Mercosur to unblock trade talks, hurdles remain

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Summary'A tremendous effort has been made to install new momentum into the discussions'

EU leaders won a promise from Argentina and Brazil on Saturday to revive stalled talks on a free-trade deal that would be a major prize for Europe as it emerges from crisis, but disputes over key issues mean a breakthrough appears distant.

At a summit in Santiago, German Chancellor Angela Merkel led the Europeans in a new push in the negotiations with the South American trade bloc Mercosur that is made up of Argentina, Brazil, Paraguay, Venezuela and Uruguay.

In a region whose economies are in markedly better shape than Europe's, Merkel's persistence appeared to pay off after she met her Brazilian and Argentina counterparts and warned them not to revert to the kind of protectionism of the 1930s that deepened the Great Depression.

"A tremendous effort has been made to install new momentum into the discussions," the EU's Trade Commissioner Karel De Gucht told Reuters during the summit. Asked if there had been a breakthrough, he said: "I think we have to be careful with that word. It's moving on the political front."

Five years after the global financial crisis and with the euro zone in its second recession since 2009, the European Union needs Latin America's buoyant economies. But it is frustrated by Brazil and Argentina's policies to protect local industry.

Both sides have now agreed to exchange offers by the end of the year on how far they are willing to go in opening up sectors ranging from services to agriculture and De Gucht said the European Union will reciprocate Mercosur's offers.

"We need to have open markets in terms of free trade and not protectionism," Merkel told a meeting of business leaders. "History taught us that in the '20s and '30s," she said, flanked by the pro-free trade presidents of Mexico and Chile.

Negotiations on a trade pact with Mercosur began in the 1990s and were relaunched in 2010. If successful, the accord would encompass 750 million people and $130 billion of annual trade.

But talks have yet to make real progress due to disputes over European farm subsidies and moves by Brazil and Argentina to shield local industry from cheaper, foreign-made imports.

In a further complication, Venezuela became a member of the bloc last year. Its president, Hugo Chavez, is an outspoken critic of free trade.

In the meantime, Brussels has signed free-trade deals with a number of Latin American countries, including Mexico, Peru and Chile, exposing a split between the free-trade advocates on the

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