Following two weeks of talks closing on Thursday 8 February with no significant breakthrough, despite the impetus fed in at ministerial level on 30 January, the negotiators of the EU and of Mercosur (Argentina, Brazil, Paraguay and Uruguay) will meet in Asuncion from 19 February to 2 March, following the break for the Brazilian Carnival, to try to remove the final obstacles to the conclusion of a political agreement, before the general election campaign in Brazil kicks off in March.
Mercosur’s negotiator-in-chief Luis Fernando Ávalos of Paraguay, his European counterpart, Sandra Gallina, and their negotiating teams will then seek to iron out differences of opinion a technical level, leaving it to the ministers to resolve the more controversial matters at political level. European Commissioners Cecilia Malmström (Trade) and Phil Hogan (Agriculture) will be standing by to fly to the Paraguayan capital once enough progress has been made.
Speaking through the Commission on Friday 9 February, the EU reiterated its continuing commitment to an ambitious and balanced trade agreement, adding that the outstanding questions are well known. These are its offensive interests: access to the Mercosur market for industrial and agricultural products from the EU (cars, spare parts and dairy products), the rules of origin and related transitional periods, protection for EU geographical indications and the opportunities offered in maritime services, and public procurement.
“We must continue to try to overcome the differences which subsist and to reach a mutually beneficial result, whilst recognising mutual sensitivities”, it repeated.
To facilitate the conclusion of an agreement, the EU made a proposal at the end of January, with a revised offer on its sensitive agricultural products, but conditional on significant concessions from Mercosur over the offensive interests of the Europeans.
This amended offer is reported to be based on an EU tariff import quota for South American beef that would rise from 70,000 to 99,000 tonnes with an unchanged 50/50 fresh/frozen meat ratio and unchanged duty of 7.5%, applicable for each tranche.
However, the Mercosur political figures are under pressure from the bloc’s agri-food industry to reject any beef quota below 100,000 tonnes. Mercosur’s Beef Forum has its sights set on market access for at least 160,000 tonnes.
According to certain sources, the four countries of the bloc could pile on the pressure to secure up to 150,000 tonnes, in exchange for better access for the EU’s offensive interests. According to a Uruguayan negotiator quoted by the media source Noticias Financieras, Uruguay is pushing for a volume of 130,000 tonnes.
In the framework of its revised offer, the EU would also be prepared to make a gesture over ethanol (for which it has already offered to open a quota of 600,000 tonnes). The Commission is under enormous pressure from Brazil to improve this offer, according to our information.
As regards sugar, for which the EU has offered a quota of 120,000 tonnes at a tariff of €98 per tonne, on the other hand, Mercosur is no longer calling for a higher quota (mainly due to currency fluctuations in Brazil and Mercosur’s lack of competitiveness as a result of an increase in production and drop in prices on the European market since the end of production quotas in autumn 2017), but is calling for intra-quota customs duty to be scrapped.
On Monday 12 February, the European sugar industry, which represents manufacturers, producers of sugar beet and workers in the sugar sector, called upon the EU to resist pressure from Brazil to offer new concessions on access to the European sugar market, which has already been the subject of a major reform and would suffer additional damage as a result.
“Brazil already enjoys the single largest access quota of any third country to the EU market, and is a dominant global exporter. Its developed system of government support means that its producers are able to sell their sugar at below cost prices, and the sugarcane sector will receive a massive financial incentive for 2020 with the entry into operation of (…) its credit-based biofuels promotion programme”, the European industry warns, also stressing that Brazilian producers benefit from less stringent social and environmental standards than EU producers.
As regards its offensive interests, the EU hopes to obtain a significant offer for access to the Mercosur market for its dairy products, but the question remains a delicate one, particularly due to strong resistance from Uruguay, which has described it as an absolute red line.
On the geographical indications (GI) the EU intends to protect, such as those on cheeses and wines, the negotiators examined the results of a Mercosur consultation on GI, which will be difficult to recognise to a greater or lesser extent, according to a South American source. The Latin American bloc may recognise 80% of the GIs proposed by the EU. It will then be up to the negotiators to agree on the EU GIs that have become commonly used to identify a product, such as Parmesan cheese.
Concerning access to the automotive market, the EU is calling for Brazil to reduce its tax on car imports from 35% to 2.66% over a transitional period that Brasília is hoping will be 15 years. According to our most recent information, Brazil has agreed to reduce this to 12 years, and the EU is demanding eight.
Talks are struggling over the complex matter of the rules of origin related to market access for industrial products. In this dossier, the Brazilian industry is calling for the special duty drawback scheme, which exempts imports for the production of products which will be exported, to stay in place. (Original version in French by Emmanuel Hagry)