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UPDATE 2-EU, Mercosur agree on draft free trade treaty

Philip Blenkinsop

(Updates with confirmation from parties)

BRUSSELS, June 28 (Reuters) - The European Union and South American bloc Mercosur have agreed a draft free-trade treaty, the parties to the deal said on Friday, bringing to an end almost 20 years of negotiations.

The two blocs began negotiations in 2000, intensifying efforts to reach an accord after Donald Trump's presidential victory prompted the European Union to freeze talks with the United States and look for other global trading allies.

That push has seen it implement a free trade agreement with Canada and reach agreements with Japan and Mexico and now, after 39 rounds of talks, also a provisional deal with Mercosur, the grouping of Argentina, Brazil, Paraguay and Uruguay.

European Trade Commissioner Malmstrom said earlier this month that sealing a trade accord with Mercosur was her top priority.

The European Union is already Mercosur's biggest trade and investment partner and its second largest for trade in goods.

In terms of tariff reduction, it could be the EU's most lucrative trade deal to date, with the savings potentially four times greater than for deals with Canada and Japan combined.

Europe has its eyes on increasing access for its companies making industrial products, notably cars for which tariffs are 35%, and to allow them to compete for public tenders. Mercosur aims to increase exports of beef, sugar, poultry and other farm products.

Brazil said the agreement would eliminate import tariffs for several farm products, including orange juice, instant coffee and fruit and give greater access through quotas for meat, sugar and ethanol, boosting the economy and increasing investment in the country for the next 15 years.

Brazil's President Jair Bolsonaro said on Twitter that the deal was historic and one of the most important trade agreements of all time.

To date, EU nerves about a surge of beef imports and Mercosur hesitation about opening up some industrial sectors, such as cars, have meant past deadlines have come and gone.

The agreement still faces a potentially difficult road to approval. France and other countries fear the impact of a sharp hike in beef imports, while environmental groups, whose influence is stronger in the new European Parliament, argue that the agreement could exacerbate deforestation.

EU countries and the European Parliament both need to give their backing for the agreement to enter force. (Additional reporting by Cassandra Garrison in Argentina, Marcelo Teixeira in Brazil; Writing by Philip Blenkinsop and Robin Emmott; Editing by Raissa Kasolowsky and Hugh Lawson)