Mercosur Holds First Negotiating Round for Korea Trade Deal, Looks to EU Next Steps

20 September 2018

Officials from the South American customs bloc Mercosur held negotiating meetings last week with South Korea and the European Union, respectively, as the coalition looks to cement trade ties with new partners. 

While talks with the EU have been ongoing for almost 20 years, formal negotiations with South Korea were launched in May. Both talks happened at the same time as Argentina’s hosting of a G20 trade ministers’ meeting, which focused on fostering dialogue on WTO reform and the current trading climate, as well agri-food value chains and the trade-related changes wrought by technological and industrial change. (For more on the G20 meetings, see related story, this edition) 

EU, Mercosur weigh options for commercially sensitive products 

After a busy summer of negotiations, the EU and Mercosur headed into the last quarter of the year with a set of outstanding issues to resolve, many of which have been key sticking points in the talks for several years. (See Bridges Weekly, 26 July 2018

On 14 September, following the latest round of talks in Montevideo, Uruguayan Foreign Minister Rodolfo Nin Novoa suggested that talks between the two parties remain complex. However, Argentine Production Minister Dante Sica met the same day with EU Trade Commissioner Cecilia Malmström on the subject, in a bid to made further political headway in the negotiations.

Argentine Foreign Minister Jorge Faurie told reporters after the G20 conference that the EU-Mercosur talks were in the “final stages,” as both sides work on the most “delicate subjects.”

“We are determined to develop the political and technical dialogue that remains in order to advance as quickly as possible,” Faurie said, according to comments reported by La Nación.

Talks between the two trade zones have been ongoing for almost two decades, though there were several periods within that timeframe where the talks were effectively on hold. Reports indicate that most chapters of the planned accord are nearly or fully completed, though the famously sensitive topics of agricultural and automotive market access remain challenging, considering offensive and defensive interests on both sides.

Under the new agreement, the EU would reportedly like exports of sugar from Mercosur to be subject to a quota of 150,000 tonnes per year, with a tariff of 98 euros per tonne. In response, Mercosur officials have deemed these revised provisions as too restrictive. 

In the beef industry, the EU also proposed a quota of 99,000 tonnes per year for Mercosur exports, which would still be subject to a tariff, while the latter has insisted on keeping this quota free of any duties. 

Brazilian Foreign Minister Aloysio Nunes Ferreira told Reuters that both sides still hold differing views between the two sides on the length of the transition period on opening car markets further, with the Mercosur countries pushing for a  longer timeframe than the decade that the European bloc’s negotiators have asked for.

Mercosur, South Korean officials express enthusiasm over early talks

Meanwhile, Mercosur and South Korean delegates held their first formal negotiating round, also in the Uruguayan city. Both sides have expressed optimism about the prospect of a new trade agreement, which would be both commercially significant while also helping deepen ties between them.

The talks were launched in late May in Seoul, with the first negotiating round held in Uruguay from 11-15 September. Key subjects for the first week of negotiations included topics such as goods and services, as well as investment, public procurement, and e-commerce, according to comments reported by KBS World Radio and attributed to the South Korean Ministry of Trade, Industry, and Energy.

The ministry also reportedly flagged auto exports as a priority area. Meanwhile, a summary issued by the Mercosur secretariat noted that agriculture and steel dominate the bloc’s exports to the Asian economy, while the four South American countries import high quantities of cars and electronics, with trade volumes between them making a free trade pact especially valuable.

Mercosur is also in the early stages of negotiating a trade accord with Canada, with meetings underway this week, and is working with another major regional coalition, the Pacific Alliance, to strengthen their economic ties, having endorsed such a strategy during a meeting earlier this year in the Mexican city of Puerto Vallarta. The Pacific Alliance is made up of Chile, Colombia, Mexico, and Peru. (See Bridges Weekly, 26 July 2018)

Mercosur is also negotiating a trade deals with Singapore, an initiative that was formally launched in Puerto Vallarta earlier this year, along with pursuing an accord with the European Free Trade Association (EFTA), made up of Iceland, Liechtenstein, Norway, and Switzerland.

Elections, economic strains looming over Mercosur members

Analysts have repeatedly cautioned that elections in Argentina next year and Brazil this October could complicate the Mercosur bloc’s trade negotiating timeframes. The first round of Brazil’s general elections will be held on 7 October, the possibility of a second round later that month. Depending on who takes over from outgoing president Michel Temer, Mercosur’s largest economy could see a change in negotiating stance and approach.

“If there are people with different visions… it could become unviable or you will have to start all over again. So this is the moment, if we want to do this. If not, you could have to wait another five or six years,” Nunes told the Financial Times earlier this month when discussing the importance of wrapping up the EU trade talks promptly. Concurrently, the European Parliament is preparing for transitions with its upcoming May 2019 elections, along with key leadership changes across the other EU institutions. (See Bridges Weekly, 13 September 2018)

In Argentina, a recent austerity agenda launched by President Mauricio Macri is aimed at countering the weight of the peso’s dramatic collapse earlier this year. However, this new budget bill aims to increase taxes on exports of some key commodities, particularly agricultural ones, which could draw scrutiny from the South American country’s trading partners.

“Important progress is being made toward strengthening Argentina’s economic policy plan, supported by a stand-by arrangement with the IMF. We are working hard to conclude these staff-level talks in short order and present a proposal to the IMF executive board,” an IMF team said, according to comments reported by Reuters. General elections will also be held in the country later next year.

However, analysts note that some policy trends in Argentina and Brazil, the largest economies in Mercosur, could still bode well for trade talks with interested partners. Businesses in both South American countries have historically faced high corporate tax rates, inflation, and high public debt, according to a recent report by Stratfor, but are shifting towards changing their business conditions, such as by revising their currency and tax policies, to make them more attractive to foreign investors.

ICTSD reporting; “EU-Mercosur deal still faces farm and auto hurdles, Brazil says,” EURACTIV, 27 August 2018; “Brazil seeks to conclude Mercosur-EU trade deal after 20-year talks,” FINANCIAL TIMES, 4 September 2018; “For Mercosur, High Auto Tariffs Are All Part of the Game,” STRATFOR, 18 September 2018; “Argentina peso rises as IMF sees progress and Macri submits budget bill,” REUTERS, 17 September 2018; “S. Korea, Mercosur to Hold First FTA Talks on Tuesday,” KBS, 9 September 2018, “Deadlock with EU Frees Mercosur to Pursue Other Trade Deals,” BLOOMBERG, 24 July 2018; “Argentina logró en el G20 que EE.UU. y China se pusieran de acuerdo en un tema de comercio,” LA NACION, 14 September 2018.

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