Her comments, posted in her weekly video message, came ahead of a visit by Uruguay's President Tabare Vazquez to Berlin on Wednesday.
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"We are fundamentally in favour of international trade agreements, which is why we are very happy with the effort in the Mercosur countries" to reach a deal with the European Union, Merkel said.
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"It's a matter of reaching a fair deal, where Europe's interests are taken into account just as are those of Latin America."
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But she acknowledged that discussions over EU access for Mercosur's agricultural products would be "a difficult subject", given the large EU subsidies for its farmers.
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Mercosur regroups Argentina, Brazil, Paraguay, Uruguay and Venezuela - although Caracas's participation has been suspended for failing to meet democratic and trade standards.
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The next round of EU-Mercosur trade talks are set for March.
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They will be held against a backdrop of US President Donald Trump's hostility to international trade deals, including his decision to pull out of the Trans-Pacific Partnership.
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He is widely expected to drop any attempt to seal a free-trade deal with the EU, and has also lashed out at NAFTA, the accord between Canada, Mexico and the United States, calling it on Thursday a "catastrophe for our county."
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