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.
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?
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.
Decarbonising transport: This is the time to get it right*
Géraldine Kutas — posted 2018-01-09
The European Parliament will soon vote on the recast of the renewables directive (RED II), one of the key elements of the clean energy package. RED II is critical in ensuring that we harness the potential of renewable energy effectively, and in decarbonising the economy while keeping energy affordable.
Transport accounts for about 25 per cent of total EU greenhouse gas (GHG) emissions. According to the European Environment Agency (EEA), transport, together with refrigeration and air-conditioning, are the only sectors whose emissions have increased over the last 25 years. Therefore, RED II must set the course for a much faster decarbonisation of transport to have a realistic chance of reaching the EU’s climate targets.
One of the most effective solutions available today to decrease carbon emissions in transport is the use of sustainable biofuels. In Brazil, the use of bioethanol in flex-fuel vehicles has led to a decrease of 370 million tonnes in carbon emissions in just 13 years – the equivalent of carbon absorption of 2.5 billion trees over 20 years. In fact, Paolo Frankl, the Head of the Renewables Division of the International Energy Agency (IEA), agrees that we need biofuels to decarbonise transport.
Therefore, MEPs will soon vote on several important provisions that could determine whether biofuels can make the needed contribution to the decarbonisation of transport.
First, a renewables target in transport – decarbonising transport is a critical challenge, therefore a mandatory renewables target in this sector is needed.
Compared with the Commission proposal, the fact that member states and the European Parliament have included such a target demonstrates progress. While a 20 per cent target would be best and in support of the overall decarbonisation objectives, 15 per cent appears to be a realistic compromise (especially since the Council agreed on a 14 per cent target and the European Parliament only on 12 per cent).
Second, continuing the current cap on crop-based biofuels: To ensure a sustainable future for biofuels, it will be vital to maintain the seven per cent cap on conventional biofuels, of which some have high GHG savings and a low indirect land use change (ILUC) factor.
The seven per cent cap was agreed two years ago after very lengthy and detailed discussions. Reducing this cap would not only diminish the sector in Europe but also any prospect of producing advanced biofuels, which are often dependent on the same companies and feedstocks. In addition, for investors, it would be another sure signal that Europe is not a reliable destination for investments.
Third, maintaining feedstocks for advanced biofuels (annex IX): The feedstocks for advanced biofuels were agreed and based on scientific assessments and after lengthy discussions in 2015. Therefore, this annex should not be reviewed and amended.
Lastly, inclusion of ILUC into GHG emission calculation: ILUC can only be calculated through economic models (it cannot be observed) and the calculations are extremely sensitive to underlying (and often differing) assumptions. Therefore, results vary considerably. In fact, this has been acknowledged by the authors of the GLOBIOM study as well as by a recent literature review for the European Commission.
Consequently, given that ILUC is an evolving science, if we are going to include ILUC factors, EU legislation must be able to deal with changes, new findings and an inherent uncertainty, in a fully transparent way.
In order to deal with ILUC, new EU rules must include periodic updates of the underlying numbers, clearly describe the methodology (type of model, hypothesis and data source) and submit it to public consultation.
It must also be made public who will be in charge of reviewing these numbers. ILUC estimates have far-reaching consequences on the whole sector. Therefore, it should be fully in line with EU regulatory standards and not be an arbitrary and opaque process that adds to the already existing uncertainty.
At COP23, there was a strong consensus that we need every sustainable solution available if we want to have a realistic chance of reaching our climate targets. The European Parliament needs to make sure that we harness solutions that can tackle climate change in the short-term. Sustainable bioenergy, particularly sugarcane ethanol, is one of those options.
As we come to the close of a busy year, it’s worthwhile to take time to pause and reflect on everything that we’ve achieved this year.
For UNICA it has indeed been an interesting and eventful year, full of activity on two key dossiers that are of critical importance to the Brazilian sugarcane industry: the proposals for the next edition of the Renewable Energy Directive (REDII), and of course, the EU-Mercosur trade negotiations.
While there was a certain amount of disappointment among those who had hoped that an EU-Mercosur trade deal could be concluded by the end of the year, it has been pretty clear for weeks that achieving a deal before Christmas was going to be the exceptional rather than the expected outcome. Negotiators going into the round were aware that further significant concessions were required from both sides: Mercosur offers on dairy products, cars and machinery for the EU, and better offers on beef, ethanol and sugar from the EU for Mercosur.
Rather than focusing on what has not been achieved – a deal by the end of the year – we need to reflect on the massive progress that has been accomplished by all sides during the course of the past year. Let’s not forget that these negotiations began almost two decades ago. And it is far better to wait to arrive at an equitable deal with which both sides are happy than to rush into an agreement that satisfies no-one.
So in that spirit, perhaps the timing could not be better. Both sides should welcome the break that the end-of-year festivities offer to take pause and reflect, and come back to the negotiating refreshed, revived, and ready to secure the deal that will benefit the almost 800m citizens in both blocs.
We have also achieved much regarding the proposed REDII texts. This was something of a rollercoaster ride, from the Commission’s initial proposal to more than halve the cap on conventional biofuels, to the ENVI committee’s proposal to cut them altogether. At each stage of the process we engaged constructively and robustly with all relevant stakeholders to correct false claims, provide accurate information and defend the critical role of first-generation biofuels in contributing to renewable energy targets. A draft general approach on REDII adopted by the Perm Reps proposes keeping the cap of 7% for first generation biofuels, and we are vindicated that the Council has accepted that proposal in its discussions on Monday 18 December.
We want to end the year on an optimistic note, and look forward the finalisation of a great EU-Mercosur deal and a fair REDII directive by the spring. In the meanwhile, it remains for me to wish you all a restful, reflective, and very happy festive period and a peaceful and prosperous 2018.
Brazil to Launch Ambitious Biofuels Program
Leticia Phillips — posted 2017-12-04
Building, in part, on the successes and lessons learned from two signature American policies, Brazil is poised to launch a government program that will support the continued development and use of low-carbon, clean biofuels. This new initiative, dubbed RenovaBio, will play a key role in meeting Brazil’s ambitious commitments made at the Paris climate summit in December 2015.
Brazil pledged to reduce its greenhouse gas (GHG) emissions by 43 percent of 2005 levels by 2030. Achieving that goal will require biofuels to supply approximately 18 percent of the country’s energy mix by 2030 through greater sugar cane ethanol production, expanded second-generation biofuels and additional biodiesel for transportation.
Ethanol and bioenergy produced from sugar cane already constitute 15.7 percent of Brazil’s energy mix, replacing more than 40 percent of gasoline demand and avoiding 600 million tons of carbon dioxide emissions since the beginning of the ethanol program in the 1970s. Growing to 18 percent in a developing country is a reasonable target, but the right incentives and policies will be necessary to support this progress. That’s where RenovaBio comes in.
HOW IT WILL WORK
Brazilian drivers today consume ethanol in two ways. First, all gasoline sold in Brazil is required to contain 27 percent ethanol. Second, most Brazilians drive flex-fuel vehicles allowing ethanol to compete directly with gasoline on price at the pump. But Brazilian consumers have enjoyed subsidized gasoline prices for many years, which weakens demand for ethanol. RenovaBio will alter this dynamic and encourage fuel distributors to boost sales of ethanol versus gasoline by requiring them to lend a hand meeting GHG reduction goals.
The Brazilian biofuel program is expected to incorporate two elements that will be familiar to American policymakers and industry representatives.
Similar to California’s Low Carbon Fuel Standard, RenovaBio will assign a carbon intensity rating to the specific biofuel produced at each mill. This system will reward producers who invest in manufacturing biofuels as cleanly and efficiently as possible.
Fuel distributors will then be encouraged to buy more of this clean biofuel through a credit trading program that works much like renewable identification numbers (RINs) under the federal Renewable Fuel Standard. With RenovaBio, distributors will be required to purchase Emissions Reductions Certificates (or CBIOs in Portuguese). Mills that produce fuels with low carbon intensity rankings will receive a larger allotment of CBIOs than mills producing fuels with higher carbon intensity.
Just as the U.S. EPA is required to publish renewable volume obligations annually, Brazil’s National Economic Policy Council (CNPE) will adjust the number of available CBIOs and distributor purchasing requirements each year. Fuel producers and distributors will then be allowed to buy and sell CBIOs on the open market, introducing a new price signal that places a value on low carbon emissions.
RenovaBio enjoys support not only from biofuel producers but also Brazil’s automotive sector. Earlier this year, UNICA and our country’s national association of automobile manufacturers, Anfavea, signed a joint memorandum aligning each industry’s strategies for delivering efficient transportation that meets Brazil’s commitments under the Paris climate agreement.
Informed observers expect action soon—either by Brazil’s congress or an announcement by Brazilian President Michel Temer issuing what is essentially an executive order to implement the program—that will clarify many key details. What is clear already, however, is that RenovaBio will be another evolution in smart biofuels policy that deserves emulation by other countries.
Last year in this space, I argued that successfully meeting Brazil’s climate commitments will depend on three fundamental pillars: predictable policy, sustainable production and technological innovation. With RenovaBio, Brazil’s government will take a major step forward on the first pillar. Meanwhile, biofuel producers remain laser focused on the second and the third. Working together, we can make a cleaner, lower-carbon future possible for our children and grandchildren.
Next Tuesday the EU Parliament’s ITRE committee (Industry, Research and Energy) will vote on the Commission’s RED II proposal. This directive will provide the framework for renewables support in the EU and will be a critical element to ensure that the EU can fulfil its climate target and do its fair share to keep global warming below 2⁰C.
The committee’s vote is a crucial step towards the adoption of the text in the European Parliament. It is therefore important to get it right before the text goes to the whole house for approval on 13 December. This is not an easy task in view of the complexities and sometimes unintended consequences of renewables support schemes.
While attending COP23 in Bonn it became blatantly clear to me that climate change demands urgent action in transportation. Simply waiting for full-scale electrification in transport – still decades upon decades away – is simply not an option. So far the transport sector in Europe has contributed far too little to getting carbon emissions down.
An ambitious renewables target for transport is one measure that would help move the decarbonisation of Europe forward. The 12% renewables target for the transport sector proposed by Rapporteur José Blanco López is a step into the right direction, in particular compared with the Commission’s approach that wanted no transport-specific target at all. But I think we should be even more ambitious: 15% should be the minimum target, but 20% represents a level that would provide for a meaningful and adequate reduction of CO2 emissions.
In Bonn it also dawned on policy makers and climate advocates alike that we need every sustainable solution available if we want to have a realistic chance of reaching our climate targets. There is no single silver bullet that can tackle the issue alone. Electrification is certainly critical to achieve the climate goals in the long term but cannot achieve the necessary emission savings in the short/medium term. One of the options we need to harness now is sustainable bioenergy and biofuels. In Brazil, sugarcane ethanol, a sustainable biofuel with 90% CO2 savings compared to petrol, has directly cut transport CO2–equivalent emissions by 370m tonnes in just 13 years. In contrast in the EU greenhouse gas emissions in transport are still rising.
Next Tuesday the ITRE Committee should make sure that the EU can use all sustainable solutions to fight climate change that are at our disposal. We can’t wait for the perfect solution. We need all available solutions NOW.
COP 23 – We are here!
Géraldine Kutas — posted 2017-11-12
– Visit UNICA’s booth at COP23 in Bonn, Germany
– Attend our discussion on how biofuels can fight climate change and promote sustainable development at the Brazilian Pavilion on 15 November at 14:00 CET with speakers from ApexBrasil, SE4ALL / Below 50, the World Bank, and UNICA.
Last year was the warmest year recorded to date, and 2017 is on course to become the second or third warmest year, according to the World Meteorological Organisation. There were many weather-related natural disasters in 2017: the Atlantic hurricane season was one of the most active on record, major monsoon floods caused hundreds of deaths in the Indian subcontinent, and even the Republic of Ireland experienced some of the most extreme weather the island has seen in decades. Fundamentally, climate change threatens crops, wildlife and freshwater supplies. At the opening ceremony of the UN Climate Change Conference (COP23) in Bonn, Germany, the host country Fiji’s Prime Minister Frank Bainimarama said, “The need for urgency is obvious. Our world is in distress from extreme weather events caused by climate change.”
The progress achieved at COP21 in Paris was significant, but agreements alone are not enough. We need action. While most of the United Nations countries have already ratified the agreement, the momentum needs to be sustained, and ambitious policies need to be implemented in order to curb GHG emissions and limit global temperature rise to less than 2 degrees Celsius above pre-industrial levels. It is now time for countries to think about their renewed pledges in time for the COP24 meeting next year where participants will take stock of national progress toward achieving climate goals.
EU’s 2030 target of cutting emissions by 40% is “very robust”, according to the European Commission’s climate negotiator Elina Bardram. However, EU’s progress against that target will depend on implementing the policies that will help achieve different sub-targets, such as those in the transport sector.
Transport accounts for a quarter of all EU GHG emissions in the EU, 70% of which come specifically from road transport. To address this sector, the Commission recently published the second batch of legislative proposals in its Mobility Package “Europe on the Move”, including the post 2020 CO2 standards with the target of 30% fewer CO2 emissions from new passenger cars by 2030.
The 30% CO2 reduction is certainly a much needed step towards decarbonizing the sector, but will this be enough to meet the Commission’s unofficial transport sub-target of a 60% CO2 reduction by 2050? The Renewables Energy Directive (REDII) provides an opportunity to complement the Mobility Package – which decarbonizes the vehicle technology – by decarbonizing transport fuel. This sector must be addressed holistically in order to reach the 2050 scenario and fuels are an inextricable part of the solution.
Unfortunately, not only has the 10% transport target in the first RED been removed, but REDII specifically proposes to reduce conventional biofuels from the current 7% cap to 3.8%. Instead of cutting conventional biofuels the EU should allow for cleaner more sustainable fuels that are readily available and can make a different in the short and mid-term decarbonization efforts. Brazilian sugarcane ethanol can and should play a bigger role in the EU as it reduces GHG emissions by 70% compared to fossil fuels, and has a low ILUC impact as assessed by the Commission itself.
This is already happening on a global scale. In Brazil, the use of bioethanol in flex-fuel vehicles has led to a decrease of 370m tonnes in carbon emissions in just 13 years – the equivalent of carbon absorption of 2.5 billion trees over 20 years.
It is important to look at the transportation sector in a comprehensive manner and deploy all available solutions now, while in parallel investing in future fuels and technologies if we are to meet the overall Paris Agreement targets. Fuels are a critical to the solution, and conventional biofuels in particular have the potential to significantly decarbonize the sector today.
Come visit the UNICA booth in Bonn to learn more about how this is working in practice in Brazil and around the world.
UNICA Booth is located in the Bonn zone, exhibition area, 1st floor in front of the coffee bar.
– Ambassador Roberto Jaguaribe, the president of the Brazilian Trade and Investment Promotion Agency (Apex-Brasil), will tell us more about how Brazil can cooperate with other countries to help them in their transition sustainable biofuels.
– Gerard Ostheimer, Global Lead for the SE4ALL Sustainable Bioenergy High Impact Opportunity / Below 50, will address the deployment of biofuels as a cleaner and affordable fuel, especially in developing countries.
– Celine Ramstein, Climate Change Specialist at the World Bank will explain how carbon-price mechanisms can stimulate the use of biofuels, creating a higher income for renewable energy producers.
– Géraldine Kutas from UNICA will provide concrete examples of the contribution of Brazilian sugarcane ethanol to climate change mitigation and of social inclusion, revealing data on IDH, income and education rate in municipalities where sugarcane is produced.
Mercosur: sweeten the deal
Géraldine Kutas — posted 2017-11-07
The EU-Mercosur trade deal is close to the finishing line and the final breakthrough might still come by the end of the year. This trade agreement between the EU and the four Mercosur Members – Argentina, Brazil, Paraguay and Uruguay – would be the largest bilateral trade deal the EU has ever brokered. The deal would indeed be unprecedented in many respects: It would be the first time that the economies of Mercosur open up to a major trading block and also by far the largest deal between the EU and emerging economies.
Now is a unique window of opportunity and there is strong political will on the side of the Mercosur countries to get the deal finalised. This would not only open up a huge market for EU products and services, but also send another strong signal, after the successful trade negotiations with Japan earlier this year, that the EU is seizing its role as the world’s foremost trading power.
However, there still remain some stumbling blocks that could put the deal at risk. Not surprisingly, the agriculture sector is the main point of contention as the Mercosur countries are very competitive in products such as sugar and ethanol, in which the EU has major defensive interests.
But trade is not a zero sum game and its benefits cannot be measured by the increase of exports alone. Increased access to Brazilian sugarcane products through the Mercosur deal is an example where the benefits for EU industry go far beyond what the trade balance indicates. Indeed, as René Van Sloten, Executive Director Industrial Policy at Cefic, the European Chemical Industry Council, said: “including sugar and ethanol into the Mercosur trade deal would offer the possibility for a win-win outcome for both sides.”
So how could EU industry benefit from increased access to raw sugarcane products?
Sugar and ethanol are important sustainable feedstocks for the European chemical industry. Products such as plastics, paint and coatings all require feedstock which today is mainly sourced from fossil fuels, but that could be replaced by ethanol. Also sugar is a key ingredient for the bio-industry, being indispensable for biotechnological processes. Further, sugarcane ethanol has tremendous potential to decarbonise the transportation sector, which currently account for almost a quarter of EU GHG emissions. Including sugar and ethanol into the deal would help EU industry getting the right quality at a fair price. According to René van Sloten, EU industry has to endure 40-60% extra costs for ethanol because of import tariffs, in contrast fossil fuel ethanol can enter the EU without any tariff.
Consequently the EU chemical industry could produce at lower costs which would make it more competitive. This would also have a domino effect down the supply chain, making products cheaper for business and consumers.
Brazilian sugarcane is also among the most sustainable renewable feedstocks with the highest greenhouse gas (GHG) saving potential. Gaining access to this feedstock would not only help European industry to lower its GHG emissions but also to boost the bio-based industry. This industry has an enormous potential to contribute to the circular economy with new products and solutions. Gaining better access to renewable feedstock would help industry to increase its investments in bio-based production plants in Europe, which in turn would increase demand for bioethanol also to the benefit of European producers.
Europe should take these benefits into account that the inclusion of sugarcane products into the trade deal can bring and not only look at the defensive interests of the EU agriculture sector.
The EU-Mercosur trade deal is a once in a generation opportunity, don’t let it slip away. Sweeten the deal!
Don’t derail the decarbonisation of transport
Géraldine Kutas — posted 2017-10-20
If Europe wants to get anywhere close to hitting its target of a 40% Greenhouse Gas (GHG) reduction by 2030, it will need to tackle transport emissions, which account for about 25% of total EU GHG emissions. To further complicate the issue, road transport is set to grow 30% by 2030. We need available solutions that are deployable now if we are to mitigate global warming. Sustainable biofuels are one of the few available solutions that can help today to reduce carbon emissions in transport. In Brazil for example, the use of bioethanol led to a decrease of 370m tonnes in carbon emissions in just 13 years, which is more than Spain emitted in 2015. The average life span of a car is 10 years and the existing fleet runs primarily on fossil fuel. In fact, only 2.8% of the existing EU fleet is comprised of alternative energy vehicles. This means that in the short and possibly mid-term, introducing a higher ethanol blend is one of the only realistic options to lower GHG emissions in transport. Sustainable sugarcane ethanol results in at least 70% fewer GHG emissions than petrol, and is available now!
Despite these facts, the Environment Committee in the European Parliament risks torpedoing this solution by confirming the phase out of crop-based biofuels. This would not only kill this sector in Europe but also any prospect of producing advanced biofuels, which often depends on the same companies and feedstocks for production. Not to mention, of course, any real shot at decarbonizing the transport sector in the short-term. This extreme policy change, only two years after a framework for biofuels was agreed upon and before the effect of the policy can be properly assessed, will discourage investment in the EU. The key arguments for this policy change, namely Indirect Land-Use Change (ILUC) and concerns that biofuels lead to higher food prices are based on non-verifiable assumptions that should not form the basis for the phase out of a whole industry. Not all first generation biofuels are created equal and sugarcane ethanol is one of the most sustainable biofuels available.
In order to ensure that the EU can make a real contribution to the decarbonisation of transport, the Environment Committee should:
– Set a renewables target in transport to at least 20%;
– Keep the current cap of 7% for highly sustainable biofuels, which is essential to the decarbonisation of European transportation;
– Evaluate first-generation biofuels based on their GHG savings and sustainability criteria;
– Not include ILUC estimates when calculating the GHG emission savings of crop-based biofuels, as long as a predictable methodology based on verified data and sound review process is in place.
Climate change does not wait for the roll out of new technologies – we need to use every tool that is at our disposal today.
Is the EU serious about sugar reform?
Géraldine Kutas — posted 2017-10-02
There is hardly a single sector in the EU that is as protected as much as sugar. For decades the EU sugar beet industry benefited, together with other measures, of minimum prices and extremely high import tariffs. At a current international price for raw sugar of €255 per tonne, the import tariff stands at a whopping €339 a tonne, meaning that world global sugar producers are effectively locked out of the European market.
The fact that the EU allows imports from a number of countries – such as least developed countries, African, Caribbean and Pacific (ACP) countries, and countries with which the EU has a trade agreement – does not make much difference. For a start, these countries are generally less competitive than Brazil. But importantly, those agreements are causing trade distortions rather than encouraging a level playing field.
It is worthwhile to remind ourselves of the true costs of the protectionism of the sugar sector:
– it makes raw materials for EU industries more expensive, in times of increasing global demand. This includes of course the food industry, but also other industries critical to European competitiveness, such as the chemical and pharmaceutical industries that need sugar as raw material;
– it damages EU importers and refiners of sugar cane, leading the famous British sugar refiner Tate & Lyle to become one of the only companies to advocate for Brexit;
– it damages the EU’s reputation as a supporter of global and fair trade;
– it prevents European sugar industry from becoming truly competitive, and lastly,
– EU consumers are paying a much higher price for sugar than they would if the trade in sugar were free.
Last Saturday marked a milestone in changing the EU sugar regime. Lifting the European sugar quota is an important step towards a more competitive European sugar industry. This measure will however remain incomplete if the sector continues to be protected from international markets. In fact, lifting the sugar quota alone will turn the EU sugar industry into a mercantilist model: without any limits on sugar production and no serious competition, European sugar producers may be tempted to dump surplus sugar out onto world markets.
The Mercosur trade deal is an opportunity to make a further step towards a competitive and fair sugar regime that does not only work in favour of the European sugar sector but also the consumer and downstream industry. The EU should use this opportunity now that it can shape the conditions together with a strong trading partner.
Sugar – the sweet spot of an EU-Mercosur trade deal
Géraldine Kutas — posted 2017-09-05
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.
 World Bank and IBGE  average 16.89%of the value of production in the EU compared to 0.74% in Brazil
Géraldine KutasHead of International Affairs & Senior International Adviser to the President
Leticia PhillipsRepresentative, North America
SIGN UP FOR EMAIL UPDATES
Join our email list and receive the latest news and updates from UNICA in your inbox.