EU-Mercosur trade deal could be completed in weeks - what will this mean?

Legislation | 26 June 2019

As a trade agreement between several South American countries and the EU apparently nears conclusion, what will be the impact on trade for both sides?


Brazil's foreign trade secretary Lucas Ferraz has said he believes a new free trade agreement between the European Union and the South American trade bloc Mercosur could be closed in a matter of months, if not weeks.

Speaking to Bloomberg News, he commented: "We've never been so close. We've advanced more in four months than in 20 years."

Meanwhile, foreign minister Ernesto Araujo was even more optimistic in an interview with the Financial Times, suggesting a deal may be closed as early as next month.

"We are fixing the dates for a meeting in June. Of course, one always has to be prudent because you never know. But there is a very clear, a very positive disposition from the European Union and from our side," he added.

European Commission negotiators have suggested they are keen to reach an agreement before October, when a new set of representatives takes over.

However close the ink is to the page, interest in and comments on the EU-Mercosur FTA are ramping up following nearly 20 years of on-again, off-again negotiations.

What is the EU-Mercosur FTA?

Mercosur counts Brazil, Argentina, Paraguay and Uruguay as full members, while five other South Americna countries are associate members. It provides access to trade in key commodities, particularly agriculture.

Currently, Mercosur represents a closed market with high tariff and non-tariff barriers, but this FTA would eliminate very high customs duties in key sectors, including those where trade has been kept to low levels by prohibitive tariffs.

It would also simplify customs procedures and create clearer technical regulations and standards, while both sides would set up an online platform providing easy access to information on import requirements and preferential trading arrangements to assist smaller businesses.

If it did come to fruition, the deal would be the largest in Mercosur's history since its formation in the early 1990s, as the bloc has previously struggled to do business outside South America.

For the EU, it would also be the largest ever in terms of tariff reductions, covering everything from goods and services to public procurement.

A new deal such as this could also provide a boost for Europe amid economic slowdowns in nations like Germany and the ongoing fallout from Brexit.

Furthermore, it would act as a positive message for global trade at a time of trade wars and increasing protectionism in America.

Problems with EU-Mercosur

However, there are some issues with and arguments against EU-Mercosur. For example, there are agricultural hurdles, including how sanitary controls will be handled and denominations of origin for produce.

Farmers in Ireland have been protesting against the FTA, claiming the EU is being reckless over the prospect of allowing nearly 100,000 tonnes of South American beef into Europe and that it would be devastating to the Irish beef sector.

Similarly, farmers in France are concerned Europe will be flooded with cheap beef because, without tariffs, it becomes more attractive in terms of price than French or other European beef.

Frustrations have also been expressed about a perceived lack of organisation in the Mercosur countries, with even Federico Kade, a member of Eurochamber Argentina's board, saying last year that any border closures such as those occurring in Uruguay in 2005-10 would be detrimental to FTAs and trade as a whole.

Bearing all of the above in mind, it will be interesting to see whether the FTA does move through to the signatory stage in just a few weeks' time, or if it will take longer to resolve the potential roadblocks and reach a stage all stakeholders are happy with.