Spain: EU-Mercosur deal very “complex”

The process to ratify the EU-Mercosur trade pact will be “complex” due to the discontent of EU agricultural sector and the domestic politics of countries like France, Argentina and Brazil. Interesting analysis by the expert of the Spanish think tank Elcano, Carlos Malamud.

EU-Mercosur FTA

Carlos Malamud, expert on Latin America-EU relations at the Real Instituto Elcano warns that it could take two or three years for the commercial part of the agreement to be approved and up to five years in the case of political dialogue and cooperation.

Although the political agreement was signed on 28 June, after 20 years of negotiations, Malamud notes that there are political dynamics that would hinder the final pact ratification, FTA which would create a market of 780 million consumers and would save Europe €4 billion a year in tariff duties.

“We have to pay attention to the noise caused by those sectors most affected by the signing of the treaty, some business sectors in the Mercosur countries, the agricultural unions in Europe”, the professor says.

France, Europe’s main obstacle

As far as Europe is concerned, Malamud points out that France, Poland and Ireland have “powerful” agricultural sectors, which have questioned que agreement because it puts them at a disadvantage and because of the supposed danger represented by meat and other food from South America, where the same legislation does not exist as in Europe.

The French Government, he says, has been reluctant to support the FTA because of the recent revolts of the “guillets jaunes”, linked to rural population.

One of Macron’s main has been that Brazil commit to remain within the Paris Climate Agreement and to stop the Amazon deforestation. Malamud considers, however, that the president’s position responds more to domestic political pressure than to international trouble.

On the possibilities that the Brazilian government’s environmental policies will hinder the agreement progress, Elcano’s researcher comments that “it is true that an important part of the economic elites and the authorities of the Ministry of Economic Affaires have adopted a clear open policy, which at the moment is taking precedence”.

Farmers’ unions from several MSs are also against the FTA. For the Spanish beef sector association Asoprovac, “this agreement could be an economic and health hazard”, a position shared by its counterparts in France, Ireland, Italy and Poland.

Estimating that “more than 100,000 tons of meat” from South American cows would arrive in the EU each year, those organizations inform that these goods are produced “with substances prohibited in Europe and without taking into consideration any environmental legislation”.

… And Argentina in the Americas

Although the agreements would be approved in the parliaments of Uruguay, Paraguay and Brazil, according to this expert, another obstacle would be the presidential election in Argentina in October, where the candidate Alberto Fernández has questioned the FTA.

Argentine wine producers have spoken out against the agreement due to asymmetries between the local and European companies, as the EU allocates around €900 million a year to promote its wines, which, coupled with lower tariffs, would harm the Argentine sector.

Who are in favor in Europe?

The European employers’ association BusinessEurope is undoubtedly in favor, stressing that it will open up a market of 226 million-consumer market wanting access to European goods and services.

The chambers of commerce, represented by Eurochambers, have also urged to seize the “opportunity” and ratify the FTA so products would enter the region without tariffs in key sectors such as automotive, machinery, chemicals or pharmaceuticals.

The so-called Spanish Club of Exporters and Investors note “the margin for improvement is very important”, pointing out that goods sales to Mercosur reached €3.9 billion in 2018, 1.4% of total Spanish exports, which places Spain as the EU fourth supplier in that region, after Germany, France and Italy.

And who is in favor in South America?

Brazil’s coffee exporters, the world’s leading producer and been supplier, welcomed the agreement with the EU, region which is its second largest partner only behind the US.

The South American giant exported 35.2 million 60-kilo sacks of coffee in 2018, representing an increase of 13.9% over 2017, a trend will continue to rise after the agreement, according to the organization Cecafé.

Brazil’s Ministry of Economic Affairs is another institution clearly in favor of the agreement. The Brazilian economy will grow 87.5 billion dollars in 15 years thanks to the pact; this ministry also estimates that the GDP would reach 125 billion dollars by reducing trade barriers and increasing productivity.

The Brazilian administration also predicts that, within the same period, Brazil’s investments will increase by 113 billion dollars and exports to the EU will leave profits of almost 100 billion dollars by 2025.

For Uruguayan businessmen, the stability and investments opportunities the country offers will make it a business hub and headquarters for international companies.

In addition, Uruguay’s exports to the EU reached a value of 100 million dollars annually, according to Uruguay’s Minister for Foreign Affaires.

EU-Mercosur trade relations

Mercosur is the main supplier of agricultural products to the EU, with a share of 20% of the total, and almost of 70% of the products for animal feed. Around of 80% of beef imported into Europe comes from this region as well.

EU companies pay €4 billion in tariff duties each year when exporting to Mercosur countries. The EU economy is heavily dependent on exports, and Mercosur is the EU sixth most significant market destination.

Should this agreement be concluded successfully, the EU will have FTAs with most countries in the Americas, with the exceptions of Cuba, Venezuela and Bolivia. This would boost the EU’s economic position in Latin America, especially in relation to other great powers like China.

Spanish position regarding the EU-Mercosur Trade Agreement

Regardless the political color of its governments, Spain has always been interested in seeing this agreement come to fruition.

For more information, see EU-Mercosur: meat in exchange of cars?, published on July 4, 2019