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

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.

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.

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.

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.

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.

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.

“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.

• European Union


• Financial Times


• Hellenic Shipping News