After years of lobbying, protests, and negotiations, the Mercosur-EU Trade Agreement was finally ratified this Friday. This agreement could significantly impact Argentina’s economic activities in the coming years. The agricultural sector is considered one of the primary beneficiaries of this free trade deal, as it expands the opportunity to export various food products to the European market, one of the most affluent in the world.
Broader Scope of the Negotiations
The Mercosur-EU Trade Agreement goes far beyond agriculture. It includes chapters on Market Access, Rules of Origin, Sanitary and Phytosanitary Measures, Technical Barriers to Trade, Trade Defense, Subsidies, Services and Establishment, Public Procurement, Intellectual Property, State-Owned Enterprises, Competition Policy, Customs and Trade Facilitation, SMEs, Transparency, Trade and Sustainable Development, Dispute Resolution, and Political Dialogue and Cooperation.
Argentina’s Ministry of Economy report states, “The EU is a desirable partner for our region. With over 500 million inhabitants and an average purchasing power of $34,000 annually, it represents about 20% of the global economy and a third of global imports.”
Opportunities for Argentine Companies
The Mercosur-EU Trade Agreement will create significant commercial opportunities for Argentine businesses. Mercosur secured larger quotas than the EU granted in other free trade agreements. The EU will offer tariff-free access to 92% of Mercosur exports, with shorter tariff reduction schedules than Mercosur’s. The average tariff on agro-industrial products exported to the EU is 12.6%.
From this perspective, the agreement is seen as an opportunity rather than a threat. The Ministry of Economy predicts that “the agreement will enable Mercosur companies to lower the cost of imported inputs, boosting their productivity and competitiveness. Consequently, the benefits will extend to many industrial sectors that can source inputs at more competitive prices.”
The Importance of the EU for Argentina
The EU is Argentina’s second-largest export destination, accounting for approximately $9 billion annually. Moreover, the EU is the largest investor in the country, with foreign direct investment (FDI) exceeding $35 billion, representing 45% of the total. The Mercosur-EU Trade Agreement is expected to strengthen this relationship further, opening new avenues for growth and investment.
Tariff Reduction Timelines and Market Access
In the chapter on market access, the Mercosur-EU Trade Agreement regulates the conditions and timelines for tariff reduction on products from both parties. The EU has committed to faster tariff reductions (with a maximum schedule of 10 years) compared to Mercosur, which will have up to 15 years to adapt its industries to the competition. This is part of a “special and differentiated treatment” approach.
Approximately 74% of EU imports from Mercosur will have tariffs eliminated immediately, with only 0.3% of trade excluded from the negotiations. Conversely, Mercosur will immediately eliminate tariffs on just 14% of products, with 9% of EU imports excluded from tariff reductions to protect sensitive sectors.
Key Benefits for Argentine Agriculture
The EU will eliminate tariffs on approximately 82% of agricultural product exports and provide partial reductions (through quotas or fixed preferences) for 17.7%. Of the 82% that will reach zero tariffs, 70% will be eliminated immediately upon the Mercosur-EU Trade Agreement’s implementation, while the remaining 12% will phase out over 4 to 10 years.
For products subject to tariff quotas, such as beef, pork, poultry, corn, milk, cheese, rice, ethanol, honey, and eggs (among others, including sugar), the EU has granted a quota of 99,000 tons for Mercosur beef, nearly doubling current export levels. Argentina, Brazil, Paraguay, and Uruguay are already the EU’s largest beef suppliers. Furthermore, the tariff under the Hilton Quota (20%) will be immediately eliminated upon the agreement’s activation.
Export Duties and Subsidies
An interesting development for Argentine agriculture is the agreement to eliminate and refrain from reintroducing export duties in reciprocal trade, albeit with specific exceptions and transition periods. The Mercosur-EU Trade Agreement also addresses the issue of export subsidies, which significantly affect agricultural trade.
The Ministry of Economy clarified that “Argentina will maintain export duties on certain products destined for the EU, as specified in an annex. For these products, maximum duty levels were established (e.g., 14% for oilseed products) or phased elimination schedules, which will be progressively implemented over four to eleven years after the agreement takes effect.”
Both parties agreed to address export subsidies through a chapter that promotes transparency and cooperation on subsidies within the World Trade Organization (WTO) framework.
Modern Customs Procedures
The EU and Mercosur are committed to implementing modern customs procedures under the Mercosur-EU Trade Agreement, including advanced technologies to streamline the release of goods, reduce operation times, and manage risks effectively. These measures include allowing documentation submission before the arrival of goods. Perishable products will receive priority treatment, and expedited claim mechanisms will be established.
Sanitary and Phytosanitary Measures
The agreement includes provisions to ensure that sanitary and phytosanitary measures do not become unjustified trade barriers. These measures are based on scientific evidence, offering Argentine products preferential access to the European market compared to other suppliers under the Mercosur-EU Trade Agreement.
Geographic Indications
The agreement also addresses geographic indications (GIs). The EU will recognize 220 Mercosur GIs, including 104 from Argentina, which could significantly benefit regional economies. Conversely, Mercosur will protect 355 EU GIs. Some iconic EU names will see phased-out usage over long grace periods, allowing products to be renamed and repositioned in markets.
Challenges and Future Implementation
Despite signing the Mercosur-EU Trade Agreement, a lengthy process still needs to be completed before it takes effect. This includes legal and formal reviews of the texts, provisional applications, and final implementation. Such processes can take months or even years. For instance, the agreement with Canada took four years to finalize, and the Mercosur deal may face even more delays, mainly due to opposition from influential EU countries like France.
Conclusion
The Mercosur-EU Trade Agreement presents substantial opportunities for Argentina’s agricultural sector, mainly through expanded access to the European market and reduced trade barriers. However, its full implementation will require overcoming political and administrative challenges. The agreement can significantly enhance Argentina’s position in global agricultural trade if successful.