EU trade policy is on a roll. After the conclusions of a deal with Japan, the largest bilateral Free Trade Agreement yet, the EU has set its eyes on a deal with Mercosur. Such a deal offers huge potential for EU industry: it would greatly improve access to emerging markets of 250m+ consumers and many of Europe’s key sectors –automotive, machinery, chemicals and pharmaceuticals, but also agricultural and food producers such as garlic, olive oil, wine and pears – are set to benefit. Since this would be the first trade deal that Mercosur closes with another major trading block, the EU would have a first mover advantage, allowing EU businesses and products to establish themselves in the Mercosur markets before other competitors can move in. Altogether it would strengthen the EU’s role as a trading power and create jobs and growth.
Negotiations have historically been slow, but the Mercosur countries are showing unprecedented political will and strong alignment to get a deal done. This year talks progressed on many issues such as sustainable development, technical barriers to trade and public procurement. A measure of Mercosur’s willingness can be seen in opening up its procurement markets to European business – the first time ever it has opened these up to third parties.
However, some so-called ‘sensitive’ areas have not yet been included in the negotiations, in particular sugarcane products – sugar and ethanol. For Brazil this is critical. The sector is highly competitive and provides more than one million jobs. Brazil is the world’s largest producer and exporter of sugar but accounts for only 4% of all EU sugar imports, so there is clear room for growth with little to fear. In comparison, Mauritius alone accounts for 28% of EU sugar imports and EPA/EBA countries for 54%. Increasing sugar imports from Brazil will promote social and economic development. Brazilian legislation stipulates that sugar exports from Brazil to Europe be sourced in the Northeast region of the country, one of most vulnerable regions of the country. The GDP per capita of this region was US$5,834 in 2015 (US$ 8,757 for Brazil). Compare that with the US$9,252 GDP of Mauritius in the same period. In a recent intervention in Brussels, Brazil’s chief negotiator Ambassador Ronaldo Costa made very clear that he “could not return home without sugarcane on the table”.
Also European industry would gain from imports of Brazil’s sugarcane products. Ethanol is an important feedstock for the chemical industry and today the high tariffs on bioethanol puts the European bioindustry at a disadvantage. In contrast there are practically no import duties on fossil inputs. The same is true for sugar which is a key raw material for the European food and drink industry, but also for the chemical sector.
So far the European sugar industry is rejecting any concessions to Brazilian sugarcane, claiming the industry is highly subsidised. In particular, they confuse and miss-label the high economic efficiency, industrial integration and product diversification of Brazilian sugar mills as cross-subsidisation. In its 2013-14 WTO notification Brazil reported a total aggregate measurement of support (AMS) for sugarcane of 0.24% of the value of its sugar production. The EU reported an AMS of 0.48%, or double, in the same period. OECD measurements of producer single commodity transfer show that over the past five years (2012-2016) support granted to sugar producers in Europe was 22 times higher than that granted in Brazil.
Successful trade agreements require give and take, and Mercosur countries are prepared to grant important advantages to EU industries, more than they have ever offered before. If the EU really wants to increase its access to the major growth markets of Mercosur and reap the benefits of a close partnership in South America it needs to also be open to concessions in the areas that are of critical importance for Brazil and other Mercosur countries. The EU cannot have its sugar-coated cake and eat it.
The original text of this blogpost was published in the Parliament Magazine website on September 5, 2017.