After over 20 years of back-and-forth negotiations, diplomats have finally agreed to terms on the Mercosur-EU free trade deal. It is, by far, the biggest deal of its kind in the history of the South American bloc, and it creates one of the biggest free trade zones in the world—set to generate an extra USD 87.5 billion for Brazil’s GDP over the next 15 years.

The Mercosur-EU deal is also the first major diplomatic victory for the Jair Bolsonaro administration, after a rocky start at the G20 summit in Osaka, which included squabbles with leaders from Germany and France—not to mention the arrest of a Brazilian Air Force sergeant (who was a part of the presidential convoy) carrying 39 kilos of cocaine in Seville earlier this week.

</span></p> <p><span style="font-weight: 400;">According to the Economy Ministry, the benefits for Brazil may reach up to USD 125 billion, considering the lowering of tariff barriers and bumps in productivity. The Brazilian government also expects a further USD 113 billion in investments to pour in, and USD 100 billion in gains originated from Brazilian exports to the EU until 2035.</span></p> <h2>The terms of the Mercosur-EU deal</h2> <p><span style="font-weight: 400;">A documented published by both blocs explains that the EU will open up 100 percent of its trade, while Mercosur will open 90 percent. Also, the Europeans offer full and immediate liberalization of tariffs for 80 percent of industrial products exported by Mercosur. The South American bloc will have up to 15 years to open up “sensitive sectors in a gradual way,” </span><a href="https://www.cancilleria.gob.ar/userfiles/prensa/28-06-2019_mercosur_-_ue.pdf"><span style="font-weight: 400;">says the document</span></a><span style="font-weight: 400;">.</span></p> <p><span style="font-weight: 400;">The EU will also liberalize 99 percent of Mercosur&#8217;s agricultural imports, eliminating import tariffs for 81.7 percent. For the remaining 17.7 percent, it will offer quotas or fixed preferred shares.</span></p> <p><span style="font-weight: 400;">For Brazil, that means no more tariffs for orange juice, fruits, and instant coffee. Products such as meat, sugar, and ethanol will be included in a quota system. Also, typical Brazilian products such as <a href="https://brazilian.report/money/2018/09/13/cachaca-spirit-brazil/">cachaça</a>, cheese, wine, and coffee will be recognized as &#8220;distinctive trademarks&#8221; belonging to the country.</span></p> <hr /> <p><img class="alignnone size-full wp-image-19893" src="https://brazilian.report/wp-content/uploads/2019/06/export-g0uog.png" alt="Mercosur-EU trade deal in numbers" width="1200" height="394" srcset="https://brazilian.report/wp-content/uploads/2019/06/export-g0uog.png 1200w, https://brazilian.report/wp-content/uploads/2019/06/export-g0uog-300x99.png 300w, https://brazilian.report/wp-content/uploads/2019/06/export-g0uog-768x252.png 768w, https://brazilian.report/wp-content/uploads/2019/06/export-g0uog-1024x336.png 1024w, https://brazilian.report/wp-content/uploads/2019/06/export-g0uog-610x200.png 610w" sizes="(max-width: 1200px) 100vw, 1200px" /></p> <hr /> <p><span style="font-weight: 400;">Meanwhile, 100 percent of Brazilian industrial products shall benefit from the deal.</span></p> <p><span style="font-weight: 400;">The agreement will also cover regulatory issues for areas such as services, government purchases, technical barriers, sanitary barriers, and intellectual property.</span></p> <p><span style="font-weight: 400;">In a statement, Brazil&#8217;s economy, foreign affairs, and agriculture ministries celebrated the much-awaited deal, highlighting that “in a moment of tensions and uncertainties in global trade, the conclusion of the deal highlights both blocs&#8217; commitment to economic opening and strengthening competition.”</span></p> <p><a href="https://twitter.com/jairbolsonaro/status/1144656459969572864"><span style="font-weight: 400;">On Twitter</span></a><span style="font-weight: 400;">, President Jair Bolsonaro regarded it as a historical moment and said this will be “one of the most important trade deals of all time.”</span></p> <p><span style="font-weight: 400;">Also on Twitter, the </span><a href="https://twitter.com/EU_Commission/status/1144670999138508801"><span style="font-weight: 400;">European Commission</span></a><span style="font-weight: 400;"> announced the deal “ will save EU companies over EUR 4 billion in duties and set high standards to address climate action and labor rights”.</span></p> <p><span style="font-weight: 400;"><script src="https://www.buzzsprout.com/299876/1079105-12-brazil-and-mercosur.js?player=small" type="text/javascript" charset="utf-8"></script></span></p> <h2>20 years in the making</h2> <p><span style="font-weight: 400;">The agreement comes after a <a href="https://brazilian.report/money/2018/09/16/eu-mercosur-trade-agreement/">veritable marathon</a> of meetings between foreign ministers from Mercosur members and their EU counterparts. The Brazilian delegation in Brussels also included Agriculture Minister Tereza Cristina and the Special Secretary for Trade and International Affairs, Marcos Troyjo. They arrived in the Belgian capital on Wednesday.</span></p> <p><span style="font-weight: 400;">Talks between Europe and Mercosur began in 1999. They were put on standby between 2004 and 2010, as Brazil opted for a strategy more centered around the Doha Development Round (which commenced in 2011) and the World Trade Organization.</span></p> <p><span style="font-weight: 400;">A window of opportunity opened in 2017. Back then, Brazilian President Michel Temer had some positive economic figures to show for himself, while Argentina’s president Mauricio Macri was preaching for a renewed, more open to the world version of Mercosur, and Donald Trump threatened Europe with trade tariffs.</span></p> <p><span style="font-weight: 400;">By the final stretch of the negotiations, a group of European countries led by France and Ireland showed resistance to the Mercosur-EU deal, saying it could be detrimental to their agricultural producers. French President Emmanuel Macron defended a halt to negotiations, using the fact that Brazil has not complied with the goals set by the Paris Agreement as his justification.</span></p> <p><span style="font-weight: 400;">Mr. Macron reportedly canceled a bilateral meeting with Mr. Bolsonaro at the G20—but then a spokesperson for the French government announced that an informal conversation would take place instead. According to the Brazilian delegation in Osaka, they spoke for about 30 minutes, during which the Brazilian president pledged to respect the environment—and reportedly invited Mr. Macron to visit the Amazon rainforest.

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PowerJun 28, 2019

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BY Natália Tomé Scalzaretto

Natália Tomé Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Most recently, worked as an Editor for Trading News, the information division from TradersClub investor community.