The EU-Mercosur Free Trade Agreement - Will Ratification Happen in a World on Fire?

Contributed Content by Lynda Kiernan, GAI Media (February 3, 2020)

(Note: this article first appeared in our sister publication, GAI Gazette, V6i4, December 2019)

After 20 years of negotiations, minus periods of inertia between 2004 - 2010, and 2012-2016, the EU and the Mercosur bloc (Argentina, Brazil, Paraguay, and Uruguay) made history on June 28, 2019 announcing provisional terms for the EU-Mercosur Association Agreement.(1)

With ratification of this free-trade agreement, the EU becomes the first major trading partner to forge such a pact with the Mercosur, creating a deal that would not only drastically affect tariffs for a consumer population of 780 million, but one that also addresses food safety, consumer and environmental protection measures, and labor rights, and includes the implementation of the Paris Climate Agreement, projecting a signal of multilateralism to a world increasingly gripped by protectionist agendas. It also includes wording to uphold the ‘precautionary principle’ (2) meaning that “public authorities have a legal right to act to protect human, animal or plant health, or the environment, in the face of a perceived risk even when scientific analysis is not conclusive.”

The EU is already the Mercosur’s second largest trading partner and top foreign investor, and after approximately 40 rounds of talks, the two blocs have created a provisional agreement that affects a quarter of the world’s gross domestic product (3) (US$20 trillion), and which could prove to be the EU’s most beneficial trade agreement in its history, generating EUR 4 billion (US$4.55 billion) in tariff cuts. It also creates a channel through which two of the world’s largest agricultural producing regions can collaborate on increasing sustainability in our collective global food production systems.

Generally, over a 10-year time period, the pact will remove duties on 91 percent of goods that the EU exports to Mercosur, and will remove duties on 92 percent of goods imported from Mercosur, with a focus on the liberalization of cooperative agendas and market access to agricultural goods.

Some examples of foods that will see an elimination of tariffs include:

• Wine (27 percent);

• Chocolate (20 percent);

• Whiskey and spirits (20-35 percent);

• Biscuits (16-18 percent);

• Canned peaches (55 percent);

• And soft drinks (20-35 percent).

However, although the agreement will give South American farmers access to EU food markets, an additional 7.5 percent of goods from Mercosur countries (mostly agricultural commodities), will only be granted preferential tariff rates, while eggs, beef, pork, chicken, corn, ethanol, honey, sugar, and rice will still be subject to quotas. Overall, upwards of 100 agricultural products from Mercosur will not be granted any preferential status at all.

Meanwhile, when addressing European agricultural products being shipped to Mercosur countries, only those items that would be directly in competition with ones produced in Brazil, Argentina, Paraguay, or Uruguay, such as cheese, garlic, and powdered milk, would be exempt from preferential treatment, while tariffs would be removed on a range of EU agricultural goods including fruit, coffee, and orange juice. Also included is a 180,000-ton, tariff-free quota on poultry and sugar, and a 99,000-ton quota at 7.5 percent on beef. (Keep beef in mind, it will surface again later.)

Moot Without Ratification

All in all, this sounds like a monumental achievement - the forming of a modern-day trade agreement that not only increases the flow of trade for 800 million people, but touches upon political cooperation, and also addresses some of the most pressing social and environmental issues faced today - and it is.

However, there are multiple challenges remaining before the EU-Mercosur Association Agreement will see ratification, which is optimistically expected to occur by late 2020. On a simply logistical level, the agreement must be translated into each of the 24 official languages of the EU bloc, and then be reviewed by each member state before each party signs and ratifies the agreement - a tedious, drawn-out process that is expected to last many months.

But beyond the intricacies of statehood and bureaucracy, there are some key players, particularly leading EU agricultural producers, that have taken issue with the agreement itself.

Some Players Have a Beef

Once the detailed terms of the agreement became widely published, some of the largest agricultural producers in the EU including France, Germany, Ireland, Italy, and Austria, as well the Copa-Cogeca union – representing 23 million farmers across the EU bloc – made their dissatisfaction known, at times in rather unequivocal language.

“Ratification in Europe is likely to be far from straightforward,” noted research analysts with Teneo Intelligence in July, reported CNBC. (4) “The risk of a failed vote would be significant.”

One of the points of most concern to farmers in France and Ireland is beef, and the wave of South American imports they expect will flood the EU, as the agreement would allow for 99,000 tons of beef from the Mercosur to enter their market every year.

Ireland, in particular, said that this poses a threat to its agricultural economy, as the EU beef market is touching upon being oversupplied, and Brexit is still a looming shadow over the UK - a market where Ireland sells 300,000 tons of beef per year.

Threat of a surge in beef (99,000 tons), sugar (180,000 tons), and poultry (100,000 tons) imports also has France’s farmers voicing their opposition, with the country’s agriculture minister Didier Guillaume telling lawmakers, (5) “We won’t have an accord at any price. The story isn’t finished,” and adding, “I will not be the minister who sacrifices French agriculture on the altar of an international agreement.”

Meanwhile, union groups such as Copa Cogeca are concerned about what they frame as double standards inherent to the trade deal, noting that the EU’s agricultural production model that centers on smaller family farms will be at a significant disadvantage to the more large-scale, factory farming production models in South America.

“Considering the huge difference in production standards, the imports of Mercosur’s agricultural goods will de facto establish double standards and unfair competition for some key European production sectors, putting their viability at stake,” said Copa Cogeca in an issued statement.

Other secondary EU agricultural producers have also gone on the record stating their reluctance to support the agreement. Italy’s agriculture minister Gian Marco Centinaio referred to the deal as a “gun aimed at the head” of Italy’s farmers, and the results of such an agreement as being an “invasion of products”. (6)

And even the Association of Banana Producers of the Canaries (Aproscan), in the Spanish archipelago of the Canary Islands (the leading domestic EU banana supplier), has expressed its concern (7) that Brazil, which produces 7 million tons of bananas annually, will flood the EU market once bananas are granted preferential tariff considerations.

A Burning Issue

Although each country has their own concerns based on their specific production models and market interests, there is one unifying issue driving dissent, and it may very well be the one that essentially blocks ratification - the Amazon.

After provisional terms of the EU-Mercosur trade deal were announced, and just upon the G-7 summit meeting in Biarritz, France, this August, thousands of fires swept across the Amazon rainforest, burning across Brazil and over the border into Bolivia, devastating vast swathes of critical rainforest.

Offers of monetary support totaling US$22 million made to Brazil from the G-7 to help abate the fires were summarily refused by Brazil’s president Bolsonaro, who was widely criticized for his response (or lack thereof) to the situation, which only supported findings from the Amazon Environmental Research Institute (IPAM) that the fires were intentionally set (8) as a means of deforestation.

EU backlash was swift, with France and Ireland most vocally stating that they would refuse to ratify the EU-Mercosur Free Trade Agreement in the face of this environmental disregard.

“There is no way that Ireland will vote for the EU-Mercosur Free Trade Agreement if Brazil does not honor its environmental commitments,” said Irish Prime Minister Leo Varadkar (9) in a statement.

French president Macron also came out saying, “In these conditions, France will oppose the Mercosur deal as it is.” (10) He was quickly backed by Donald Tusk, (11) the president of the European Council, who expressed the EU’s support for the trade deal, but added, “It is hard to imagine a harmonious process of ratification by the European countries as long as the Brazilian government allows for the destruction of the green lungs of planet earth.”

The Amazon fires also led to Austria (12) and Slovakia (13) to come out in opposition of ratification, while Finland suggested that in response, Brazilian beef imports to the EU should be banned. (14)

Germany, another EU powerhouse, has taken a different stance (15) however, as a spokesman for Chancellor Angela Merkel stated that a refusal to ratify this trade deal is not appropriate, saying that it would not reduce deforestation, and reminding other EU member states that the agreement does include binding resolutions addressing climate change. This position was also backed by Spain, (16) which said that refusal to ratify is not the right response.

After 20 years of talks, and being labeled a ‘historic’ achievement in the face of increasingly protectionist global agendas, the future of the EU-Mercosur Free Trade Agreement remains in the balance, requiring approval from all countries involved, the European Parliament, and up to as many as 40 national and regional assemblies.

The coming year will be rather telling. It remains to be seen if ratification of this deal, which would establish the largest free trade bloc in the world, can be achieved with the coming together of a huge collective of voices representing populations with widely disparate priorities and agendas.

- Lynda Kiernan is Editor with GAI Media and daily contributor to the GAI News and AgTech Intel platforms, sister publications to WIA Today.

SOURCES:

1 “EU and Mercosur Reach Agreement on Trade”. European Commission, June 28, 2019. http://trade.ec.europa.eu/doclib/press/index.cfm?id=2039.

2 “Key Elements of the EU-Mercosur Trade Agreement”. European Commission, June 28, 2019. http://trade.ec.europa.eu/doclib/press/index.cfm?id=2040.

3 Blenkinsop, Phillip, and Leika Kilhara. “EU, Mercosur Strike Trade Pact, Defying Protectionist Wave”. Reuters, June 28, 2019. https://www.reuters.com/article/us-eu-trade-mercosur/eu-mercosur-strike-trade-pact-defying-protectionist-wave-idUSKCN1TT2KD.

4 Amaro, Silvia. “The EU’s Long, Drawn-out Trade Deal with South America Is at Risk of Being Rejected”. CNBC, July 25, 2019. https://www.cnbc.com/2019/07/25/eu-mercosur-trade-deal-at-risk-of-being-rejected.html.

5 Irish, John, Sybille de la Hamaide, and Gus Trompiz. “France Will Not Sign up to Mercosur Deal at Any Price: Ministers”. Reuters, July 2, 2019. https://www.reuters.com/article/us-eu-mercosur-france/france-will-not-sign-up-to-mercosur-deal-at-any-price-ministers-idUSKCN1TX1PN.

6 “Italian Farmers Oppose EU-Mercosur Trade Deal: Italy's Agriculture Minister”. Investing.com, July 15, 2019. https://www.investing.com/news/economy/italian-farmers-oppose-eumercosur-trade-deal-italys-agriculture-minister-1923648.

7 “EU-Mercosur Trade Deal Increases Risk of Banana Oversupply, Says Canary Islands Group”. Fresh Fruit Portal, July 11, 2019. https://www.freshfruitportal.com/news/2019/07/11/eu-mercosur-trade-deal-increases-risk-of-banana-oversupply-says-canary-islands-group/.

8 Team, Journalism. “The Amazon in Brazil Is on Fire - How Bad Is It?” BBC, August 30, 2019. https://www.bbc.com/news/world-latin-america-49433767.

9 Fahy, Graham, and Gabriela Backynska. “EU Piles Pressure on Brazil over Amazon Fires”. Reuters, August 23, 2019. https://www.reuters.com/article/us-eu-mercosur-ireland/eu-piles-pressure-on-brazil-over-amazon-fires-idUSKCN1VD0PJ.

10 Stone, Jon. “Emmanuel Macron Says He Will Block EU Trade Deal with Brazil over Amazon Forest Fires”. Independent, August 23, 2019. https://www.independent.co.uk/news/world/europe/macron-amazon-forest-fires-veto-mercosur-eu-trade-deal-brazil-a9076181.html.

11 “Amazon Fires Spark European Rift at G7 over Mercosur Trade Deal”. DW.com. Accessed September 1, 2019. https://www.dw.com/en/amazon-fires-spark-european-rift-at-g7-over-mercosur-trade-deal/a-50154578.

12 “Austria Rejects EU-Mercosur Trade Deal over Amazon Fires”. The Guardian. Accessed September 1, 2019. https://www.theguardian.com/world/2019/sep/19/austria-rejects-eu-mercosur-trade-deal-over-amazon-fires.

13 “Slovakia Reportedly Ready to Block the Deal between the EU and Latin America”. Spectator, August 28, 2019. https://spectator.sme.sk/c/22200360/slovakia-prepared-to-block-eu-mercosur-trade-deal-over-amazon-fires.html.

14 Fahy, Graham, and Gabriela Backynska. “EU Piles Pressure on Brazil over Amazon Fires”. Reuters, August 23, 2019. https://www.reuters.com/article/us-eu-mercosur-ireland/eu-piles-pressure-on-brazil-over-amazon-fires-idUSKCN1VD0PJ.

15 “Merkel Opposes Macron Threat to Block Mercosur Deal over Amazon”. Gulf News, August 24, 2019. https://gulfnews.com/business/merkel-opposes-macron-threat-to-block-mercosur-deal-over-amazon-1.65985541.

16 “Tusk Says 'Hard to Imagine' EU-Mercosur Trade Deal While Amazon Burns”. France24.com, August 24, 2019. https://www.france24.com/en/20190824-tusk-says-hard-to-imagine-eu-mercosur-trade-deal-while-amazon-burns.