Twenty years of negotiations, still far from ratification - the EU-Mercosur trade-agreement.

The EU-Mercosur trade-deal has been on the table for the last 20 years. It is an agreement with trade as its centrepiece, but which should be built on moral values and sustainable development. The negotiations ended on June 18th, 2019 but the agreement still hasn’t come into effect because of environmental concerns.

This deal involves 31 countries, 780 million people, a total GDP of 20.5 trillion € and Jean-Claude Juncker -former President of the European Commission- expects it to “save over 4 billion € of duties per year”. If this treaty comes into effect, it will be the biggest trade-deal ever made for both blocks in terms of GDP. Thus, it will give unprecedented opportunities for investors and firms and create some changes for the consumers.

But, if not clearly controlled, create a disruption in the efforts to counter climate change. Mercosur is a South American Trade Bloc established in 1991 and involving Argentina, Brazil, Paraguay and Uruguay (Venezuela was suspended in 2016). This article will first explain the specificities of the trade agreement. Then, it will explore the expected economic, social, political and environmental impacts if it comes into effect.

Jean-Claude Juncker” by Mueller/MSC licensed under CC-BY-3.0-DE

First, what are the specificities of this trade agreement?

Currently, even though Europe is the second trade partner of Mercosur, exports and imports are relatively low. This is due to current disincentives to trade: extensive bureaucratic processes and especially sky-high tariffs on goods. At the moment, to protect their industry, most Latin American countries apply excessive tariffs on European industrial products. For instance, clothes and cars are taxed at a 35% rate. As most of the European exports are industrial goods –41% of their exports are cars and machinery–, this puts an important barrier to trade. On the other hand, Mercosur mostly exports agro-industrial goods such as soybeans, meat and coffee. These also suffer from high taxes when entering the EU. Adding to these taxes, the entry of agricultural goods is restricted to products meeting high standards, which are not needed in Latin America’s market. So, the main goal of the deal is to loosen these rules and limit tariffs to encourage trade between the two blocks. This is why the agreement specifies that almost 100% of the trade is going to be tax free. And for some exceptions the goods will have limited and fixed tax rates.

This agreement also targets the bureaucratic system of both blocks that slows down imports and entrepreneur’s initiatives. The goods will have fewer custom inspections to avoid delays and extensive