The EU-Mercosur negotiations

Everton Vieira Vargas is the Ambassador of Brazil to the European Union and Head of the Mission of Brazil to the EU

The ongoing shifts in the global economy make the strategic case for an EU-MERCOSUR agreement as compelling as the economic benefits deriving therefrom. Now is the moment to make decisions that will shape our future economic relations.

The World Trade Organization (WTO) recently forecast an increase of 4.4% in global trade of goods in 2018. This prospect is very welcome as it shows that the world economy is leaving behind, ten years on, the crippling effects of the financial and economic crisis that began in 2008. Yet, as the WTO itself cautions, this projected expansion might be undercut by an upsurge in restrictive trade policies, such as the ones we are starting to see emerge.

Against this background, the European Union and the countries of MERCOSUR (Argentina, Brazil, Paraguay and Uruguay) are working to finalise one of the largest ongoing trade negotiations in the world. By bringing together a combined GDP of approximately €15.3 trillion and a market of 750 million people, an EU-MERCOSUR trade agreement would signal a renewed commitment to international trade as a driver of sustainable growth, employment, competitiveness and development.

From the Brazilian perspective, this trade agreement can intensify our already dense economic relations with the EU. Brazil ranks as the sixth main investor in the EU (offshores excluded), where it manufactures airplanes, engines and food products, amongst others. Conversely, Brazil is the third destination of EU investment stocks in the world. Brazil often provides a relevant – if not the largest – share of the profits for European companies. Bilateral trade reached €54 billion in 2017, one of Brazil´s largest trade volumes. Government procurement and geographical indications have large untapped potential. Thus, there is much to be gained by both sides from stimulating more trade flows, investments and an increased presence in each other’s economies.

Whereas trade negotiations have never been simple endeavours, given the technical and political complexities surrounding them, the present moment is particularly intricate. To be sure, we need to address the legitimate concerns of our citizens who expect trade agreements to deliver fair and balanced results for all. This explains why Brazil has consistently defended, for instance, that trade negotiations – including EU-MERCOSUR – incorporate carve-outs for areas such as public health, education, environmental protection and development policies.

But challenges on a different level emerge as the world experiences the significant political, economic and social rearrangements we are witnessing now. As with many other global players, these structural shifts may affect how Brazil interacts with the global economy in the foreseeable future.

One likely scenario points in the direction of a more internationalised and diversified Brazilian economy, where the relative economic position currently enjoyed by the EU with regard to Brazil is challenged.

Elements supporting this trend can already be perceived:

In 2017, the EU lost its traditional position as Brazil’s main trading partner, having been overtaken by China, which now accounts not only for Brazil’s largest trade volume but also for a significant part of our foreign trade surplus. Also in 2017, Brazil ranked as the sixth global destination for foreign direct investment as its economy increasingly appeals to investors worldwide.

Brazil and its MERCOSUR partners are also expanding their network of free trade agreements. Negotiations are ongoing with the EFTA countries (Iceland, Liechtenstein, Norway and Switzerland); earlier this year negotiations with Canada were kicked off and negotiations with South Korea are expected to start in the near future. MERCOSUR is expanding its preferential trade agreement with India, and conducting trade negotiations with Lebanon and Tunisia. We are also holding dialogues, in view of opening trade negotiations with other partners, such as Japan, Singapore, and New Zealand. By 2019, most of South America will be in practice a free trade area, as tariffs are dismantled thanks to a number of regional agreements. MERCOSUR countries are working with the Pacific Alliance (Chile, Colombia, Mexico and Peru) to take advantage of the opportunities that emerge from removing barriers to trade and investment.

The EU-MERCOSUR trade negotiations should be approached having this backdrop in mind. In particular, it should be understood that MERCOSUR does not fit neatly under any of the categories of trading partners with whom the EU has signed agreements in the past.

The South American bloc is a key global supplier of foodstuffs, at the same time it displays a solid industrial base and promising markets for a sizeable range of consumer goods and services. These particular features make this negotiation quite unique. Negotiations need to strike the right balance if they are to succeed – and this applies in particular to the interplay between agricultural and industrial goods. There is no room for an agreement in which only one side’s views or interests prevail.

Negotiators from both sides have so far been able to gradually iron out differences and agree on acceptable compromises. Not surprisingly though, the pending issues at this advanced stage of the talks are those that elicit more complexities: market access for agricultural goods, trade and rules of origin in the automotive sector and geographical indications.

We find ourselves at a critical juncture in the EU-MERCOSUR negotiations. It is crucial to be able to take a step back and appreciate the broader context in which this process fits in. The negotiations starting this week, when we expect the EU to reciprocate our commitment to reaching a balanced agreement, are key to bringing the talks closer to a successful conclusion.