The EU and the Mercosur bloc of countries (Argentina, Brazil, Uruguay and Paraguay) have closed the political agreement to create the largest free trade area in the world. The 31 countries have a population of more than 700 million people and the economic value of commercial transactions exceeds 100 billion euros per year. The trade agreement, which has been resisted for 25 years, involves the gradual elimination of tariffs and in the final stretch of the negotiation (which was reopened in 2019 due to environmental doubts) safeguards have been included to try to appease the unrest of farmers and ranchers. Europeans, as well as a link with the Paris Agreement to reduce emissions.
Deforestation and pollution
One of the new requirements that have been incorporated is the link with the Paris Agreement. According to community sources, the trade agreement may be totally or partially suspended if one of the parties decides to leave the umbrella signed at the UN or fails to comply with it.
The deforestation of the Amazon was one of the main objections to the principle of the agreement reached five years ago. Now included are “binding commitments to take action to stop deforestation from 2030.” “It is the first time that the parties to a binding agreement subject to dispute resolution, assume an individual legal commitment to stop deforestation,” community sources emphasize. The EU approved regulations to combat deforestation whose entry into force has been delayed for a year due to pressure from economic sectors and countries like Germany. The EU contemplates a fund of 1.8 billion for the green transition in these countries through the Global Gateway initiative.
Safeguards for the primary sector
European farmers have generally expressed their opposition to the agreement because it would mean the entry of cheaper products into the market due to the elimination of current tariffs. Thus, imports of sensitive agri-food products from Mercosur will be limited through the gradual inclusion of quotas. In the case of beef, which is one of the most sensitive, it will be limited to 99,000 tons. “This corresponds to approximately 1.6% of current EU beef consumption,” say these sources, who suggest that the tariff will be 7.5% and not zero.
The European Commission has prepared a quota of 1 billion euros to help farmers or ranchers affected by the agreement. However, there is still no date for its entry into force.
At the request of Mercosur countries, a “rebalancing mechanism” has been introduced whereby a panel can be called upon if one of the parties considers that substantial harm is occurring. If the panel so deems it, rebalancing measures can be implemented.
Savings of 4,000 million in tariffs
The European Commission estimates that the agreement will mean savings of 4 billion in tariffs for European companies. It will mean the gradual elimination of tariffs on 91% of EU exports to Mercosur and 92% of Mercosur exports to the EU. Liberalization may be expanded in some cases so that Latin American companies have time to adapt.
In the case of the automobile industry, which is the most relevant for the community bloc, the current 35% tariff will be eliminated and in the case of automobile parts the rate that ranges between 14 and 18% will disappear.
And now what?
The trade agreement is widely rejected by civil and labor organizations for what they consider to be insufficient commitments in environmental and labor matters. The great concern is that labor exploitation is perpetuated in the primary sector of Mercosur and that the food sovereignty of local communities is put at risk by promoting large-scale production by prioritizing exports.
But the agreement has an arduous road ahead. It must be ratified by the EU Council by a qualified majority (at least 15 countries representing 65% of the European population). France has always shown its frontal opposition to the text and Emmanuel Macron’s anger is monumental at the signing in Montevideo by the president of the European Commission, Ursula von der Leyen. Austria and Holland have also rejected the agreement and Poland has joined the ‘no’. Italy has also shown reservations in recent days. With those countries against it, it would be blocked. Furthermore, the legal basis has yet to be determined, but if it is a so-called ‘mixed’ agreement, that is, one that goes beyond mere commercial transactions, it would have to be ratified by national parliaments and there it would be very difficult to have unanimity. The agreement would also have to receive the ‘yes’ of the European Parliament.
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