EU-Mercosur wobbles

Challenges remain with the EU-Mercosur trade deal.

The EU-Mercosur deal has the potential to be the EU’s largest ever trade deal with the removal of EUR 4 billion of tariffs. The deal is currently under legal review, a preliminary step before it is submitted to the European Parliament and member states for ratification.

A Brazilian diplomat is extremely excited about the potential of the deal, “The current terms are very positive for the Brazilian economy. This is especially true for our agribusiness sector and not only in terms of exports, it would also improve the quality of our products. Brazilian producers would have to improve to compete in such a demanding market as the EU.”

“The current terms are very positive for the Brazilian economy. This is especially true for our agribusiness sector and not only in terms of exports, it would also improve the quality of our products.”

Brazilian diplomat

Unsurprisingly, some EU member states are reluctant to sign the agreement, citing both environmental concerns and worries about the impact of Mercosur agricultural commodities flooding the EU market. France and Ireland, both beef producers, are among the main member states concerned about beef imports with more competitive prices from Mercosur countries. Contrarily to Paris and Dublin, Portugal and Spain have strongly lobbied for the conclusion of the deal, given their commercial ties to Mercosur’s countries. 

An LSE report commissioned by the European Commission concluded that the deal will have a limited impact on the economic stability of the EU agrifood sector as tariff liberalisation could apply in both blocs. While the EU dairy sector would benefit from an export boost which could reach 121%, the Mercosur countries could increase their agribusiness exports to the EU by 165%. Elsewhere, the EU beverages sector could expand their exports by 38% and Mercosur beef exports to the EU could increase by 64%. 

Copa-Cogeca, the EU’s largest farm lobby, disagrees with the study and said that the EU’s most sensitive sectors: beef, poultry, sugar, cereal, rice, honey and citrus fruits would suffer the most. 

EU negotiators have offered a parallel deal to the trade agreement that would involve the EU providing additional financial and technical support for Mercosur’s green transition in exchange for stronger environmental commitments. However, EU diplomats have ruled out a potential renegotiation of the deal, leaving Mercosur’s members to wait while the EU resolves its internal issues. No surprise there then!

“The real problem is that the agreement has been undermined by economic and political forces in the EU, which are not interested in any productivity gain.”

Brazilian diplomat

A Brazilian diplomat expressed his frustration, “The real problem is that the agreement has been undermined by economic and political forces in the EU, which are not interested in any productivity gain. Sad as it might seem, I even have my doubts about whether the deal will ever be ratified. I am astonished to see European heads of state using tricks to avoid supporting the deal. At this point, it makes you question whether political campaigns to save the Amazon are genuinely honest or just political tactics to divert EU’s protectionist vein when it comes to agricultural commodities.”

There are also some fractures and contentions on the Mercosur side, a Mexican economist and international relations expert commented, “Argentina cannot deal with Brazil and it is looking for an exit to the Pacific: this is why it is desperately seeking concessions with Mexico, Peru, Chile and Colombia to be a member of the Pacific Alliance. Mercosur is quite polarised, Bolsonaro goes one way and Argentina the other, they’re on different paths. It is interesting to note how Chile sets an example: it was not wrong in avoiding a Mercosur membership to preserve its independence from third parties. It has benefited from increased investment and diversified trade.”

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