EC Gives OK to Mercosur Talks, AG Sector Could Block the Road Ahead

27 July 1998

The European Commission (EC) last week approved a negotiating mandate for a trade agreement with the Southern Cone Common Market (MERCOSUR, which includes Argentina, Brazil, Paraguay, Uruguay and associate-member Chile). But the mandate now faces a bigger hurdle - getting unanimous approval from the Commission's trade ministers. This could prove insurmountable, as a number of EU agricultural ministers and European farm unions loudly warn of the damaging effects on Europe's farm sector should an EU-MERCOSUR pact go through. An internal EC report said that the EU could have to fund up to US$15 billion a year to compensate its farmers for lost farm revenue due to cheap MERCOSUR agricultural imports. However, Manuel Marin, European Commissioner for North-South Relations, said the impact of a trade pact on EU agriculture had been exaggerated. Mr. Marin said the EU negotiating mandate excluded the most sensitive agricultural goods including cereals, beef and sugar, while still complying with the WTO guidelines by covering 90 percent of trade between the EU and MERCOSUR.

MERCOSUR officials warned that they will not forge ahead with EU-MERCOSUR free trade talks as long as any agricultural sectors are excluded from the negotiating framework. MERCOSUR's agricultural export capacity is under-utilised, and remains focused primarily on commodities. Brazilian Trade Minister Jose Botafogo last week said that MERCOSUR fought hard to secure a separate working team on agriculture as part of the hemispheric Free Trade Area of the Americas talks, and would not compromise its strong position on free trade in agriculture in talks with the EU.

A free trade agreement between the EU and MERCOSUR, which as proposed would remove tariffs on goods over a ten-year period, is estimated to be worth about US$6.2 billion annually to the EU and US$5.1 billion annually to MERCOSUR and Chile.

"EU: Brussels to back Mercosur talks," FINANCIAL TIMES, July 21, 1998; "MERCOSUR: Risks of EU link 'exaggerated,'" FINANCIAL TIMES, July 23, 1998; "Pressure mounts for a global trade round," JOURNAL OF COMMERCE, July 24, 1998.

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