Business

EU-Mercosur Agreement Paves the Way for Tax-free Agricultural Trade

It is the largest deal the EU has struck in terms of tariff reduction, and also the one that has raised most concerns for repercussions on various business sectors and the environment.

Jul. 22, 2019
By Costas Vasilopoulos

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The European Union and the Mercosur bloc (com­prised of Argentina, Brazil, Uruguay and Paraguay), have agreed terms on a new trade deal that will remove exist­ing red-tape and tax bar­ri­ers and facil­i­tate the smoother exchange of prod­ucts and ser­vices between the two.

The agree­ment, which is still in prin­ci­ple, took 20 years of nego­ti­a­tions between the two blocs and cre­ates a joint market of almost 780 mil­lion con­sumers. Both the EU and Mercosur will lib­er­al­ize more than 90 per­cent of traded goods and ser­vices over a tran­si­tional period of five to 15 years.

EU’s indus­trial sector will have tar­iffs waived for many prod­ucts exported to South America, includ­ing cars and car parts, machin­ery, phar­ma­ceu­ti­cals, cloth­ing and footwear. The agri-food sector will also enjoy a duty-free status for prod­ucts such as cheese, wine, olive oil and olives, fruits, spir­its and soft drinks, choco­lates and con­fec­tioner­ies.

This is obvi­ously great news for com­pa­nies, work­ers and the econ­omy on both sides of the Atlantic, saving over €4 bil­lion worth of duties per year.- Jean-Claude Juncker, pres­i­dent of the European Commission

For olive oil, in par­tic­u­lar, there is cur­rently a tax of 10 per­cent imposed on exports from the EU to the Mercosur coun­tries, with the annual worth of exports reach­ing €300 mil­lion ($336 mil­lion). When the agree­ment is fully deployed, the tax will be elim­i­nated.

Furthermore, pro­vi­sion has been taken for the spe­cial Geographical Indication (PDO and PGI) status of sev­eral EU prod­ucts to be acknowl­edged by the Mercosur coun­tries. Quality prod­ucts such as Port wine, Champagne, Prosciutto di Parma and Kalamata Olives will still have their names legally pro­tected from imi­ta­tions.

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The pact also intro­duces the con­cept of ‘region­al­iza­tion’ for the European prod­ucts, mean­ing that if a pest or dis­ease appears some­where in the EU, then exports can con­tinue from other non-affected regions of the Union.

See more: Trade News

In turn, the Mercosur coun­tries will gain easier access to the European common market and low­ered or zeroed taxes with increased export quotas for a number of prod­ucts includ­ing beef, poul­try, sugar, ethanol, orange juice and coffee.

The EU will also pro­tect the names of tra­di­tional Mercosur prod­ucts, such as Cachaça (a Brazilian dis­tilled spirit) and Mendoza wine, from Argentina.

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Safety mech­a­nisms are also in place so that, in cases of emer­gency, both parts can use tar­iffs or other proper mea­sures to pre­vent imports of spe­cific prod­ucts, includ­ing agri­cul­tural prod­ucts, from over­whelm­ing local pro­duc­tion.

The newly agreed pact is the largest trade deal the EU has struck in terms of tariff reduc­tion, esti­mated to save European exporters up to €4 bil­lion ($4.49 bil­lion) paid in cus­toms duties each year.

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Jean-Claude Juncker, the pres­i­dent of the European Commission, wel­comed the agree­ment by bol­ster­ing its sig­nif­i­cance at a time of tur­bu­lence in world trade.

“I mea­sure my words care­fully when I say that this is a his­tor­i­cal moment,” he said. “In the midst of inter­na­tional trade ten­sions, we are send­ing today a strong signal with our Mercosur part­ners that we stand for rules-based trade. Through this trade pact, Mercosur coun­tries have decided to open up their mar­kets to the EU. This is obvi­ously great news for com­pa­nies, work­ers and the econ­omy on both sides of the Atlantic, saving over €4 bil­lion worth of duties per year. This makes it the largest trade agree­ment the EU has ever con­cluded.”

The agree­ment has also drawn crit­i­cism for com­pro­mis­ing eco­nomic activ­i­ties and busi­ness sec­tors on both sides of the Atlantic.

France and other European coun­tries expressed con­cerns over a likely surge of beef imports from South America, posing a threat to the meat indus­try of the EU. Furthermore, the Irish Farmers Association dis­missed the deal as a “sell­out” of Irish farm­ers and a “bad deal” for Ireland and the envi­ron­ment.

Italian wine pro­duc­ers, on the other hand, protested about the agreed term that European wines directed to the South American market will have their duties abol­ished no sooner than 15 years after the pact has become effec­tive, depriv­ing them of increas­ing their exports and rev­enue ear­lier.

More EU farm­ers lob­bies opposed the agree­ment as an under­min­ing factor of their busi­ness, argu­ing that it will bring unfair com­pe­ti­tion since Latin grow­ers and pro­duc­ers will not abide by sim­i­lar agri­cul­tural stan­dards as their coun­ter­parts in Europe.

European offi­cials have rejected the con­cerns, noting that the deal con­tains strict mon­i­tor­ing mech­a­nisms to ensure that European stan­dards remain intact and pro­duc­ers are unhurt by the deal.

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“You can be sure that com­pli­ance or adher­ence to our stan­dards is a start­ing point,” Sigrid Kaag, the Dutch min­is­ter of trade, said. “I’m fully mind­ful of the fact that there are also advo­cacy groups or con­cerned cit­i­zens that feel that you’re in a dif­fer­ent posi­tion once you have signed up to a deal, but that’s also ignor­ing all the ben­e­fits that a trade agree­ment will bring. It’s not a zero-sum game.”

The pact also com­mits both sides to adopt the 2015 Paris Climate Accord, a sig­nif­i­cant move toward pro­tect­ing the envi­ron­ment accord­ing to the European Commission, but it was char­ac­ter­ized as only ‘paying lip ser­vice’ to the Paris Agreement by Anna Cavazzini, a Member of the European Parliament from Germany’s Green party.

Environmentalists also argued that it will urge grow­ers in South America to pro­duce more by elim­i­nat­ing whole areas of the rain­for­est to create an open ground for cul­ti­va­tion, and ulti­mately will dete­ri­o­rate the defor­esta­tion of the Amazonia.

In Latin America, Mauricio Macri, the Argentine pres­i­dent, saluted the deal as “the most impor­tant agree­ment we’ve signed in our his­tory,” but detrac­tors claimed it will bring more woes than joy.

“I don’t want to live in a coun­try where the only chance for progress is sell­ing grains and beef. I want indus­tries,” said Alberto Fernández, a politi­cian in Argentina, while work­ers unions warned that the expected mas­sive imports of cheaper European prod­ucts will result in a cut­back of jobs in the man­u­fac­tur­ing sector of Mercosur coun­tries.

Others con­sider it an oppor­tu­nity for the four South American coun­tries to demon­strate to the world that their economies are now open, as Jorge Faurie, the Argentinian for­eign min­is­ter, stated.

“[The Mercosur has been] a very closed eco­nomic space… this is a very clear mes­sage of where we are going,” he said.

Farmers asso­ci­a­tions, on the other hand, greeted the pact. Sociedad Rural Argentina spoke of a “his­toric agree­ment,” and Abrafrutas, Brazil’s fruit exporters asso­ci­a­tion, said that the deal will help local pro­duc­ers remain com­pet­i­tive. Argentina’s National Association of Entrepreneurs was skep­ti­cal how­ever, fear­ing that the deal will ben­e­fit multi­na­tional firms at the expense of small and medium-sized com­pa­nies.

The agree­ment has yet to be approved by each one of the four Mercosur coun­tries, the 28 EU member states and the European Parliament, and it could take years to come into effect.