European Union and Mercosur reach historic agreement

Today, the European Union and Mercosur reached a historic trade agreement in Brussels, Belgium, after a 20-year negotiation. The agreement involves goods, services, investments, and purchases.

This is the second largest agreement ever closed by the European Union, losing only to one signed with Japan. The details will be presented at the G20 meeting in Osaka, Japan.

Día histórico, ya es oficial: el #Mercosur y la UE alcanzaron un acuerdo después de 20 años de negociaciones. Un enorme paso para el bloque y su apertura comercial #AcuerdoMercosurUE pic.twitter.com/YRNAdqxXj0

— MERCOSUR (@mercosur) June 28, 2019

According to a statement from the European Commission, the agreement upholds the highest standards of food safety and consumer protection, as well as the precautionary principle for food safety and environmental rules and contains specific commitments on labor rights and environmental protection, including the implementation of the Paris climate agreement and related enforcement rules.

President of the European Commission Jean-Claude Juncker said: “I measure my words carefully when I say that this is a historical moment. In the midst of international trade tensions, we are sending today a strong signal with our Mercosur partners that we stand for rules-based trade. Through this trade pact, Mercosur countries have decided to open up their markets to the EU. This is obviously great news for companies, workers and the economy on both sides of the Atlantic, saving over €4 billion worth of duties per year. This makes it the largest trade agreement the EU has ever concluded. Thanks to the hard and patient work of our negotiators, this is matched with positive outcomes for the environment and consumers. And that’s what makes this agreement a win-win deal.”

After the signature, the treaty must go through the scrutiny of the Parliaments of all countries involved, aside from the parliamentarians of the European Union. In the meantime, it can take effect with transitional rules.

The following is the joint statement released today by the Ministry of Economy and Foreign Affairs confirming the partnership:

Joint Note from Ministry of Economy and Ministry of Foreign Affairs

Conclusion of the Negotiations on the Agreement between MERCOSUR and the European Union – Brussels, 27 and 28 June 2019

At a ministerial meeting held in Brussels on 27 and 28 June, negotiations on the commercial part of the Association Agreement between MERCOSUR and the European Union (EU) were concluded. Brazil’s participants were the Minister of Foreign Affairs, Ernesto Araújo, the Minister of Agriculture, Livestock, and Supply, Tereza Cristina, and the Special Secretary for Foreign Trade and International Affairs of the Ministry of Economy, Marcos Troyjo.

The agreement marks a historic milestone in the relationship between MERCOSUR and the European Union, which together account for around 25% of world GDP and a market of 780m people. In the face of tensions and uncertainties in international trade, the conclusion of the agreement underscores the two blocs’ commitment to economic openness and the strengthening of competitiveness.

The trade agreement with the EU will be one of the largest free trade areas in the world. Because of its economic importance and the scope of its disciplines, it is the largest and most complex agreement ever negotiated by MERCOSUR. It covers both tariff and regulatory issues, such as services, government procurement, trade facilitation, technical barriers, sanitary and phytosanitary measures, and intellectual property.

Under the agreement, agricultural products of great interest in Brazil will have their tariffs eliminated, such as orange juice, fruit and soluble coffee. Brazilian exporters will gain access to quotas, for meat, sugar and ethanol, among others.

Brazilian companies will benefit from the elimination of export tariffs of 100% of industrial products. This will equalize the conditions of competition with other partners that already have free trade agreements with the EU.

The agreement will recognize as distinctives of Brazil several products, such as cachaças, cheeses, wines and coffees. The agreement will guarantee effective access in several service segments, such as communication, construction, distribution, tourism, transportation and professional, and financial services.

In public procurement, Brazilian companies will gain access to the EU bidding market, estimated at US $ 1.6 trillion. The assumed commitments will also streamline and reduce the costs of import, export and transit of goods.

The agreement will provide an increase in competitiveness of the Brazilian economy by guaranteeing, for domestic producers, access to inputs with a high technological content and with lower prices. Reducing barriers and greater legal certainty and transparency of rules will facilitate the insertion of Brazil into global value chains, generating more investment, employment and income. Consumers will also benefit from the agreement, with access to a greater variety of products at competitive prices.

According to estimates by the Ministry of Economy, the MERCOSUR-EU agreement will represent an increase of Brazilian GDP of US$87.5bn over 15 years, and could reach US$125bn considering the reduction of non-tariff barriers and the expected increase in productivity of the factors of production. The increase in investments in Brazil, in the same period, will be in the order of US$113bn. Regarding bilateral trade, Brazilian exports to the EU will present almost US$100bn in earnings by 2035.

The EU is MERCOSUR’s second trading partner and the first on investment. MERCOSUR is the EU’s eighth largest non-regional trading partner. The bi-regional trade flow was more than US$90bn in 2018. By 2017, the EU’s stock of investments in the South American bloc amounted to about US$433bn. Brazil registered, in 2018, trade of US$76bn with the EU and a surplus of US$7bn. Brazil exported more than US$42bn, approximately 18% of the total exported by the country.

Brazil stands out as the largest destination of direct foreign investment (FDI) of the EU countries in Latin America, with almost half of the investment stock in the region. Brazil is the fourth largest destination of FDI in the EU, which is distributed in sectors of high strategic value

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