EU, Mercosur Ministers Ramp Up Efforts to Close Trade Deal During Brussels Meeting

1 February 2018

Ministers have been meeting in Brussels this week, hoping to get within the final stretch of sealing a long-awaited trade deal uniting the EU and the four members of Mercosur, the South American coalition that includes Argentina, Brazil, Paraguay, and Uruguay. 

Talks for the trade pact first began nearly two decades ago. A potential trade agreement with Mercosur, spanning a combined GDP of €2.2 trillion (US$2.7 trillion) and 260 million consumers, would be among the EU’s largest scale pacts. 

Cecilia Malmström, EU Commissioner for Trade, and Phil Hogan, EU Commissioner for Agriculture, and their Mercosur counterparts met on Tuesday 30 January seeking to give political impetus and direction to wrap up negotiations, aiming to find mutually agreeable trade-offs on challenging issues including beef, ethanol, and trade in autos. 

Though a deal had not been announced at press time, reports suggest that new offers were exchanged and that officials would reconvene in the coming days to continue their deliberations. 

The proposed trade deal strives to lower trade barriers, strengthen labour and environmental protections, and create opportunities for growth and jobs, according to the European Commission. 

The agreement would cover trade in goods, services, rules of origin, technical barriers to trade, sanitary and phytosanitary measures, government procurement, intellectual property, sustainable development, and small and medium-sized enterprises (SMEs), as part of a larger Association Agreement between the regional blocs also incorporating a political and cooperation pillar.

EU goods exports to Mercosur amounted to €42billion (US$52.1 billion) in 2016 and services exports reached €22billion (US$27.3 billion) in 2015, according to the bloc’s statistics. The EU already has framework agreements for economic cooperation in place with each Mercosur member implicated in the agreement, which date back to the early 1990s. 

According to a European Commission press release, the proposed trade pact would be of great political significance, sending “a signal to the rest of the world on the importance of open, mutually beneficial, and rules-based trade.” 

The EU has also recently concluded trade agreements with Vietnam, Japan, and Canada, which are at different stages in the ratification and implementation process. While the EU-Canada deal is now provisionally in force, the accords with Japan and Vietnam are still undergoing legal review before proceeding to the relevant approval processes. 

Brussels is also negotiating updates to its trade deals with Chile and Mexico, along with planning to launch formal talks with Australia and New Zealand. (See Bridges Weekly, 18 January 2018 and 25 January 2018

“Crucially, it will also provide for joint action in the field of sustainable development,” the press release continues, referring to the planned EU-Mercosur accord. “The rules-based trade the partners are aiming for will also necessarily imply maintaining high EU standards, including food safety rules, for all products entering the European market.” The deal also includes a direct reference to the UN’s Paris Agreement on climate change inked in 2015 and now in force. (See Bridges Weekly, 28 April 2016)

A narrowing window

After missing a target to reach agreement before the close of 2017, officials are zeroing in on “the endgame,” with a looming election battle in Brazil adding pressure for a rapid conclusion to talks. Campaigning is slated to begin in early March before Brazilians go to the polls in October. It will then be the EU’s turn to shift to election mode in 2019, when new commissioners and parliamentarians will be selected. 

“The window will be closing soon because Brazil is closing down, basically, for the elections,” Malmström told reporters in Davos, Switzerland, last week, according to comments cited by Politico, underlining the importance of maintaining the momentum so as not to draw out negotiations longer than necessary. 

The most recent EU-Mercosur negotiating round took place from 29 November and 8 December in Brussels. Further political-level discussions on the sidelines of the Eleventh WTO Ministerial Conference in Buenos Aires were inconclusive. (See Bridges Weekly, 7 December 2017 and Bridges Daily Update, 13 December 2017) 

State of play

Though negotiations have come a long way, they have stumbled largely due to difficult market access issues. The EU has been reluctant to open its ethanol, sugar, and beef markets to South American competition, and has pressed in return for lowered tariffs on autos and industrial goods. In December, the EU reportedly offered Mercosur an annual quota of 600,000 tonnes of imported ethanol and 100,000 tonnes of imported sugar at reduced duties. 

Brussels had also proposed lowering tariffs on up to 70,000 metric tonnes of beef in December, a figure that the Mercosur bloc determined was too low, with some members pushing for at least 130,000 tonnes. The EU is now looking to revise its offer upwards to 90,000 or even 100,000 tonnes, according to Politico

Divergences in willingness to open up beef markets are apparent even across EU members, with Ireland, Belgium, and France among those expressing particular sensitivity – especially as the UK’s impending exit has sparked concerns that farmers could face other costly hurdles in the near term. 

"This is the death for the European sector, given that the cost of production is already much too high compared to the selling price. Additional meat imports to the European market will only make the problem worse,” said Hugues Falys from the Belgian Farmers' Federation, according to Euronews

Following a bilateral meeting with Argentine President Mauricio Macri, President Emmanuel Macron underlined concern for the French agricultural sector. “France is determined to look after its beef market and production in the context of Brexit, and is not willing to allow destabilisation in a sector considered excellent,” he said last week, according to comments cited by MercoPress

“I'm persuaded that our negotiators will find the technical path to allow us to arrive to a reciprocal understanding,” he continued. 

Mercosur has also emphasised the imperative of EU concessions on beef. “If we don’t get a significant agricultural offer, we cannot achieve this agreement,” Rigoberto Gauto Vielman, Paraguayan Ambassador to the EU, told the European Parliament earlier this month, according to comments reported by Bloomberg. Mercosur accounts for roughly three-quarters of EU beef imports.

In return, the EU also aims to benefit from improved access to certain service sectors and protected geographical indications for certain premium European food and drink products, among other requests. 

ICTSD reporting; “EU prepares for next step in drive to open up global trade,” BUSINESS DAY, 29 January 2018; “Farmers have a beef with Brussels,” EURONEWS, 29 January 2018; “Europe and Mercosur scheduled to resume trade negotiations this month,” MERCOPRESS, 6 January 2018; “EU races against the clock to seal beef-for-cars trade deal,” POLITICO, 25 January 2018; “Macri and Macron agree in most issues, but not in the EU/Mercosur talks,” MERCOPRESS, 27 January 2018. 

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