On June 27 and 28, trade negotiations on the Association Agreement between MERCOSUR and the European Union (EU) were concluded at a ministerial meeting held in Brussels. On the Brazilian side, the 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, took part in the negotiations.
The agreement represents a historic milestone in the Mercosur-EU relations. The two blocs together represent nearly 25% of the world’s GDP and a market of about 780 million people. Amid tensions and uncertainties in international trade, the conclusion of the agreement underlines the commitment of the two blocs to opening up their economies and bolstering competitiveness.
The trade deal with the EU will comprise one of the world’s largest free trade areas. Because of its economic importance and the scope of its disciplines, the agreement is the most comprehensive and complex ever negotiated by MERCOSUR. It covers both tariff and regulatory issues, including services, government procurement, trade facilitation, technical barriers, sanitary and phytosanitary measures and intellectual property.
Under the agreement, import tariffs on Brazilian high-value agricultural products such as orange juice, instant coffee and fruits will be eliminated. Brazilian exporters will gain more market access for products including meat, sugar and ethanol through quotas. Brazilian companies will benefit from the elimination of export tariffs on all industrial products. This will ensure equal conditions for competition with other partners that have entered into free trade agreements with the EU.
The agreement will also recognize several products such as “cachaça”, cheese, wine and coffee as distinctive of Brazil.
It will guarantee effective access to a number of service sectors including communication, construction, distribution, tourism, transportation and professional and financial services. In the field of public procurement, Brazilian companies will be given access to the EU bidding market, estimated at $1.6 trillion. The deal will also streamline procedures and reduce costs with respect to import, export and transit of goods.
The agreement will bolster competitiveness of the Brazilian economy by granting domestic producers access to high-technology and lower-priced inputs. Reducing barriers and ensuring greater legal security and transparency rules will help Brazil enter global value chains, thus generating more investment, employment and income. Consumers will also benefit from the agreement, gaining access to a greater variety of products at competitive prices.
According to estimates by the Ministry of Economy, the MERCOSUR-EU agreement will increase Brazilian GDP by $87.5 billion in 15 years. This amount may reach $125 billion taking into account the reduction of non-tariff barriers and the expected increase in the overall productivity of factors of production. In the same period, investments in Brazil are expected to increase in the order of $113 billion. As for bilateral trade, Brazil’s exports to the EU will register an increase of nearly $100 billion in earnings by 2035.
The EU is MERCOSUR's 2nd biggest trading partner and its largest investor. MERCOSUR is EU's 8th largest non-regional trading partner. In 2018, trade between the two blocs totalled more than $90 billion. In 2017, the EU's stock of investments in the South American bloc totalled around $433 billion. In 2018, trade between Brazil and the EU amounted to $76 billion, with a Brazilian surplus of $7 billion. Brazilian exports reached over $42 billion, nearly 18% of the country’s total exports. Brazil stands out as the main Latin American destination of EU foreign direct investments (FDI), accounting for almost half of the stock of investments in the region. Brazil is the fourth-largest destination of EU’s FDI in sectors of high strategic value.