World trade
The EU and Mercosur want to pave the way for a huge free trade zone
Tariffs are to be reduced between Europe and South America and business is to be stimulated. Companies hope for new markets and increasing sales. Farmers and environmentalists are critical of the contract.
For almost a quarter of a century, negotiators on both sides of the Atlantic have fought bitterly over details – now the free trade agreement between the European Union and the South American economic alliance Mercosur is finally to be concluded. At a Mercosur summit in Uruguay’s capital Montevideo, EU Commission President Ursula von der Leyen and the presidents of Brazil, Argentina, Uruguay and Paraguay want to announce an agreement today. The agreement would create one of the world’s largest free trade zones with more than 700 million people.
What does the EU hope to achieve from the free trade agreement?
Ultimately, it’s about jobs and prosperity. European companies should have new growth opportunities through better access to the markets in the Mercosur countries. Up to now, importers of EU goods have sometimes had to pay very high tariffs, which are damaging to competitiveness. For example, for cars it is 35 percent, for machines 14 to 20 percent and for chemicals up to 18 percent. The tariffs are now to be gradually reduced. Ultimately, several billion euros in taxes could be saved each year.
What makes Mercosur so interesting for the EU?
More than 260 million people live in the four Mercosur countries. Together they form the fifth largest economic region in the world with an annual gross domestic product of 2.2 trillion euros. Last year they imported goods from the EU worth 55.7 billion euros, while the export volume in the opposite direction was 53.7 billion euros. According to EU figures, a total of 60,500 European companies could benefit.
Will consumers also benefit?
Trade liberalization could reduce prices for imported products from Mercosur countries – for example meat, fruit, soy, coffee and sugar. In order to protect EU agriculture, the markets for certain agricultural products should not be completely opened. The customs relief would only apply to a certain delivery quantity.
Why do environmentalists criticize the free trade agreement?
They fear that the new sales opportunities for agricultural products could fuel environmental destruction, for example in the Amazon rainforest. The environmental organization Greenpeace assumes that deforestation rates in the Mercosur region will increase by five percent per year over the next six years due to higher import quotas for beef. Decreasing tariffs on pesticides and plastics could increase plastic pollution in South America and endanger biodiversity.
What do European farmers have against the contract with Mercosur?
Farmers in Europe fear that they will not be able to compete with large South American farmers. Mercosur produces on a much larger scale, which brings cost advantages. European farmers also complain that stricter rules apply to them, for example when it comes to environmental protection and food safety, than their South American competitors.
How do the EU and the federal government react to the criticism?
They reject most of the allegations as unjustified and emphasize that the overall economic benefits clearly outweigh the negatives. On the subject of pesticide use, the Federal Ministry of Economics explains that all imports must continue to comply with the legal requirements of the European Union. This means that the maximum residue levels applicable in the EU must not be exceeded. In general, only products that comply with extensive European regulations may be imported into the EU.
Why is the deal so important for the EU?
The future US President Donald Trump announced new tariffs before he took office, fueling fears of an even more protectionist US trade policy. The European Union is therefore interested in broadening its economic relations. There is also a risk that the Mercosur states will turn to China even more than they already do if the EU does not become more involved there. China is already the most important trading partner for a number of countries in the region, such as Brazil.
EU states such as France are against the agreement because of farmers’ protests. Can it take effect against their opposition?
Actually not. Since the agreement contains not only trade agreements but also agreements on political dialogue and cooperation, it should actually be submitted to all member states for ratification. However, the EU Commission responsible for the negotiations could try to split the political part from the commercial part. The trade part could then be adopted by a majority vote by the Council of EU states and would only have to be submitted for approval to the European Parliament and not to national parliaments. However, it is unclear whether such an approach would pose legal risks.
When could the agreement be formally signed?
When the negotiations conclude this Friday, the negotiated text would still have to undergo legal review and be translated into all the languages of the contracting states. A signing is therefore not expected until the second half of next year.
dpa
Source: Stern
