EU, Mercosur strike trade pact, defying protectionist wave

The European Union and South American bloc Mercosur agreed a free-trade treaty on Friday, concluding two decades of talks and committing to more open markets in the face of a rising tide of protectionism.

The two regions launched negotiations exactly 20 years ago and intensified efforts to reach an accord after Donald Trump’s presidential victory led the Europeans to freeze talks with the United States and seek other global trading allies.

As world leaders meet at a G20 summit in Japan, EU Trade Commissioner Cecilia Malmstrom told a news conference the deal sent a “loud and clear message” in support of open trade.

The EU’s drift away from the United States has also spurred on a free trade deal with Canada and helped to reach accords with Japan and Mexico. Now, after some 40 rounds of talks, the Europeans have reached a provisional deal with the trade bloc founded by Argentina, Brazil, Paraguay and Uruguay.

For Mercosur, the EU is the first major partner with which it has struck a trade pact, offering EU firms a potential head start. The European Union is already Mercosur’s biggest trade and investment partner and its second largest for goods trade.

The opening to Europe also offers more avenues for development in South America, which has been tugged in recent years between the ascent of top trading partner China and enduring US influence in the region.

Together, the EU and Mercosur are responsible for 720 million people and a quarter of global gross domestic product, according to the government of Brazil, whose President Jair Bolsonaro said on Twitter that the deal was historic and one of the most important trade agreements of all time.

If ratified, the deal will be a victory for Bolsonaro, whose right-wing politics have met with a chilly reception in much of the world, as well as Argentine President Mauricio Macri, who is battling for re-election this year amid a steep recession.

Argentine Treasury Minister Nicolas Dujovne said the deal had “enormous potential to increase investments fundamental to sustained growth.”

Both conservative presidents have been proponents of lowering the region’s traditionally high tariff barriers.

Wine and cheese

In terms of tariff reduction, it could be the EU’s most lucrative trade deal to date, with some 4 billion euros ($4.55 billion) of duties saved on its exports, four times more than its deal with Japan.

Europe has its eyes on increasing access for its manufactured goods, notably cars for which tariffs are 35 per cent. It also wants to allow its firms to compete for public tenders, and to sell more wine and cheese. Mercosur aims to boost exports of agricultural commodities.

Brazil said the agreement would eliminate import tariffs for several farm products, including orange juice, instant coffee and fruit. It will also get a new 99,000-tonne quota of beef at a 7.5 per cent tariff, phased in over five years, along with tariff-free 180,000 tonne quotas each of sugar and of poultry.

“It is true that the agreement will make us compete with the best, but the agreement gives us room to maneuver,” Argentina Secretary of Economic Policy Miguel Braun said on Twitter.

“Europe will eliminate the bulk of its barriers in 5 years and Mercosur will apply a gradual tariff reduction over a period of up to 15 years, which will allow the private sector to adapt.”

European nerves over beef, environment

Past deadlines had come and gone, because of EU nerves about a surge of beef imports and Mercosur hesitation about opening up industries such as automaking.

The agreement still faces challenges before it can enter force. The deal still needs final approval from Mercosur, the European Parliament and their constituent countries, which Brazil’s government conceded could take years, according to Reuters news agency.

France is one of the European countries expressing concerns about a surge in beef imports, while environmental groups, whose influence is stronger in the new European Parliament, argue that the agreement could exacerbate deforestation.

The parties said they both committed to implement the Paris climate change agreement and that a special chapter on sustainable development would cover issues such as forest conservation and labour rights.

EU Agriculture Commissioner Phil Hogan said he recognised the concerns of farmers, including from his country, Ireland, but that free trade agreements struck by the bloc as a whole were opening markets for EU farmers.