The European Union (EU) and Mercosur, a South American trade bloc including Brazil, Argentina, Paraguay, and Uruguay, have been significant trading partners of one another for years. The EU is Mercosur’s biggest trading partner, and each bloc exports over €40 billion to the other annually.
They have had relations based on an interregional Framework Cooperation Agreement since 1999, and have engaged in on-again-off-again negotiations to establish a trade agreement ever since. Most recently, representatives met in June 2018 and several have commented that they expect a conclusion to the agreement soon.
Combined, the EU and Mercosur have a GDP of about €15.3 trillion and a market of over 750 million consumers. A successful trade agreement between the two would signal a strong commitment to trade as a driver of sustainable international economic advancement. This could be the EU’s most profitable trade deal, considering the tariff reductions at stake.
Mercosur is a market for over 60,000 EU companies, including for exports of European olive oil, chocolates, champagne, produce, frozen potatoes, and more. However, it poses high tariffs, particularly on cars, machinery, pharmaceuticals, and agri-food products. An agreement would simplify customs procedures and eliminate high duties in these key industries. It would also allow European companies already present in Mercosur, or the other way around, import parts and intermediate goods more cost-effectively.
In their current arrangement, Mercosur firms can bid for EU contracts in the public government procurement market, but the EU cannot do the same. Access to this market within Mercosur would be very valuable to European companies.
Despite all the benefits, this trade agreement will not come without compromises from both sides. Mercosur is a major producer of beef, ethanol, sugar, and poultry, which are also important sectors in the EU. Many European farmers are opposed to the trade agreement for this reason, France and Ireland being especially vocal about beef and biofuel imports. Similarly, Mercosur is resistant to increased European automobile exports.
Another pressing issue in the negotiations is Geographical Indications (GI), which signal that a specific product must be from a certain geographical origin. Examples of these include Feta cheese from Greece, Cognac from France, and Cachaça from Brazil. Both parties have several hundred GIs to negotiate.
The EU has also been focusing on trade talks, both conducting new negotiations and expanding existing ones, with various other nations including Australia, New Zealand, Chile, Japan, India, Lebanon, Tunisia, and Mexico. Mercosur is working with the Pacific Alliance countries (Chile, Colombia, Mexico, and Peru), EFTA (Iceland, Liechtenstein, Norway, and Switzerland), and Canada, and plans to begin negotiations with South Korea soon.
The timing of this potential conclusion is important. Both parties are large economic markets with different interests, which has already elongated negotiations for almost 20 years. However, Brazil has a major election in October 2018, and Argentina and Uruguay have elections in October 2019. The EU will also be adjusting to Brexit, which is due to go into effect in March 2019. These political changes could make finalizing this trade agreement even more difficult than it already is if it is not settled soon.
An EU-Mercosur free trade agreement will affect numerous sectors across both regions and alter major global trading patterns. Companies may think they should not get involved in such free trade negotiations, but, much on the contrary, the private sector is the main force pushing for the advances in the negotiations. Companies could benefit from conducting market studies to see how changes to tariff regulations would affect their industries, or by evaluating how tariff and non-tariff barriers would affect their businesses. Additionally, experts in the field could help them successfully navigate any changes resulting from trade agreement changes, and plan to optimize their operations considering such changes.
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