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The EU-Mercosur Free Trade Agreement: A Deal to Make History

Updated: Sep 13, 2023

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By Clarissa Bigasz Mascarenhas

After almost two decades of negotiations, the European Union (EU) and Mercosur could finally ratify their free trade agreement this year. The long-awaited negotiation is expected to be settled soon as the new Brazilian President and the German Chancellor shared their willingness to accelerate the ratification process. The circumstances are favourable, the Swedish EU presidency firmly commits to trade policies, and the Brazilian sustainable economic development model is again aligned with the European. Now is the time for both parties to ratify the treaty.


© European Union


A Mega Deal


The EU-Mercosur Free Trade Agreement is an impressive achievement. Once ratified, it will be one of the largest trade deals ever negotiated, benefiting the population of the EU-27 and the four Mercosur members Argentina, Brazil, Paraguay, and Uruguay.

The negotiations started in 1999, and after more than 20 years, it was finally signed in June 2019. The agreement promotes trade and investment between the European and South American regions by reducing trade barriers and increasing market access.

It covers various issues, including tariff reductions, intellectual property rights, services, and sustainable development. The deal aims to eliminate tariffs on 92 per cent of the goods traded between the EU and the regional economic market of Mercosur countries, creating new market opportunities for businesses in both regions.


Challenges and Opportunities in the EU-Mercosur Trade Relationship


Mercosur is a significant export market for the EU. In past years, the European Union has approximately exported 68 billion euros of goods and services to the South American market, connecting more than 770 million people.

The deal is designed to solve trade restrictions between the two blocs. As of today, European companies still encounter strict trade regulations when attempting to ship to the Mercosur economies, making it difficult to compete on equal terms. These restrictions concern high tariffs, bureaucratic processes, and divergent technical regulations and standards.

Even though some members of the EU-27 still see the EU-Mercosur FTA with scepticism, a non-ratification of the agreement means that the EU is losing space to China. The Chinese market has become Mercosur's biggest trading partner in recent years. It is investing a lot to boost imports of mineral resources and create economic ties in the region.

Therefore, an agreement with the Mercosur countries is an important milestone to bring preferential access back to EU exporters and strengthen political ties with all Latin American countries. Not to mention that, together, both economic markets represent 25 per cent of the GDP of the world economy.


Balancing Economic Gains and Environmental Concerns

Both sides have constructively worked together to mitigate or even entirely prevent the possible negative consequences of the ratification. Surely, a deal of this magnitude could not only be examined for its economic gains. Opponents have primarily been concerned with scepticism on the potential impacts on the environment, social welfare, and economic inequality.

Their economic concerns focus on the potential for job losses and loss of market share for smaller businesses in Europe. It could increase economic inequality within and between the EU and Mercosur countries. These are reasonable concerns, although the increase in European exports most likely creates and maintains more jobs in both regions, not only enriching bigger companies but also providing opportunities for daily workers.

The European Council estimates that as of today, more than 850,000 jobs in the EU are related to exports to Brazil alone. The agreement, as a whole, will create well over a million jobs. In comparison, firms from Mercosur nations employ more than 30,000 personnel in the EU. Moreover, trade barriers and high tariffs on imports that usually exist without agreements will be removed and simplified, directly benefiting different sectors in goods and services.

At the same time, climate activists share their concerns about the potential for increased deforestation in the Amazon rainforest and other ecologically sensitive areas due to increased trade in agricultural products such as beef and soy.


However, this statement is not entirely valid. The EU-Mercosur agreement commits to sustainable fisheries and the management of the Amazon Forest. Furthermore, it has agreed to implement the United Nations Framework Convention and the Paris Agreement on Climate Change.

In addition, the new Brazilian government has shown to be committed to environmental issues (see Brazil's Swing from Right to Left). The nomination of the well-regarded Amazon conservationist Marina Silva as Brazil’s Minister for the Environment and the European Union's clause prohibiting imports that lead to deforestation are good examples that the agreement attempts to prevent such impacts.


Outlook


The EU-Mercosur Free Trade Agreement has the potential to be one of the biggest trade agreements in history. Given its implications, public participation and consultation are good ways to ensure the agreement reflects social, economic, and environmental justice values.


The clock is ticking, and both the EU and Mercosur must take advantage of the window of opportunity that has been presented. Past opponents like France appear to be shifting in favour of the agreement, and the Swedish presidency wants to push the deal forward.


The grandiosity of this particular agreement gives rise to opinions that make it possible to look at it as a boon or a bane. It is now up to the responsible negotiators to find common ground to firm the deal successfully and benefit the lives of millions of Europeans and Latin Americans.



Sources: Bruegel, Euronews, European Commission, European Council, POLITICO


Written by Clarissa Bigasz Mascarenhas

March 2023


The opinions expressed in this publication are those of the author(s). They do not purport to reflect the opinions or views of MJPE or its Board. The designations employed in this publication and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the MJPE concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers.



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