Mercosur-EU deal to be formally signed in Paraguay: what comes next?

The Mercosur and the European Union (EU) are on the verge of turning their long-awaited trade deal into a reality after 25 years of negotiations. The agreement will gradually eliminate tariffs on over 90% of bilateral trade between the blocs. The deal took a major step after a majority of the EU member states endorsed it on January 9 at the European Council. On Saturday Ursula von der Leyen, head of the European Commission, is scheduled to sign the accord in Asunción, Paraguay, with the representatives of the Mercosur countries: Argentina, Brazil, Paraguay, and Uruguay. Last week the deal was backed by 21 European nations. Austria, France, Hungary, Ireland and Poland voted against, and Belgium abstained. If enacted, it will connect the EU countries with the markets of Mercosur members and create the world’s largest free-trade area, comprising more than 715 million inhabitants (447 million in the EU and 270 million in Mercosur). But before coming into fruition, the pact must first sort a variety of hurdles, which — according to some experts — won’t be that easy to pass. The path ahead While commonly referred to as the Mercosur-EU deal, it actually consists of two parts that have to be approved individually: the EU-Mercosur Partnership Agreement (EMPA) and the Interim Trade Agreement (ITA). The latter is a trade-only pact that falls under EU competence. That means it needs endorsement from the EU Council and the European Parliament to enter into force, but does not need to be ratified by each country’s Parliament.  It was created specifically for the EU countries to engage in free trade with Mercosur until the EMPA becomes operational. There is no scheduled date for the debate in the European bodies. The EMPA, on the other hand, is a broader agreement including trade, investment, political cooperation and environmental segments. It has to be ratified by the national parliaments of each country involved, a process that could take years. The Interim Trade Agreement will cease to apply once the EMPA enters into force, but that will only happen after all EU and Mercosur countries have completed ratification and congressional approval. If approved by the EU Council and the European Parliament, it’s estimated the ITA will come into effect by the end of 2026. That’s the timeframe needed for it to go through all the necessary steps.  The European Council’s website states that, following EU and Mercosur’s signature of the agreements, the European Parliament will have to give its consent to both of them. After that, “the EMPA will fully enter into force once all EU member states and Mercosur parties have completed ratification.”  Farmers in France, Poland and other countries have strongly opposed the deals on the grounds that it will create an imbalance with Mercosur agricultural producers, as the latter will be able to sell their products at cheaper prices in European markets.  However, the agreements are expected to have enough backing to be approved by the European Parliament. Points of contention The agreement has been met with fierce opposition in European countries with a strong agricultural sector, like France, Hungary, Ireland and Poland, where protests are expected to continue.  They argue that since Mercosur countries have lower production costs, they will invade their markets with cheap products in detriment of European agro producers, who face higher standards and taxes. Italy rejected the deal until December, when it changed its stance after some safeguards regarding sensitive issues for its economy were introduced in the negotiations.  Industry-focused countries like Germany have vehemently backed the agreement, as it further opens the doors to exporting manufactured goods to South American countries, which have historically produced primary products, mainly agricultural, and have an underdeveloped manufacturing industry, except for Brazil. In the Mercosur countries, particularly Argentina, the business and agricultural sectors have received the deal with open arms. “This agreement is an opportunity to broaden Mercosur’s economic horizons,” Ricardo Carciofi, lead researcher on economic development at CIPPEC think tank, told the Herald. “Besides the strictly commercial aspect, it also opens the doors to new investments and access to technology.” In Argentina, the sectors that will benefit the most in the short term are those already exporting to Europe, which will see their tariffs reduced, Carciofi said. Those include grains, oilseeds, agroindustrial products, meats and fish.  While meat will be under a quota system, access to the European market will still be better than it currently is, he added. “In the longer term, within the agro-food sector, there are chances to introduce products with more added value and differential characteristics,” the researcher stated. Some sectors, however, see the agreement as potentially harmful for national industries, as it will open the doors to imported manufactures while encouraging exports of primary products, instead of incentivizing the development of a national manufacturing industry or protecting local companies. “We want to be partners of the EU, and not mere providers to Europe,” said Peronist party Frente Renovador, led by former Economy Minister Sergio Massa, in a statement sent to the Herald.  The party said that it is not clear whether the deal will mean “concrete development opportunities” for the Mercosur countries and their residents, and warned that it could even “harm several national industry sectors.” Fulvio Pompeo, secretary of international relations for the Buenos Aires City Government and main advisor in that area during former President Mauricio Macri’s government, rejected the criticism, saying that Argentina has “already suffered negative consequences” as a result of having “such a closed economy for such a long time” before the deal. “That isolation made us lose competitiveness, limited our chances of growth and delayed modernization. This changes that equation,” he told the Herald. You may also be interested in: What benefits and challenges does the Mercosur-EU deal bring for Argentina?