Surprised? We May Finally See an EU-Mercosur Trade Agreement
April 25, 2014
Last week, Mercosur members met to hammer out their proposed framework for a long-pending EU-Mercosur trade deal, finally agreeing to an overall tariff reduction of 87 percent.
The trade discussions were first launched in 1999 but have enjoyed little in the way of tangible forward movement since then, subject instead to a series of interruptions and derailments. But with last week’s agreement, Brazil, Argentina, Paraguay, and Uruguay are ready to exchange proposals for the deal with the European Union—a process that was slated to begin last December. Mercosur’s fifth member, Venezuela, is not included in the process pro forma, as it joined the bloc in 2012, years after the process formally began.
So what do the EU-Mercosur negotiations entail, and what will they mean for global commerce?
Q1: What progress has been made to date in the negotiations?
A1: In 1995, the European Union first proposed a trade agreement with Mercosur, or the Common Market of the South, a group founded by Argentina, Brazil, Paraguay, and Uruguay. Four years later, Mercosur expressed its interest in pursuing the agreement, kicking off the formal process of proposal generation.
But for the next 14 years, the process largely stalled, with no measurable progress made toward coming to an agreement.
Last year, however, saw the reinvigoration of Mercosur’s interest in the agreement—particularly on the part of Brazil, Paraguay, and Uruguay. Initially, the two sides hoped to exchange proposals in December 2013, with negotiations to follow.
Even the new interest in the agreement, though, was not enough to bring Argentina fully on board—at least not at first. The country, whose macroeconomic policy is currently trending heavily toward protectionism, set itself up as perhaps the biggest hurdle to finally coming to an agreement with the European Union. Even Argentina’s trade within Mercosur has been increasingly regulated under President Cristina Fernández de Kirchner: imports from Brazil decreased by over one-fifth from 2011 to 2012 alone.
Few were hopeful that a viable proposal to present to the European Union would come out of last week’s Mercosur meetings in Asunción—particularly given Argentina’s tendency to drag its feet. But those skeptics, however abundant, were proven wrong.
Much of the unexpected progress might be credited to ultimatums articulated by the Brazilian government in late February, after bilateral EU-Brazil meetings in Brussels. Labeling Argentina a “stumbling block,” Katia Abreu, president of the Brazilian Confederation of Agriculture and Livestock and Brazilian senator, expressed Brazil’s hope for Argentina’s full participation—but their willingness to move forward without their southern neighbor.
Whatever the cause, Argentina’s change of heart certainly enabled a forward surge in the process. Even Uruguayan president José Mujica echoed the pleasant surprise at the newly reached agreement, explaining that the process “took time and effort, but believe it or not, we managed to make it.”
Q2: What does the new Mercosur proposal entail, and what comes next?
A2: Initially, the overall reduction in tariffs was estimated at about 80 percent, with all four Mercosur partners taken into account. On an individual basis, this entailed a 95 percent reduction in Paraguay, 93 percent in Uruguay, 88 percent in Brazil, and just 76 percent in Argentina.
Last week’s meetings, however, saw significant progress—and unexpected flexibility from Argentina, which made substantial compromises in key sectors, including dairy, wheat, and the auto industry.
Through the negotiations, the four countries agreed to a proposal that would reduce total trade barriers with the European Union by 87 percent, with the goal of eventually reaching 90 percent reduction.
Both Mercosur and the European Union have, at this point, finalized their proposals. The next step involves the two formally exchanging their proposed agreements. After a review process, formal negotiations will begin to hammer out the specifics of the full trade agreement.
Q3: What could the advancement in the EU-Mercosur process mean for the future of Mercosur?
A3: Critics of Mercosur have long noted that the group, however effective at liberalizing in-bloc trade, has struggled to negotiate and implement trade agreements between Mercosur and external actors. Based on ideological parity (rather than, for example, parallel macroeconomic policy), Mercosur’s members have, at times, butted heads over the future trajectory of the bloc’s external trade policy.
This has been particularly noticeable, at least in recent months, with respect to Brazil. The bloc’s largest member in GDP, in population, and in sheer area, Brazil has sought an increasing role in global affairs—political and economic alike. And as Brazil’s bilateral meetings with the European Union in February demonstrate, the country appears both willing and able to venture out on its own, regardless of Mercosur’s trajectory.
Argentina’s willingness to compromise in the EU trade deal, however, might demonstrate the opposite. Whatever skeptics’ hesitations about Mercosur, the bloc’s members appear willing to adapt to changing circumstances—and to Brazil’s changing attitudes on the global stage. With Brazilian leadership, Mercosur’s membership fell in line. In that light, then, Mercosur may have a longer shelf life than its critics anticipated.
Conclusion: With the recent forward movement in the negotiations, the EU-Mercosur trade deal is much farther along than many believed possible. And with the upcoming exchange of proposals, it seems more likely than ever that a meaningful trade agreement could materialize in the near future.
Brazil’s leadership in this process is irrefutable, with its prioritization of trade deals abroad among the key drivers of Mercosur’s willingness to pursue the same. And Argentina’s willingness to compromise has, without a doubt, proven a key factor in moving the process forward.
But whoever deserves the credit for the recent progress, one thing is sure: Mercosur is taking steps to ensure its relevance in South American and global commerce alike for the foreseeable future.
Carl Meacham is director of the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Jillian Rafferty, program coordinator of the CSIS Americas Program, provided research assistance.
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