By Anthony Boadle

BRASILIA (Reuters) -European Commission President Ursula von der Leyen on Monday said the EU hopes to finalize its long-delayed trade deal with the Mercosur bloc of South American countries by the end of the year at the latest.

Brazilian President Luiz Inacio Lula da Silva, after meeting with von der Leyen, criticized an addendum the EU has added to the agreement, which has been on hold since 2019 largely due to European concerns over Amazon deforestation.

Lula said he told her that the so-called additional tool or side letter to the accord included obligations that could lead to sanctions if they were not complied with.

“The premise between partners should be mutual trust, not distrust,” he said in a joint news conference.

The European Union is waiting for a Mercosur response to its proposal to attach sustainability and climate change commitments to the deal struck in 2019 with the Mercosur bloc of Argentina, Brazil, Paraguay and Uruguay.

“We have been discussing the trade deal for two decades now … Now finally, we are close to the finishing line. It is time that we cross that line,” von der Leyen said later in a speech to industrial executives and diplomats.

She said she and Lula both committed themselves to concluding the accord “as soon as possible, the latest by the end of this year.”

Lula said earlier this month his country would not sign the trade pact without adjustments, specifically pointing to the procurement clause and his government’s opposition to allowing European companies to sell to Brazil’s public sector.

Von der Leyen praised Lula’s leadership on climate politics and his plan to end deforestation in the Amazon by 2030, and she offered 2 billion euros ($2.2 billion) in European funding to develop green hydrogen production in Brazil.

She announced that the EU was almost doubling to 10 billion euros the funds available to Latin America and the Caribbean in the 300 billion-euro Global Gateway plan for funding sustainable development.

Von der Leyen met Lula at the start of a four-nation trip to Latin America to bolster political and trade ties.

Since Russia’s invasion of Ukraine, the European Union has cast around for “like-minded” partners to provide other sources of trade and critical minerals required for its green transition and help reduce its reliance on China.

Her talks with the presidents of Brazil, Argentina, Chile and Mexico will prepare the ground for the EU meeting with 30 leaders from Latin America and the Caribbean at a summit in Brussels on July 17-18.

EU and Mercosur negotiators are scheduled to meet again in Buenos Aires on June 29-30 and the South American countries will present a counterproposal. Brazil hopes to remove any possibility of sanctions, arguing that the Paris Agreement on climate set voluntary goals.

A spokesman for Brazil’s foreign ministry said a counterproposal will be presented. He gave no date, but added that Mercosur negotiators will meet to agree on a joint stance before the next round of talks with the EU in Buenos Aires.

“Before the meeting with the Europeans, there will be an intra-Mercosur meeting to coordinate positions,” he said.

($1 = 0.9295 euros)

(Reporting by Lisandra Paraguassu and Anthony Boadle in Brasilia; Editing by Matthew Lewis and Stephen Coates)

---