’re Following

Debt swap history. On Dec. 4, Barbados and several international banks announced what they called the world’s first “debt-for-climate-resilience operation.” The financial arrangement is designed to save Barbados $125 million; instead of paying interest, money will instead go to upgrading the country’s water treatment plants and sewage system.

Barbados’s debt restructuring involves banks headquartered in Canada, Barbados, the European Union, and the United States. Ecuador is working on a debt swap related to rainforest conservation, sometimes referred to as a “debt-for-nature” swap.

Peru-South Korea parallels. During South Korea’s short-lived declaration of martial law earlier this week, Latin American political observers drew comparisons between South Korean President Yoon Suk-yeol’s power grab and former Peruvian President Pedro Castillo’s attempt to dissolve Congress in December 2022. In Peru, as in South Korea, that attempt was quickly rejected by legislators.

What’s still unclear is whether the consequences Yoon faces will be similar, too. Castillo was promptly impeached and arrested; South Korean opposition parties have already filed an impeachment motion against Yoon.

Castillo remains in pretrial detention, and prosecutors are seeking a 34-year prison sentence. Many Peruvians have generally celebrated the outcome of those turbulent events as a sign of the health of their democracy. Both countries have a high number of former presidents in jail—so much so that Peru’s special detention center for ex-leaders is full.

Botafogo player Luiz Henrique celebrates after the team won its first Copa Libertadores in Rio de Janeiro on Dec. 1.Wagner Meier/Getty Images

Soccer business. Last weekend’s championship game for South American club soccer showcased recent economic changes in the game for Brazil. New rules in Brazilian soccer implemented in 2021 and 2023 eased permissions for private and international investments in clubs and raised the limit for foreign players on each team.

This year, an influx of both foreign money and foreign players helped propel Rio de Janeiro team Botafogo—previously known for its slumpy performance—to victory at the title game in Buenos Aires. The team beat its opponent even as it played with one man down due to a red card. U.S. businessman John Textor bought the club in 2022; “We Botafogo fans have John Textor on earth and God in heaven,” one fan told the Economist.

Even Milei weighed in, suggesting that Botafogo’s victory showed the power of private investment in sport. He has been pushing similar changes for Argentine clubs but has faced resistance, Leila Miller wrote for Foreign Policy in September.

Some players and fans had other interpretations of their changed fortune. “Botafogo never gave up,” midfielder Marlon Freitas said in a speech before the final.

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In Focus: Trump v. Sheinbaum

Mexican President Claudia Sheinbaum gives a speech in San Nicolás de los Garza, Mexico, on Nov. 30.Julio Cesar Aguilar/AFP via Getty Images

It did not take long for U.S. President-elect Donald Trump to test the diplomatic chops of Mexican President Claudia Sheinbaum.

Although many of Trump’s biggest tariff proposals during his campaign were directed at China, his first concrete threats since the election fell more heavily on neighbors Canada and Mexico. On Nov. 25, he vowed blanket 25 percent tariffs on the two countries if they did not stem the flow of illegal drugs and migrants.

While Canadian Prime Minister Justin Trudeau flew to Mar-a-Lago that same week to address those threats with Trump in person, Sheinbaum took a more distant approach. She read a lengthy letter to Trump at a morning press conference and later spoke with him on the phone. In the letter, she suggested that Mexico could impose its own tariffs and said she hoped to avoid a situation where “one tariff would be followed by another in response.”

Their accounts of the call differed. While Trump said Sheinbaum agreed to stop migration from Mexico, Sheinbaum said she affirmed that “Mexico’s stance is not to close borders but to build bridges.” Both described the call as positive.

In their own ways, Canada and Mexico are showing Trump that they take his threats seriously. Canada pledged to use new technology, including drones, at its borders, and Mexico announced its largest crackdown on fentanyl.

In her letter, Sheinbaum also said that the reduced number of migrants arriving at the U.S. southern border is a result of actions by Mexican authorities, a claim backed up by research from migration analysts. On Dec. 4, Mexican authorities said they detained 5,200 migrants across the country the previous day. Although Mexico has cooperated with the United States in the past to accept deportees from third countries, Sheinbaum said she would seek to avoid such an arrangement with Trump.

Only time will tell if these moves are enough for Trump. His advisors are reportedly weighing further escalation—including military action against drug gangs on Mexican soil.