The European Union and Mercosur (Argentina, Brazil, Paraguay and Uruguay*) are working together to close a trade deal by the end of the year. Yesterday (April 21), Trade Commissioner Cecilia Malmström met with her counterpart Susana Malcorra, the Argentinian Minister of Foreign Affairs, to advance negotiations.
The meeting was a follow-up of the summit held in Buenos Aires last month, with was the subject of a report. This year shall see the end of talks that began back in the 1990’s.The two blocks signed an inter-regional Framework Cooperation Agreement that entered into force in 1999. This accord has ruled trade between the two parties until now, but relations shall be taken to the next level.
Negotiations gained a new momentum in 2010, when the blocs left aside their differences on market access and focused on rules. The bottlenecks that prevented an agreement so far are: geographical indicators, agricultural goods, and meat products.
To put into context, both parties face different challenges. EU countries are willing to open their domestic market to South American imports, mainly agricultural products. However, this measure might hurt local producers at some level.
With regards to Mercosur, Member States are concerned about giving access to their markets in sectors such as the auto industry, public procurement, to name a few. This stance can be explained by the fact that such sectors are responsible for many local jobs.
The election of Donald Trump brought the two blocs even closer together, due to a more protectionist trade policy by the White House.
Despite all skepticism, a free trade agreement has the potential to unleash a new wave of investment, here’s why: the EU is their first trading partner. Also, the EU is the biggest foreign investor in the bloc. In 2000, it invested a total of €130 billion, this figure raised to €387 billion in 2014. In addition, Mercosur countries are important investors in the EU, in 2014 they had stocks of €115 billion.
Trade should benefit from closer ties. European exports to Mercosur increased from €21 billion in 2005 to €46 billion in 2015, while Mercosur’s from €32 billion to €42 billion over the same period of time. The EU also exports a vast range of commercial services to Mercosur (€20 billion in 2014).
A free trade agreement (FTA) could double trade between both parties. Besides, the elimination of tariffs could save up to €4.4 billion a year for European exporters.
It should be noted that for now there are no deadlines to end negotiations. A deal should be closed by the end of this year or by the first quarter of 2018. As CETA, the Comprehensive Economic and Trade Agreement between the EU and Canada, this will also be a mixed treaty, i.e., national parliaments would have to ratify the final text.
(*) Venezuela joined Mercosur in 2012, the country was suspended from the bloc due to its political crisis, therefore it is not a party to the trade negotiations.