On June 28, the European Union and Mercosur signed one of the most extended free trade agreements in the world. With this agreement, the Southern Cone and Europe create an economic area of 780 million people where € 88 billion in goods and € 34 billion in services are currently exchanged.
A historic agreement
The President of the European Commission, Jean-Claude Juncker, described the agreement as historic and mentioned that this is a strong signal about the European Union’s faith towards rules-based trade.
“I measure my words carefully when I say that this is a historical moment.”
Jean-Claude Juncker, President of the European Commission.
The treaty negotiations between the two economic blocs began 20 years ago, on June 28, 1999. The talks were suspended for a while and resumed again in 2010. In 2016, the negotiations reached significant agreements regarding the reduction of tariffs, which have historically been high in South American countries.
“Today’s agreement brings Europe and South America closer together in a spirit of cooperation and openness.”
Cecilia Malmström, Commissioner for Trade
The Commissioner for Trade, Cecilia Malmström, said the agreement brings Europe and South America closer. The commissioner said the deal would save European companies € 4 billion in taxes per year and called it the most extensive economic agreement in Europe so far.
The signing of the agreement happens at a time when protectionism rebounds, creating tensions in international trade. The most recent altercation occurred with the announcement of French wine tariffs by the United States in response to the digital taxes that the Emmanuel Macron government approved. The US government said that the taxes affect mainly American tech companies.
Goals of the EU-Mercosur agreement
The new treaty between the EU and Mercosur seeks:
- Remove the barriers that prevent companies from exporting more, especially to smaller ones.
- Strengthen workers rights,
- Ensure environmental protection and encourage companies to act responsibly
- Maintain high standards of food quality and protect the quality of European food and beverages with a designation of origin.
Among the Mercosur countries (Argentina, Brazil, Paraguay, and Uruguay), the main attraction of the treaty is the possibility of promoting the transfer of technology, a sector where these countries are quite behind. With the EU-Mercosur treaty, products related to information and communication technologies will not have tariffs.
The trade agreement has received criticism both in Europe and in South America. Farmers in Spain and France are worried about not being able to compete with agricultural and meat production in Brazil and Argentina. In Mercosur countries, critics point out the asymmetry that exists between Europe and South America, so they predict that more European companies will be installed in Mercosur countries than vice versa.
In Brazil, the association representing the electricity industry (Abinee) said that the abolition of tariffs on electronic products would jeopardize the country’s technology industry if components and not just finished products are not also included.
The trade deal is the first step towards a broader agreement between the European Union and Mercosur that will address issues such as migration, digital economy, research, education, and human rights. It will also involve an alliance between the two nations to fight terrorism, money laundering, and cybercrime.