The news came at the end of the day, Friday 28 June: 20 years to the day after their first attempt, the European Union and Mercosur, the South American common market, have finalised negotiations to modernise the commercial side of an association agreement between the two blocs.
Seized at the last minute, between Brussels and Osaka, this agreement, once signed and ratified, would give the EU unprecedented access to a market of 260 million consumers, the fifth most important economy for the European partners, with an annual GDP of €2.2 trillion.
Mercosur, composed of Brazil, Argentina, Uruguay and Paraguay, is above all a relatively closed economic bloc, imposing significant tariff and non-tariff barriers on its trading partners.
First mover advantage, the opening granted by the bloc to the EU is therefore unprecedented and should therefore generate high profits. According to the European Commission, €4 billion of tariff barriers imposed on exports from the EU should be dismantled.
Mercosur will liberalise 91% of its European imports, the EU 92%, over a maximum of 10 years. In terms of tariff lines, Mercosur will fully liberalise 91% of the lines and the EU 95% of the lines in their respective lists.
However, some stakeholders denounce the cost. Mercosur has finally obtained from its European partner that it grant it jealously guarded access to its emblematic agricultural products, namely beef, poultry, sugar and ethanol; others are mainly concerned about Brasilia's political line (see another article on reactions).
What the EU has achieved
European industry is surely emerging victorious from these negotiations, where 90% of European exports will be liberalised, with more or less long transitions (Mercosur applied tariffs of 35% to imports of cars and car parts, 14 to 20% to machinery, 18% to chemicals and 14% to pharmaceutical products).
On agriculture, the EU has obtained access for 93% of its tariff lines, including major block concessions on wine and olive oil, two European flagship products that will enter Latin America duty-free - excluding bulk wine - (27% of previously applied duties, but implementation times are not known to date).
The quotas obtained on European cheeses and other dairy products, previously subject to a tariff rate of 28%, are obtained on a reciprocal basis, with a volume of 30,000 tonnes liberalised over ten years. European pork imports, canned peaches (25% taxed), canned tomatoes, malt, frozen potatoes, chocolates (20% taxed), dry biscuits and soft drinks will also be liberalised.
As for the duties imposed on certain exports to the EU - the Argentine case of soya used to produce biodiesel - they will be reduced or abolished.
A bilateral safeguard clause may be activated in the event of an unforeseen increase in imports and limited to 18 years from the entry into force of the agreement, with suspension of preferences for a maximum of two years and specific provisions for the EU's outermost regions.
Finally, 355 geographical indications in Europe will now be protected by the four countries (220 Mercosur GIs), "the largest coverage ever achieved in a trade agreement", the Commission notes.
Administrative procedures on arrival and export requirements have also been simplified and harmonised, according to the Commission.
The Treaty should enable European service providers, such as telecommunications, financial, commercial and transport services, to dismantle the obstacles they face and/or to establish themselves on these markets, with greater legal certainty and equal treatment.
Another victory for the European negotiators was non-discriminatory access to the very tight public procurement markets of the Mercosur States, which are not members of this plurilateral agreement at the WTO.
EU negotiators also underline the commitments made on compliance with European standards, in particular sanitary and phytosanitary standards - commitments that are entirely satisfactory, a source from a Member State told EUROPE. The treaty reaffirms the precautionary principle and guarantees the authorities the freedom to regulate in order to protect the health of people, animals and plants. The criterion of regionalisation of the animal disease-free status is also validated.
As for environmental protection, the treaty commits both parties to effectively implement the Paris Climate Agreement and to cooperate on trade-related climate issues, including the fight against deforestation. The chapter on sustainable development includes specific commitments on the protection of the environment and workers' rights, among others; civil society will be involved in their monitoring.
What the EU has conceded
The EU will eliminate tariffs on 100% of industrial products for a transitional period of up to 10 years.
The most painful concessions granted by the Union concern agricultural products. The EU will liberalise 82% of its imports from the block for certain products and quotas including:
- Beef: 99,000 tonnes are open to South Americans, 55% of which are fresh and 45% frozen at a rate of 7.5% over six years;
- Sugar: No change in the volume of an existing quota (180,000 tonnes) allocated to Brazil at the WTO (and estimated at around 1% of annual EU consumption), but this quota will be zero-rated over five years and supplemented by a new quota of 10,000 tonnes for Paraguay.
- Poultry: 180,000 tonnes will enter duty-free, half with bone in, half without bone, implemented over six years;
- Pigmeat: 25,000 tonnes will be allowed to enter at €83 per tonne over six years;
- Ethanol: 450,000 tonnes of ethanol for chemical use, excluding taxes. 200,000 tonnes of ethanol for all uses (including fuel), with an in-quota rate of 1/3 of the MFN duty. The volume will be spread out in six equal annual steps.
Other sensitive products also obtain important concessions in the pact, such as rice (60,000 tonnes duty-free over six years) and honey (45,000 tonnes).
According to a European source, the agreement signed on 30 June with Vietnam would compensate for some of these concessions, in particular for poultry and pork meat (see another article). On the other hand, some cumulative effects could prove harmful to European producers; the case of South American rice producers, who obtain a quota of 60,000 tonnes for Mercosur, combined with at least 30,000 tonnes of Vietnamese white rice.
This Association Agreement, which contains other provisions for political cooperation, will have to be validated by Ministers in the Council of the EU unanimously, minus abstentions.
In addition to the vote of the European Parliament, the parliamentary assemblies of the Member States will also have to ratify the agreement.
The question of the conditions for the provisional implementation of the agreement also needs to be clarified by the Commission.
To view the tentative agreement: https://bit.ly/2RORVyB (Original version in French by Hermine Donceel)