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World

Brazil and EU inch closer to free trade deal

Comments following talks between the EU and Brazil suggest progress on a long-sought free trade agreement. However, their joint summit in Brussels also touched on their planned response to the NSA surveillance scandal.

The initial conversation between Brazil's President Dilma Rousseff, European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso apparently went well. After their first meeting on Monday (24.02.2014), Rousseff told reporters, "For the first time, we're close to an agreement."

She was referring to negotiations on a

shared free trade deal

sought by both sides for years. But there are more than just import and export considerations at stake. Both delegations announced talks would take place about financing an internet cable to run directly between Europe and Brazil.

Key partners

Taken as a whole, the EU is Brazil's biggest trade partner - ahead of even China and the US. But Brazil's once positive trade balance with the EU has recently tumbled from a surplus of $3.3 billion (2.4 billion euros) in 2011 to a deficit of $7.1 billion in 2013. Additionally, trade volume over 2012 to 2013 sank from $37.4 billion to $33 billion.

It's clear that Brazil needs a spur to its growth. Official estimates for 2014 see the country's economy growing at less than 3 percent for the fourth year in a row. That's close to stagnancy for a country classed as an emerging market. With inflation at around 6 percent, Brazilians are faced with shrinking real incomes.

Mercosur government leaders in a press photo (C) AFP/Getty

Brazil's Mercosur partners would have to approve its EU trade deal

Slumping trade relations

The EU and Brazil first discussed

reducing trade barriers

in 1999. Although Brazil has been one of the EU's strategic partners since 2007, little more than a declaration of intent has come about - the discrepancies were too large between Brazil's import tariffs and European agricultural subsidies.

For years, trade policy hasn't been at the top of the Brazilian government's agenda, and foreign trade accounts for just one fifth of the country's GDP.

Exports are more important to the EU, where they make up 30 percent of the bloc's GDP - a figure that doesn't include trade amongst the EU countries themselves. But economically speaking, Brazil remains on the sidelines for the EU. Despite its size, it's only its eighth largest trade partners.

Mercosur - potential stumbling block

Meanwhile, Brazil would likely rather have sealed the deal on its trade pact with the EU sooner. The problem is that Brazil is part of the South American free trade zone known as Mercosur. That's why its government cannot simply sign the agreement - it has to be approved by the other Mercosur members, Argentina, Uruguay, Paraguay and Venezuela. There's hope, though, in light of a Mercosur stipulation saying that individual member states are permitted to forge ties with the EU at a "varying pace," meaning that individual customs agreements can be worked out.

On March 21, both sides want to present their concepts for easing trade. "Then we'll see how ambitious we are on each side," said Barroso.

At the moment, however, the Commission's focus is on negotiations concerning a trade deal with the US, potentially leaving Brazil and Mercosur in the background once more. However, Rousseff's presence in Brussels underscored the importance she attaches to the trade agreement between the EU and her country.

A fiber optic cable (c) dpa

Brazil and the EU no longer want to route internet traffic through the US

Cooperation on data traffic

Even if little progress is made on the trade deal during Rousseff's trip, the president

may not return from Brussels empty handed

. A long-running debate on expanding data pipelines between South America and Europe has gathered steam in recent months.

Until now, the various internet connections between South America and Europe have been routed through the US. Politicians were mostly untroubled by that fact until it became known that both Chancellor Angela Merkel and President Rousseff were under surveillance by the US intelligence service NSA. Suddenly, data cables are back on the agenda for both sides.

Brazil has already approved building the undersea cable. In Brussels, government representatives are now negotiating about financing the estimated $185-million (130.5-million-euro) project. European Council head Van Rompuy signaled that both delegations had reached significant agreement concerning their demands for the internet, but he didn't touch specifically on the proposed cable.

However, if everything goes well, laying the fiber optic cable from Portugal to Brazil's northern coastline could begin by mid-2014.

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