* EU's trade chief says time to wrap up Mercosur deal
* Latin American, European leaders meet to deepen trade ties
By Robin Emmott
SANTIAGO, Jan 26 (Reuters) - Argentina and Brazil need to open up to European goods and push ahead with the long-stalled Mercosur free-trade talks, the European Union's trade chief said on Saturday before EU and Latin American leaders meet to try to break the deadlock.
A free-trade deal with the South American trade bloc Mercosur, made up of Argentina, Brazil, Venezuela, Uruguay and Paraguay, would be a major prize for Europe as it tries to emerge from three years of economic crisis.
But negotiations that started 18 years ago and were relaunched in 2010 have yet to make real progress. In that time, Brussels has signed free-trade deals from Mexico to Chile, revealing a split in Latin America between free-traders on the Pacific and the more closed economies of the Atlantic.
EU leaders including German Chancellor Angela Merkel meeting in Santiago for a two-day summit hope to discuss the issue with Argentine President Cristina Fernandez and Brazil's Dilma Rousseff. EU Trade Commissioner Karel De Gucht, who is also in Santiago, said now was the time to act.
"We need to bring the negotiations with the Mercosur countries to a conclusion," De Gucht said in a speech at the summit, a copy of which was distributed prior to his address. "It is no secret that Europe would like to have made more progress in these talks by now."
De Gucht acknowledged that the 27-nation European Union can do more to lower barriers to trade.
A new hurdle to a Mercosur deal is Argentina's curbs on imports. According to Global Trade Alert, an independent body monitoring commerce, Argentina is the world's worse offender when it comes to protectionist measures because the policies affect so many industries and sectors across the world.
Members of the Group of 20 leading global economies promised not to resort to protectionism following the 2008/09 global financial crisis. But Brazil - Latin America's largest economy - has also raised import barriers on goods ranging from European steel to powdered milk.
Commodities-exporting giants Brazil, Argentina and Venezuela are ruled by left-leaning governments and in the first 10 months of 2012, Brazil opened 47 trade defense cases, more than double the level in all of 2011.
"We believe that open markets are the way forward for the economies of Latin America and the Caribbean," De Gucht said, adding that the European Union has the world's most ambitious trade liberalization agenda.
"We should continue to respond to the call of the G20 not to resort to protectionist measures," he said.
Europe is the top foreign investor in Latin America and according to a draft of the summit's final statement seen by Reuters, EU and Latin American leaders will commit on Sunday to more open trade and to avoid protectionist policies.