Agreement will be signed next Saturday, January 17th, in Paraguay
After two and a half decades, the trade agreement between the European Union (EU) and Mercosur was signed. It is the largest trade agreement in the history of the old continent’s economic and political union and promises to be the Euro’s entry into a free trade market that will cover more than 700 million people, including Europeans and South Americans.
The EU-Mercosur agreement, which is still awaiting approval by the European Parliament, will put an end to 90% of current customs tariffs on European exports originating in South America.
European Commission forecasts estimate that the trade understanding will add 77.6 billion euros, equivalent to 0.05% of the EU economy, by 2040.
Therefore, Europeans will be able to enjoy beef from cows fed on the green pastures of the Argentine pampas or in the endless fields in sight of Uruguay at more affordable prices.
However, as in any business, the pleasure of some tends to be a bad omen for others. The newspaper created a list of who gained the most and who lost most from the agreement or, or as it writes, who will “toast with Malbec” or “commiserate with a glass of Bordeaux”.
The winners
Giorgia Meloni
While France, which was initially in favor of the trade agreement, changed its position, Rome took the opposite path. Roma once again presented its latest and favorite magic act. Giorgia Meloni was once again able to understand which way the political winds were blowing more quickly and managed to obtain last-minute concessions for Italian farmers, under the threat of supporting Paris and bringing down the expansion of the free market.
Meloni’s all-in went well and, in return, Rome was able to guarantee safeguards for the agricultural market, as well as promises to channel more economic funds from the European Commission to agriculture. Achievements that will garner votes among Italian voters and that show that, once again, Giorgia Melonia was able to return to the winning side, demonstrating team spirit despite the last minute setback.
In short, writes Politico, “another victory for Rome”.
German automobile industry
The European automotive sector, especially the German one, has not had easy days in recent years. The transition to electric engines has led to a dilution of European consumers by the North American and Chinese markets, but the EU-Mercosur agreement is finally a reason to celebrate.
From now on, the German car market will have easier access to Latin American consumers. Lower customs duties mean, if everything goes as expected, more sales and increased profits for brands like Volkswagen, Mercedes-Benz or BMW.
Although the moment is already being viewed favorably, it could still have been better for Berlin. This is because currently the customs tariffs imposed on these goods when they arrive on the South American continent are 35% and will not be reduced all at once, but rather gradually. The fault lies with Brazil, which imposed this tax removal to be gradual in an attempt to safeguard its own automobile industry.
What does the transition to electric mobility look like? Electrically powered vehicles will continue to receive preferential treatment as this is an area in which Europe continues to lag behind the deadlines it has set itself.
Ursula von der Leyen
The EU-Mercosur agreement is also an achievement, despite being bittersweet, for the president of the European Commission. Since the agreement was signed with Mercosur leaders more than a year ago, Ursula von der Leyen has strived to respond to the demands of the most skeptical and build a qualified majority, representing more than 65% of the EU population, and, in p, the goal finally materialized. The expectation now is that the celebration, after 25 years of negotiations, will take place this January 17th, when the president of the European Commission travels to Paraguay for the final signing of the agreement.
In geopolitical and commercial terms, the agreement is a victory of considerable proportions for Brussels, at a time when the European economic bloc appears to be a dinosaur surpassed by technological advent and which, time after time, is surpassed by the USA and China. EU-Mercosur, given its large-scale dimension, seems to prove that the rules-based international order, so valued by the EU, is still alive, even after Trump gave the green light to the detention of a leader of a South American state.
The other side of the coin for Von der Leyen is a highly high financial cost, because for the agreement to go ahead Brussels had to grant subsidies of 45 billion euros to convince farmers and retreat from efforts to reduce agricultural support in favor of investment in innovation and growth.
European farmers
Placing farmers as “winners” is certainly the most controversial part of Politico’s list and the newspaper itself recognizes it: “It would be understandable to think that Mercosur is a total disaster”. It’s easy to see the reason for the controversy: more South American products on the European market would mean an increase in supply and the same demand, which, consequently, will cause deflation in prices, right?
However, Politico explains that “reality is a little more complex.” The most affected sector is expected to be beef production, but the agreement includes strict quotas for each of the categories of imported goods (from beef to poultry) from South America to Europe. This means that Latin American farmers will have defined limits on what they can send to the old continent.
In practice, Politico simplifies, this is equivalent to “a few chicken breasts per person in Europe per year”. Furthermore, the document includes strict and special protections for European producers of unique goods, such as Italian Parmesan cheese and French wine, thus being protected from being replicated and benefiting from safe market expansion.
Despite all the agricultural protests in Brussels, there is still the issue of subsidies totaling 45 billion euros, which will be given to farmers. Manure has often been the symbol of farmworker protest, but it seems that “the agreement doesn’t smell so bad after all”, explains Politico.
Losers
Emmanuel Macron
Emmanuel Macron has been the face of opposition to the EU-Mercosur agreement. There was no other European politician who spoke out as vehemently against the trade understanding as the French president. However, it is necessary to take into account the strong political contestation that Macron has been the target of, accumulating successive resignations of prime ministers and showing himself incapable of getting Parliament to approve the French State Budget. So it was no surprise that Brussels saw Paris joining Warsaw, Vienna, Dublin and Budapest in voting against the agreement.
Macron is an investment expert and, at heart, a capitalist defender of free trade, but the French president knows that among the electorate the agreement is seen as a “stab in the back of French farmers who are already suffering so much”, writes Politico. Lacking internal political victories for a few years, sinking the free trade agreement negotiations or at least postponing the signing of the document would have been proof that the French president still had some influence on the European scene.
The French president tried to gather a resistance group for the counter-attack, gallanting Giorgia Meloni, but everything ended up being in vain. Now, with yet another defeat, but on the international stage, it is expected that the French press will intensify its criticism of the president and continue to witness the slow and gradual fall from the top of the Élysée Palace.
Donald Trump
With the signing of the EU-Mercosur agreement taking place just days after the capture of Venezuelan President Nicolás Maduro, it demonstrates that Europe continues to have enough power to work constructively with like-minded partners.
To justify this name on the list of losers, Politico reminds us that “any trade agreement must be seen as a win-win proposal for both sides, and that is not how US President Donald Trump and his art of geopolitical extortion work”.
Furthermore, after the tariff ‘war’ between Brazil and the USA, the agreement strengthens the position of Lula da Silva, Brazilian president and head of Mercosur.
China
Beijing also joins the list of losers, because, during decades of negotiations with Brussels, China had been increasing exports to South America.
The EU-Mercosur agreement now represents an opportunity for Europe to regain its participation in this market, especially in sectors such as automobiles, machinery and aviation.
The agreement also strengthens Europe’s ability to maintain leadership in direct investment, an area in which European companies still outperform their Chinese competitors.
With the agreement not just limited to trade, but having a deeper political cooperation component, Lula da Silva and his Mercosur counterparts will end up strengthening ties with Europe. This is something that goes against the Chinese strategy after having had some success in this field through the BRICS.
Amazon
The Amazon is now facing new dangers. For the world’s largest forest, the deal “means one thing: burn, burn, burn,” Politico writes.
More demand means more profits, but only if there is the ability to increase more supply. And to increase the tons of meat produced, more pasture will be needed. The problem is that where Brazilian herds already graze today, part of the Amazon Forest once existed and the phenomenon of deforestation will tend to replicate itself at an even greater speed.
“In other words, more beef for Europe means fewer trees for the world,” summarizes Politico.
The newspaper recalls, however, that it is not all bad news for the climate, because the agreement includes a set of mandatory safeguards against illegal deforestation, as well as a commitment to the Paris Climate Agreement for signatory countries.
