The pact, which has Brazil as its most influential member, is opposed by most agriculturalists in Europe, who see cheaper farm imports from South America as a direct threat and a potential risk to lucrative European Union subsidies.

Current EU President Spain argues closer Mercosur ties will benefit Europe and will be worth tens of millions of dollars in new business in the South American trade bloc's market of 800 million people. Farmers' representatives will have none of it, however, and want EU governments to dissuade Europe from reopening the talks.

Farmers' concerns were put across by France, which argued the deal would endanger European agriculture, and hurt French farmers, main beneficiaries of EU subsidies.

French government support for farmers is linked to the agriculture sector's political clout. The problem is that the well-being of French arms manufacturer Dassault depends on the Brazilian contract going through.

French President Nicolas Sarkozy went on a high-powered marketing drive in Brazil in 2009 and signed contracts that both sides hailed as strategic -- giving Paris a major foothold in South America and promising Brazil access to technology it hopes will give Brazilian defense industry an edge over rivals and expand exports.

A large number of bilateral business contracts are in place, but not the one that France needs the most for the sale of 36 French-made Rafale fighter jets plus more equipment to Brazil. Officials said over a medium term the deal could be worth a lot more for France, perhaps as much as $8 billion.

After meeting President Luiz Inacio Lula da Silva, Sarkozy expressed confidence that Brazil would choose Rafale, despite intense competition from Sweden's Gripen NG by Saab and the F/A-18 Super Hornet manufactured by Boeing Co.

Since it was announced, critics in Brazil want the deal reviewed mainly because it is likely to be the most expensive choice.

Brazil air force generals made known they would prefer to fly Gripen NG but Lula da Silva argued the technology transfer terms offered by France would enable Brazil's own defense industry to advance into arms manufacturing and open new export markets.

France also hoped that once the Rafale deal was in place the manufacture could look next to a long-term contract for the supply of another 100 fighter jets.

The Mercosur row risks changing the outlook. Critics of Rafale argue France has never sold the aircraft to an outside buyer and its high costs do not justify a first-time purchase by Brazil.

As Spain seeks to push Mercosur on the agenda of the Caribbean-Latin American-EU summit, the outcome of the discussions in Madrid is seen likely to determine Brazil's position on the Rafale deal.

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