By Luis David Díaz-Ibarra
Sidera’s LATAM Liaison
The growing concern regarding the supply markets’ instability caused by the Russia-Ukraine conflict is pushing the European Union countries to reassess their positions on the FTA with MERCOSUR.
Germany, for instance, declared that it was “willing to cooperate” and supported the “realization of an agreement as ambitious, geostrategically meaningful, and sustainable as the EU-MERCOSUR FTA”. In this framework, the current German (coalition) government’s demand to support the FTA ratification is that the parties undertake legally-binding commitments related to the environment, social and human rights.
After over 20 years and several trade rounds, the European Union and MERCOSUR finally signed an Association Agreement; its ratification has been lingering for nearly three years and is still the object of debate and technical revision, mainly in the EU.
Let’s review some key aspects of the Agreement:
- Challenges in the EU for its ratification
Agricultural Sector: Farmers, mainly from France, Belgium, and Ireland, fear that the gradual opening of the EU markets to MERCOSUR’s meat and sugar will lead to unfair competition.
Environmental: Several EU States led by Austria, Congress members, and NGOs reject the Agreement, arguing that they are worried about the compatibility of the EU-MERCOSUR Agreement with the Paris Agreement and its impact on Amazon deforestation. The policy carried out by Brazil’s current government is supposedly not aligned with the ideal standards of preservation and protection.
Despite the hiccups and challenges, the Agreement framed a large number of prospects for both economic blocs. Among others, import tariff reductions, strengthening of political, cultural, and economic ties, generation of a more modern economy, improvement of the regulatory and institutional environment, integration and trade promotion between the two blocs, economic development, increase and diversification of exports from the local economies, more predictability, and accountability, encouragement of the civil society’s participation in trade policies, supply chains integration, simplification of customs and compliance procedures, sale of services and establishment of companies, access to government procurement bids and support for small and medium-sized enterprises are some of the many opportunities once the FTA enters into force. More than anything, this deal creates a market of around 800 million people for both parties combined, representing almost ¼ of the world’s GDP, a little more than US$ 100 billion in bilateral trade.
In the Agro-industrial sector, duties will be gradually eliminated on 93% of the tariff lines related to the MERCOSUR imports from the EU. In the list, we find the following products: wine and spirits, olive oil, fresh fruits (apple, pears, nectarines, plums, and kiwis at entry into force), canned peaches, canned tomatoes, malt, frozen potatoes, pork, chocolates, biscuits, and soft drinks.
- Trade Remedies
Although based on the WTO trade defense instruments, additionally,it provides for a bilateral safeguard mechanism in case of abrupt import surges of both industrial and agricultural goods subject to preferential treatment after the import tariff rate reduction. Furthermore, it provides relief if certain conditions are met, but then rules cannot be abused to remove preferences without due justification.
Although the import tariff reductions are gradual and sometimes timid, this Agreement represents a unique opportunity for Brazil to access the European Market. After the Doha’s Round stagnation, this FTA was among the country’s top priorities.
In that sense, the Brazilian government has been making diplomatic approaches – as a MERCOSUR pro tempore Chair and by itself – to reach the FTA’s ratification throughout these past three years. The last one includes a visit to Spain in February 2022 by the Brazilian Minister of Foreign Affairs, Ambassador Carlos França1. Besides, It is expected a visit of an EU delegation to Brazil in September, to meet with Brazilians ministers and discuss about the FTA2.
4.1 Brazilian presidential election: remarks on the possible new administration
As it is well known, Brazil currently finds itself in a highly polarized electoral scenario between the figures of the current president, Jair Bolsonaro, and the former president, Luiz Inácio “Lula” da Silva. Different surveys project that there will be a change of administration in the coming months back to Lula.
In this sense, we should note that the FTA, approved during Bolsonaro’s administration, is under Lula’s radar, who has recently stated that the Agreement was still “not valid” and that he would seek its renegotiation.
Lula explained in a televised interview that the agreement’s lack of validity is because it was not “fully implemented”, noting furthermore that “Brazil is not obliged to agree on a treaty that does not respond to that which is Brazil’s ambitions.” He emphasizes that the European Union should understand that MERCOSUR must be able to export products with higher-value-added since, from his vision, if the agreement is maintained as it is, it will cause much distress to the Brazilian industrial sector.
- What to Expect
Most experts coincide on the three most likely scenarios:
- The parties renegotiate the agreement, but just in those clauses in which modifications are necessary.
- The parties split the Agreement and boost the issues that show consensus. This could mean approval directly through the EU organisms, i.e., without waiting for the national members’ parliamentary debates and subsequent green lights.
- Mercosur presents the geopolitical strategy of the Agreement’s ratification to the EU and relevant stakeholders, considering that South America is a peaceful and democratic region that assures the supply of the products needed.
In all those scenarios, it is essential to reassure and push the ratification among the EU countries, representing the most significant market opportunity globally and bringing historically-tied regions closer than ever.
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- In his visit, Minister França advocated for unlocking the process of ratification, arguing that Brazil “doesn’t want to escape from its environmental commitments” and pointing out that the EU position for ratification seems to be rather to protect its domestic producers than out of a concern for environmental issues. https://www.swissinfo.ch/spa/ue-mercosur_canciller-brasile%C3%B1o-fran%C3%A7a-urge-a-un-acuerdo-entre-la-ue-y-el-mercosur/4732218