The EU and four South American nations -- Argentina, Brazil, Uruguay and Paraguay -- said on Thursday they will aim to sign an "ambitious" free-trade accord in October.
The announcement came as the US drive for a Free Trade Area of the Americas as well as free-trade talks in the WTO are at a stalemate.
EU officials and trade ministers from the four Mercosur nations emerged from four hours of talks saying a trade deal was possible, one week after both sides made important concessions that injected new vigor in the talks.
"We all had the sense it is possible, with hard work, to finish by the target date of October 2004, with a good and balanced agreement," Brazilian Foreign Minister Celso Amorim said.
Given the precarious state of trade negotiations elsewhere, he spoke of a "window of opportunity" that may disappear.
Speaking at the same news conference, EU Trade Commissioner Pascal Lamy said both sides weighed their respective trade concessions and saw "that progress is possible."
Delegates said they would seek an "ambitious agreement," covering farm trade, industrial tariffs and services.
It would be the first for the EU with a bloc of nations.
The announcement that negotiations will move ahead came a day before 25 EU leaders open talks with their counterparts from 33 Latin American and Caribbean nations.
The summit will be an occasion for the EU to signal it wants to push for free-trade deals in the years ahead with a dozen Central American and Andean nations.
"We are not in competition with the United States," EU External Relations Commissioner Chris Patten told reporters.
But he noted the EU seeks deals that cover agriculture -- a politically sensitive area in which Europe has always been protectionist and Latin nations competitive. The US, was opting for "lighter" accords without farm trade, which Washington wants covered in the WTO talks that collapsed last year.
The EU-Mercosur negotiations began a few years ago. They were initially meant to be concluded after next January -- the deadline for the WTO talks.
Lamy said while the EU and Mercosur remained committed to the much wider WTO process, he will ask EU governments to implement the deal with Mercosur by the end of this year if the WTO negotiations remain at an impasse.
EU officials said regardless of an acceleration of an EU-Mercosur deal, liberalizing farm trade remained an essential part of the WTO talks.
The EU has offered Mercosur total trade liberalization for eggs, corn, flour and other products and deep tariff cuts for juices and fruits. Sensitive products, such as meat, would remain subject to quotas and possibly duties, officials said.
In turn, the EU wants Mercosur to open public works projects to European bidders and also open up their banking, insurance and other service industries as well as their car, chemical and pharmaceutical sectors.
The Europeans also want the South Americans to protect hundreds of other products that enjoy protection in Europe, based on regional origin, against imitators.
Patten said free trade with Central American nations can only happen if those countries step up trade with one another. The same was true for the Andean Pact nations, he said.
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