Mercosur and European Union seal free trade agreement after 20 years of negotiations

After 20 years of negotiations, Mercosur and the European Union (EU) sealed on June 28, 2019 a historic free trade agreement between the two blocs, which together represent about 25% of world’s GDP and a consumer market of 780 million people.

The pact involves the 28 nations of the EU and the four Mercosur countries (Brazil, Argentina, Uruguay and Paraguay) covering both tariff and regulatory issues such as services, government procurement, trade facilitation, technical barriers, sanitary measures phytosanitary and intellectual property.

Among other points, the treaty aims to speed up and reduce the costs of goods transactions, so that traded products between the blocks have their tariffs progressively reduced over the next 15 years.

With this commitment, the European bloc becomes the second largest trading partner of the South American bloc, second only to China. This ends Mercosur's commercial isolation and also it may promote agreements with other strategic partnerships.

The Brazilian government's foresees that there will be an increase in investments in Brazil of USD 113 billion and an increase in exports to the EU of USD 100 billion by 2035.

Brazilian companies will benefit from the elimination of tariffs on the export of industrial products. As a result, competition with other trading partners that already have agreements with the European bloc will be equated.

There is also the expectation that the reduction of barriers and the alignment of the rules will impel the transit of Brazil in the global value chains, to contribute to the economic development with the generation of new businesses.

Tariff aspects of the treaty

Due to the undertaking, when the free trade agreement is effective, the following tariff issues will be executed:

• Removal of tariffs on 91% of the products that the European Union exports to Mercosur;

• Removal of tariffs of 92% of the products that Mercosur exports to the European Union;

• Removal of tariffs for the export of Brazilian industrial products;

• Elimination of tariffs on Brazilian agricultural products, such as orange juice, fruits, soluble coffee, fish, crustaceans and vegetable oils;

• Preferential access of Brazilian exporters to beef, pork and poultry, sugar, ethanol, rice, eggs and honey;

• Elimination of export tariffs for European products from various sectors (vehicles and parts, machinery, chemicals and pharmaceuticals, clothing and shoes and textiles);

• Phasing out tariffs for chocolates and sweets, wines and other alcoholic beverages and soft drinks from the European Union;

• Creation of quotas for duty-free imports of dairy products, such as cheese, from the EU.

Other highlights

Among the non-tariff aspects, we highlight the following:

• The agreement broadens the degree of liberalization of trade in services, which includes telecommunications, financial services, among others;

• Possibility of companies from EU and Mercosur participate in public tenders in the two blocks;

• Commitment to reduce bureaucracy and costs in trade between blocks;

• Commitment to reduce barriers to e-commerce and to promote a safe environment for consumers.

Issues related to environmental, health and abolition of slave and child labor are also covered by the treaty.

Next Steps

The text of the free trade agreement will still be revised and its final version translated and then sent to the evaluation of the involved parties.

The treaty should take time to entry into force, as the parliaments of the 32 countries involved still need to endorse. In addition, the boards of each economic bloc will analyze the document.

The ratification process of the trade agreement is estimated to take, at least, three years.