Mercosul and European Union close free trade agreement

At a ministerial meeting held in Brussels on 27 and 28 June, negotiations on the commercial part of the Association Agreement between MERCOSUL and the European Union (EU) were concluded. Brazil's 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, participated in Brazil.

The agreement marks a historic milestone in the relationship between MERCOSUL and the European Union, which together account for around 25% of world GDP and a market of 780 million 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 MERCOSUL. 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 distinctive 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 commitments assumed 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 MERCOSUL-EU agreement will represent an increase of Brazilian GDP of US $ 87.5 billion over 15 years, and could reach US $ 125 billion 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 $ 113 billion. Regarding bilateral trade, Brazilian exports to the EU will present almost US $ 100 billion in earnings by 2035.

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

Posted by: Marina Carvejani
Author: Laís Martins
Source: Noticias Agrícolas