SugarCane

An EU-Mercosur trade deal: A balancing act

The negotiators for the EU-Mercosur trade deal are doing an impressive job. This Tuesday started the third week of full time negotiations since the beginning of February, only interrupted by Carnival.

The negotiators clearly see what they are fighting for and the EU-Mercosur deal is a worthwhile prize: the largest bilateral trade deal yet, connecting two markets of almost 800m consumers and at the same time setting a signal against the protectionist tendencies pushed by the Trump administration.

However, now that it is getting down to the prime cuts of the deal (beyond beef), no side wants to give ground easily, and rightly so. While both sides know that the deal is overall beneficial, it is also about very specific economic interests and in the end it is critical that the outcome is balanced.

Europeans can rest assured; the European Commission has so far done a very good job in protecting EU interests:

– European agricultural products will be protected through tariff-rate quotas and geographic indications;
– European standards on food safety and many other product groups will be applied and;
– Import tariffs into Mercosur will be drastically reduced in many EU key sectors such as machinery, automotive, services, and agricultural products.

Altogether the tariff reductions for EU imports amount to €4bn, in contrast the tariff reductions for Mercosur products into the EU only amount to €1bn.

While the benefits of a trade deal go far beyond tariff reductions, these numbers indicate that the EU stands to gain much more than it is giving up, and should therefore push forward.

However, some of the current offers are not satisfactory. The EU proposal for sugar of a 100,000 tonnes tariff quota at a reduced tariff of €98/t only gives market access in theory as the intra-quota tariff is too high, especially after the EU sugar reform, to make Brazilian sugar competitive in the European Market.

Despite the fact that Brazil is the largest exporter of sugar it only provides 4% to the European market. This is also to the disadvantage of the European food and drink industry as well as the bio-based industry that would benefit of a larger variety of sugar supply. In order to be closer to the mark the intra-quota tariff needs to be eliminated. Note than all the EU free trade agreement involving sugar provides for a duty-free quota. Why should it be anything different for Mercosur?

Ethanol is another sector where the EU should offer more. The EU chemical industry is asking for a duty-free access to Brazilian ethanol. Denying this will simply hampered the development of the bio-economy in Europe.

If the EU expects Mercosur to open up its markets for products where the EU has a competitive advantage, Mercosur has a rightful interest in gaining actual market access for its key products. Why should they otherwise open up their economies to the European industrial powerhouses?

All sides have to understand that the deal needs to be sold as a success at home. If Mercosur countries see that the EU is not prepared to make concessions in the sectors that really matter to them, they could move their focus to the other ongoing trade negotiations with the European Free Trade Association (EFTA) and Canada that might seem like lower hanging fruits.