South American trade bloc signs ‘historic’ trade deal with EU

After two decades of negotiations, the new free trade agreement has become a reality.

Mercosur leaders /AP Images
The South American trade bloc known as Mercosur was established in 1991 and includes Argentina, Brazil, Paraguay and Uruguay [Matilde Campodonico/The Associated Press]

The European Union and South American bloc Mercosur have agreed to the draft of a free-trade treaty, both sides confirmed on Friday, ending almost 20 years of negotiations.

The two blocs began negotiating in 2000. They intensified efforts to reach an accord after United States President Donald Trump‘s election victory prompted the European Union to freeze talks with the US and look for other global trading allies.

That push has seen the European Union implement a free trade agreement with Canada and reach agreements with Japan and Mexico and now, after 39 rounds of talks, the EU has also reached a provisional deal with Mercosur, a grouping that consists of Argentina, Brazil, Paraguay and Uruguay.

European Trade Commissioner Cecilia Malmstrom said earlier this month that sealing a trade accord with Mercosur was her top priority.

The EU is already Mercosur’s biggest trade and investment partner and its second-largest partner for trade in goods.

In terms of tariff reduction, this could be the EU’s most lucrative trade deal to date, with the savings potentially four times greater than for deals with Canada and Japan combined.

Europe has its eyes on increasing access for companies that make industrial products – notably cars, for which tariffs are 35 percent – and allowing them to compete for public tenders. Mercosur aims to increase exports of beef, sugar, poultry and other farm products.

Brazil said the agreement would eliminate import tariffs for several farm products – including orange juice, instant coffee and fruit – and give greater access through quotas for meat, sugar and ethanol, boosting the economy and increasing investment in the country for the next 15 years.

Brazilian President Jair Bolsonaro said on Twitter that the deal was historic and one of the most important trade agreements of all time.

To date, the EU’s nerves about a surge of beef imports and Mercosur’s hesitation about opening up some industrial sectors, such as cars, have meant past deadlines have come and gone.

The agreement still faces a potentially difficult road to approval. France and other countries fear the impact of a sharp hike in beef imports, while environmental groups, whose influence is stronger in the new European Parliament, argue that the agreement could exacerbate deforestation.

EU countries and the European Parliament both need to give their backing for the agreement to be enforced.

Source: Reuters