On 23 August 2019, MERCOSUR and the European Free Trade Association (EFTA), a bloc comprised of Switzerland, Norway, Iceland and Liechtenstein, concluded free trade agreement negotiations in Buenos Aires. The negotiations between the two blocs were launched in January 2017 and concluded after ten rounds.
The conclusion of the MERCOSUR-EFTA agreement is one of the outcomes of the efforts to expand the network of trade agreements of Brazil and MERCOSUR and took place shortly after the conclusion of the MERCOSUR-European Union agreement, in June 2019.
With a $1.1 trillion GDP and a population of 14.3 million, EFTA is the ninth largest actor in the global trade in goods and the fifth largest in trade in services. The bloc has 29 other trade agreements signed, and its four member countries are among the world’s highest per capita GDPs and make up a consumer market of great global weight.
The MERCOSUR-EFTA agreement sets out commitments to tariff reduction and elimination as well as regulatory commitments in trade in services, investment, government procurement, trade facilitation, customs cooperation, technical barriers to trade, sanitary and phytosanitary measures, trade defense, competition, sustainable development, rules of origin, and intelectual property.
The agreement will expand markets for Brazilian goods and services and will enhance competitiveness of the Brazilian economy by reducing production costs and granting access to high-technology goods at lower prices. Consumers will benefit from the access to a wider variety of products at competitive prices.
With the entry into force of the Agreement, Brazil will benefit from the immediate elimination of EFTA States duties on imports of 100 percent of industrial goods. The agreement will also allow for preferential access to the main Brazilian agricultural exports through the elimination of duties or through quotas and other types of partial concessions. It will also offer new trade opportunities for beef, chicken meat, corn, soy bran, sugar cane syrup, honey, roasted coffee, fruit and fruit juices.
The commitments assumed will help streamline and reduce costs of import, export and transit procedures as well as integrate the Brazilian economy into bilateral, regional and global value chains.
The agreement will ensure reciprocal access to services sectors including communication, construction, distribution, tourism, transportation and professional and financial services. It will provide for obligations in public procurement transparency and will foster competition in government procurement, thus optimizing the cost-benefit ratio of public tenders and saving public resources. Commitments under the agreement will grant Brazilian companies access to EFTA’s public procurement market, estimated at nearly $85 billion.
The commitments in technical barriers to trade consolidate the agenda of good regulatory practices that Brazil has been adopting over the past years while at the same time preserving the regulatory capacity of the government.
Brazil’s Ministry of Economy estimates that the MERCOSUR-EFTA agreement will represent a $5.2 billion increase in the Brazilian GDP over a period of 15 years. An increase of $5.9 billion and of $6.7 billion in total Brazilian exports and imports respectively is estimated, thus totalling a $12.6 billion increase in the Brazilian trade flow. A substantial increase of investments in Brazil, of nearly $5.2 billion, is also expected in the same period.
In 2018, trade flow between Brazil and EFTA reached $4.5 billion, with exports worth $1.7 billion and consisting mainly of gold, chemicals such as aluminium oxide, coffee, soy, beef and food preparations, and imports valued at $2.8 billion and mainly comprising of organic pharmaceuticals and chemicals, machinery and equipment, oil and gas, fish and crustacean.
EFTA is an important partner of Brazil in services and investments. Brazil’s National Confederation of Industry estimates that trade flow of services totals nearly $4 billion. Switzerland, the largest EFTA economy, is the fifth-largest foreign direct investor in Brazil by the criterion of final controller, with a stock of $24.4 billion in 2017, about 5% of the total stock. Swiss direct investments are concentrated in the financial sector, insurance, transformation industry and commerce. On the other hand, according to the Brazilian Central Bank, Brazilian direct investments in EFTA countries amounted to $1.8 billion in 2017. Brazilian investments in EFTA are mainly found in the financial, paper and cellulose production, and mining sectors.