Impact of Mercosur on the EU's agricultural sector

#CriticalThinking

Picture of Czesław Siekierski
Czesław Siekierski

Chair of the Committee on Agriculture and Rural Development at the European Parliament

Czesław Siekierski is Chair of the Committee on Agriculture and Rural Development at the European Parliament

In the face of growing protectionism, the European Union has an opportunity and a necessity to become a creator of global solutions in international trade.

The EU has good experience in harmonising standards from its construction of a common market based on the four freedoms. Until recently, it was assumed that the Transatlantic Trade and Investment Partnership (TTIP) agreement would be a model treaty for world trade, but the decision of the Trump administration to freeze negotiations has dispelled this hope. In the meantime, the EU has concluded agreements with Canada and Japan, and though their scope cannot match that of TTIP, they are still considered innovative.

The EU-Mercosur agreement has a greater potential in this respect, especially in the agri-food sector. The European Commission believes that profits from reducing tariffs in trade with Mercosur would be three times greater for the EU than the total coming from trade agreements with Japan and Canada. Yearly, EU countries pay about €4.5 bn in duties from goods exported to Mercosur countries. A change in duties would reduce these expenses, although part of the duties will continue to apply as the market will probably not be fully open.

The countries belonging to the Common Market of the South (Mercosur) ‒ Argentina, Brazil, Paraguay, and Uruguay (Venezuela has an observer status in the negotiations) ‒ form a large and dynamic growing market of over 260 million consumers. Mercosur countries are among the most competitive agricultural producers in the world due to good soils, favourable climate, high firm concentration and lower production standards. By far the largest economy of this group is Brazil, which in 2016 generated almost 60% of the export of agri-food products of the Mercosur countries. Argentina comes second with about 30%. Only Uruguay and Venezuela were net food importers.

Negotiations on trade liberalisation between the EU and the Mercosur countries have been ongoing since 1999

The EU is an important trading partner for Mercosur. In 2016, the value of imports and exports amounted to €42-43 bn. About half of the sales value of Mercosur countries to the EU are food products including meat, soya, coffee, and processed products. Europe mainly sends industrial goods to Mercosur.

Negotiations on trade liberalisation between the EU and the Mercosur countries have been ongoing since 1999. The parties exchanged offers for the first time in 2004, but reluctance on both sides to change their approach on the most important issue ‒ greater openness of the EU agricultural market to South American food products ‒ led to a 6-year freeze of negotiations.

The talks started again in 2010 and have gathered momentum in the last two years; from 21 February to 3 March of this year, the 32nd round of EU-Mercosur negotiations took place in Paraguay.

The EU is committed to opening a large Mercosur market mainly for industrial and dairy products.

However, MEPs in the Agriculture Committee of the European Parliament have repeatedly raised the concerns of the EU agricultural sector towards the excessive opening of the Union to certain products such as beef, poultry, bioethanol and sugar from Mercosur countries. The assessment of the cumulative impact of negotiated trade agreements on European agriculture carried out by the European Commission at the end of 2016 clearly showed the risk of serious losses on the European side in the event of excessive liberalisation of trade with certain South American agricultural products.

EU producers are also concerned about lower food quality standards in South America

Farmers in the EU are afraid of a drop in prices which could result in a loss of jobs due to easier access to cheaper food products from Mercosur countries. What is highly controversial is the size of future imports of beef; the EU expressed its readiness to accept a duty-free quota of 99,000 tonnes (previously 70,000 tonnes).

The situation is exacerbated by the declining demand for red meat in Europe. European Commission data shows that today it is 10% lower than in 2007, and by 2026 it is to drop by 16%. Representatives, including from Ireland, point out that a large proportion of their beef is consumed in the United Kingdom. If beef becomes taxed after Brexit, the Irish would have to sell their surplus in other EU countries. The possible exclusion of the UK from the Mercosur agreement will reduce the future absorption of the EU market, and might break down talks.

EU producers are also concerned about lower food quality standards in South America and the need for agricultural producers in the EU to incur additional costs related to animal welfare, environmental requirements and climate protection. Producers further alert us that as a result of the inflow of cheaper products from Mercosur countries, consumers can get lower food prices, but at a loss in terms of quality. With the probable reduction in the scale of food production in Europe, this may translate into a decrease in our food security.

Protests against the Mercosur agreement mainly come from beef or poultry producers in the EU. However, their situation has a domino effect on all aspects of the entire food processing sector, including on the production of grain; feed and more broadly, fertilisers; plant protection products; machinery and equipment; and solutions in production. With strong competition from the United States or Asian countries, the EU’s acceptance of increased Mercosur trade towards industrial products may not compensate for the possible loss incurred by domestic consumers to agricultural producers from within the EU.

Brazilian authorities are now determined to ensure compliance with EU standards

With doubts on imported food from South America still prevalent, it is impossible not to refer to the loud scandal that broke out in March last year, related to poor quality of Brazilian meat and irregularities in issuing export licenses. The scandal concerned large exporters who corrupted the Brazilian control services. As a result, the EU has tightened its surveillance into the imports of meat products from Brazil.

Brazilian authorities are now determined to ensure compliance with EU standards in production and slaughter, especially considering that the European market is a catalyst for global exporting success. They have assured the EU that spending has been increased for appropriate training and employment in control services to counteract similar crises in the future. EU on-site observation also shows that the Brazilian exporters have the capacity to meet the high quality standards set by the EU.

The EU is working to convince partners to support its approach on international trade. However, the difficulty is the reluctance of the Mercosur countries to incur higher costs associated with broadly defined quality standards and environmental protection, including the issue of cutting the Amazon rainforest for cultivation and pasture. There is also the problem of unfair market play and speculation. In the globalised world, the importance of states is diminishing as the position of large corporations is growing. Therefore the role of states or international organisations is to create strong supervision over compliance with legal order.

New regulations are needed on trade rules at a global level to organise and harmonise production alongside an increase on social standards. Further liberalisation of world trade seems inevitable. Protectionist and populist tendencies should not manage to stop it. Trade has always been a factor that stimulates broadly understood development.

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