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EU and South American bloc reach trade deal to cut tariffs

EU and South American bloc reach trade deal to cut tariffs

28/06 - 16:56 - Agreement 20 years in the making is a rare bright spot for global trade

Jim Brunsden in Brussels and Andres Schipani in São Paulo

The EU and Mercosur have brokered a landmark trade deal after 20 years of negotiations, agreeing to slash tariffs on everything from Argentine steaks to German car parts.

Negotiators for both sides announced the deal on Friday, concluding a process that began back on June 28 1999, saying it was a signal of hope for a global trading system under strain from the US-China trade war.

Brussels has estimated that the deal would wipe out about €4bn in annual customs duties on EU exports alone, securing preferential access for European goods and services to a region of over 260m people. For Mercosur, some of the greatest prizes include preferential access to the EU markets for beef, ethanol and sugar.

Mercosur, a regional alliance bringing together Brazil, Argentina, Paraguay and Uruguay, and the EU hailed the agreement as proof that co-operation on trade liberalisation can endure even amid current international tensions.

“In the midst of a global trade war this is a major achievement, it’s the biggest ever free trade agreement between blocs, it’s very comprehensive,” an exultant Marcos Troyjo, Brazil’s deputy economy minister for foreign trade, told the Financial Times.

Mr Troyjo, who led his country’s negotiating team alongside the agriculture and foreign ministers, said: “If there was any doubt that Brazil is opening up its economy, this is a major statement.”

Cecilia Malmstrom, the EU trade commissioner, said that it sent a “loud, clear message” to the world “that we believe that trade is a good thing, that it brings peoples and companies together”.

“Historic! This will be one of the most important trade agreements of all time and will bring enormous benefits to our economy,” tweeted Jair Bolsonaro, Brazilian president.

The accord makes the EU the first major economy to strike a comprehensive trade deal with Mercosur since the South American trade bloc was formed in the early 1990s.

Given Mercosur’s high barriers to imports, Brussels estimates that the savings brought about by the tariff reductions would be some four times those delivered by the EU’s recent deal with Japan, and almost seven times those of its agreement with Canada.

For Mercosur, some of the most difficult concessions included slashing tariffs on imported European cars and car parts and opening up its public procurement market; on the EU side, the most controversial issues centred on agriculture.

In a sign of potentially difficult battles to come over the ratification of the agreement in Europe, EU farmers and producers of renewable ethanol were quick to slam the negotiations as a sellout.

Copa Cogeca, an association representing the EU agricultural sector, said that the deal amounted to “unfair competition for some key European production sectors, putting their viability at stake”.

“Agriculture has been the trade-off chapter to facilitate gains in other sectors,” the group said.

The ePure association, which represents the EU renewable ethanol industry, said that the bloc was “killing incentives to invest in advanced ethanol, and making life even tougher for Europe’s already struggling farmers”.

While the EU as a whole has backed the trade talks, countries including France, Poland and Ireland have consistently warned the bloc not to be too generous on agriculture, with beef being particularly sensitive.

The improved agricultural market access for Mercosur under the deal includes a new 99,000-tonne annual quota for beef to enter the EU at a preferential tariff rate — an amount Ms Malmstrom said was equivalent to 1.2 per cent of the bloc’s total annual beef consumption. The quota will be phased in over five years.

Phil Hogan, the EU’s agriculture commissioner, acknowledged that the EU “had to make significant concessions in order to ensure a balanced, comprehensive and ambitious outcome”.

“The European Commission will be available to help farmers meet these challenges,” he said, including through extra financial support.

Opponents of the deal will have the chance to push their case during what is expected to be a lengthy ratification process, as the agreement will require approval from the bloc’s national parliaments.

Brussels emphasised that the deal will eliminate very high customs duties in key sectors for EU companies, including cars, machinery, chemicals and pharmaceuticals.

The deal was struck after three intensive days of negotiations in Brussels that settled the most difficult questions in the talks.

Jorge Faurie, Argentina’s foreign affairs minister, said that the deal proved Mercosur’s desire to increase the openness of its economy to the rest of the world.

Mercosur has been “a very closed economic space”, he said. “This is a very clear message of where we are going.”

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