July 02, 2019

Historic trade agreement between the EU and Mercosur

topic:	Economy
located:	Brazil, Argentina, Uruguay, Paraguay
editor:	Magdalena Rojo

The European Union and the South American countries of Brazil, Argentina, Uruguay, and Paraguay (Mercosur) signed a historic trade agreement last week. The landmark in global policymaking, as both sides called it, will create a market of approximately 780 million people. Every year, the EU and Mercosur exchange €88 billion worth of goods. According to the new agreement, more than 90 percent of them on both sides could be exempt from tariffs.

The negotiations took two decades to be implemented, and the scope of the agreement goes far beyond the tariffs, including access to public procurement contracts, protection for regional food specialities, and greater freedom to provide services.

By coming to an agreement, the Mercosur region is opening up its economies and the European Union has signed its largest deal in terms of tariff reduction; the deal could save up to €4 billion to European companies every year.

Cars, machinery, clothing, and textiles are on the list of industrial products for which Mercosur will remove the duties. Cheese, chocolate or European wines will also have easier access to the markets of the four South American countries. For these countries, on the other hand, the European market will be a place to export poultry, sugar, orange juice, fruits and beef, among others.

Import of beef specifically alongside other agricultural products to the EU was one of the reasons for the criticism of the deal. European farmers fear that some agricultural products will flood the European markets and thus compete unfairly with their production.

Environmental organisations point at the fact that beef production is among those that have been contributing to deforestation in the Amazon. What will prevent further destruction of the biggest rainforest in the world if Brazil is to benefit from the export of their meat to the EU? The presidency of Jair Bolsonaro, whose government had the agreement as one of its priorities, might have been one reason why the negotiations finally concluded. However, Bolsonaro was also the reason why the French President Emmanuel Macron was very careful about the agreement. Before the negotiations were concluded, he said he would not sign the deal if Bolsonaro pulled out of the Paris climate accord.

The agreement at the moment includes a chapter dedicated to sustainable development that covers conservation of the forests as well as respect for labour rights and promotion of responsible business conduct. There is also an explicit reference to the Paris Agreement as both the EU and Mercosur commit to fighting against climate change and working toward the transition to a sustainable low-carbon economy. 

The future will show how important the worries about environmental issues and the future of European farmers and labour rights of those on the South American side are. First, the legal revision of the agreement is necessary and then the approval by all the parties who would benefit from it on both sides of the Atlantic ocean.

Image: Argentina's president Mauricio Macri and the president of the EU-Commission Jean-Claude Juncker at the G-20-Summit in Osaka, AFP