The EU-Mercosur deal: A story with a happy ending?

The trade agreement between the EU and Mercosur states could be a win-win for both sides, eliminating for instance the high import tariffs. However, the ratification of the document is at risk.

A milestone after almost 20 years of negotiation: In June this year the European Union and Mercosur states – Brazil, Argentina, Uruguay and Paraguay – reached a political agreement for a comprehensive trade agreement (a so called ‘agreement in principle’). As released by the EU, the agreement was thought as a win-win for both the EU and Mercosur, creating opportunities for growth and jobs for both sides. However, considering the current situation, it does not seem very probable that the agreement will take effect. States of both sides already announced that they will not sign the document.

When looking at the statistics, an agreement between the two trade partners may be an important next step. The EU is Mercosur’s number one trade and investment partner, exporting 45 billion euros in goods in 2018 and 23 billion euros in services in 2017. Besides, the EU is the biggest foreign investor in Mercosur with a stock of 381 billion euros.

For the European countries one of the main goals of the EU-Mercosur deal is to remove trade barriers and help especially smaller firms to export more goods to Brazil, Argentina, Uruguay and Paraguay. For instance, with the agreement, the tariffs for 91% of EU goods will be eliminated when exported to Mercosur. Today the tariff, e.g., for cars is of 35%, for machines between 14% and 20% and for chemicals up to 18%. In total, the EU companies could save up to 4 billion euros in tariffs per year.

What puts the ratification of the agreement at risk:
  • At the G7 summit in Biarritz in the end of August, France and Ireland threatened to veto the agreement in view of the fires in the Amazon rainforest, if Brazil will not commit to greater protection of the forest;
  • Austria must vote against the ratification, as in a vote in the EU subcommittee of the Austrian Parliament, four of the five parties voted against the agreement;
  • There is also resistance from the EU farmers, represented by the organization COPA-COGECA;
  • The Brazilian president Jair Bolsonaro seems to stick to his promise to withdraw from the Paris Climate Agreement, and did not show much effort to control the fires in the Amazon rainforest;
  • The recently elected new president of Argentina Alberto Fernández already announced that he wants to negotiate parts of the agreement once more.

Therefore, in this moment, it is very difficult to make a forecast of what will happen with the trade agreement in the future.

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