The European Union allies with JAVIER MILEI | VisualEconomik EN

Summary

After 25 years of negotiation, the EU and Mercosur are on the brink of finalizing a free trade agreement. This deal could significantly impact both regions, reducing tariffs on key industries and simplifying trade procedures. However, challenges remain, including Europe's stringent regulations on labor, environmental, and agricultural standards, and political opposition from countries like France and Poland. Despite these hurdles, the agreement may foster economic growth in Mercosur, while Europe's benefits might be limited. The ratification process in the EU remains uncertain, and the agreement’s future is far from guaranteed.

Takeaways

• 😀 After 25 years of negotiations, the free trade agreement between Mercosur and the European Union is closer than ever to being finalized under the leadership of Argentina's president, Javier Milei.
• 😀 The agreement involves a trade zone of 800 million people, representing a quarter of the world's GDP, with the EU being Mercosur's second-largest trading partner after China.
• 😀 Mercosur exports critical minerals and competitive food products to the EU, while the EU supplies machinery and chemicals in exchange.
• 😀 The deal aims to eliminate tariffs on 90% of products and simplify trade procedures between Mercosur and the European Union, making it as easy as trade between European countries.
• 😀 Despite these benefits, significant obstacles remain, particularly with the European Union’s stringent quality standards, including environmental and labor regulations.
• 😀 Mercosur is currently a 'closed regionalism' bloc with high tariffs on imports from non-member countries, which has hindered previous negotiations for a free trade agreement with the EU.
• 😀 Mercosur members lose sovereignty over trade policy, meaning individual countries cannot negotiate free trade agreements without bloc consent, which has been a point of contention.
• 😀 The agreement with the European Union includes tariff reductions on key industries, like the automotive sector (35% tariff), as well as on food products like wine and canned peaches (55% tariff).
• 😀 The EU’s demand for eco-friendly, fair labor practices, and social responsibility in Mercosur's exports adds additional costs for Latin American exporters.
• 😀 The agreement will grant limited access for agricultural products, with quotas for beef, poultry, and sugar, which may not significantly boost Mercosur's exports to the EU.
• 😀 The EU's bureaucratic hurdles, such as needing 65% approval from the European Council and ratification by national parliaments, pose further challenges to finalizing the agreement.

Q & A

What is the significance of the free trade agreement between the European Union (EU) and Mercosur?

The free trade agreement between the EU and Mercosur is significant because it represents a trade zone of 800 million people, covering a quarter of the world's GDP. It has been a long-awaited deal that aims to simplify trade and remove barriers between the regions, offering potential economic benefits, especially for Mercosur countries.

Why has the EU-Mercosur trade agreement taken 25 years to negotiate?

The agreement has taken 25 years to negotiate due to a combination of political differences, protectionist policies, high tariffs, and bureaucratic hurdles. Despite the strategic economic importance of the agreement, disagreements and delays have repeatedly halted progress.

What is the current trade relationship between the EU and Mercosur?

The EU is the second-largest trading partner of Mercosur, after China but ahead of the United States. Trade between the two regions amounted to over 100 billion euros last year. Mercosur exports critical minerals and food products to the EU, while the EU exports machinery and chemical products to Mercosur.

What are the main benefits of the proposed trade agreement for the EU?

The main benefits for the EU include the removal of tariffs on key industries such as automotive and chemicals, leading to savings of approximately four billion euros annually. This will also make products cheaper for European consumers and streamline trade procedures between the EU and Mercosur.

How does the agreement aim to improve trade between the EU and Mercosur?

The agreement proposes eliminating tariffs on 90% of products and simplifying trade procedures. This includes making trade processes more fluid and standardized across Mercosur countries, reducing bureaucracy, and eliminating unnecessary paperwork, thus easing cross-border trade.

What challenges exist in finalizing the EU-Mercosur trade agreement?

Challenges include political opposition, particularly from European countries like France, Austria, and Poland, which have strong agricultural sectors that fear competition from Mercosur. Additionally, strict EU quality standards, including environmental and labor regulations, could raise costs for Mercosur exporters.

How does the European Union's strict quality standards impact Mercosur exports?

The EU's stringent quality standards, including environmental sustainability and fair labor practices, can be a significant burden on Mercosur exporters. These requirements increase production costs and complicate trade, as Mercosur countries must meet these high standards to access the European market.

What restrictions are placed on Mercosur exports to the European Union?

The EU has agreed to provide limited market access for sensitive products like beef, poultry, and sugar. Quotas will be imposed, with tariffs still applied beyond the agreed quantities, making it difficult for Mercosur to significantly increase exports in these sectors.

How might the EU-Mercosur agreement affect the European economy?

The impact on the European economy is expected to be minimal, with estimates suggesting that EU GDP might increase by less than 0.1%. The limited access to Mercosur’s agricultural exports, alongside existing tariffs and quotas, will prevent major economic gains for Europe.

Why do some European countries oppose the trade agreement with Mercosur?

Some European countries, particularly those with strong agricultural sectors like France and Poland, oppose the agreement due to concerns over competition from Mercosur, particularly in sectors like beef, poultry, and sugar. They argue that increased imports from Mercosur could harm their local industries.