New Mercosur-EU Agreement

[Ricardo Arredondo is professor of Public International Law at the University of Buenos Aires and at the University of Palermo. He is Professor of Diplomatic Law and Practice at the Institute for the Foreign Service of Argentina.]

After more than two decades of negotiation, on June 28, Mercosur and the European Union reached “a political agreement for an ambitious, balanced and comprehensive trade agreement”, according to the EU. The Association Agreement will consolidate a strategic political and economic partnership and is expected to strengthen the already fluid relationship, opening new opportunities which, it has been said, will save over €4 billion worth of duties per year.

More importantly in my view is that, in a context of growing unilateralism and trade tensions, the bi-regional agreement represents a strong indication that Mercosur and the EU stand for a rule-based trade system and, more broadly, they share the vision that it is necessary to implement alliances that would enable them to face the challenges to multilateralism in a complex globalized process and to establish these regions as a rational and viable alternative to a nationalist, protectionist and militarized order.

Some background

The idea of an Association Agreement between Mercosur and the European Union began with the signing of the Framework Cooperation Agreement of 1995, where three pillars or chapters were contemplated: a political dialogue, cooperation and trade and economic matters. Of these three initial pillars of the agreement, the last was the one that took the longest to reach a consensus. The trade agreement reached is part of a comprehensive new Association Agreement under negotiation between the EU and Mercosur countries. It is composed of a political and cooperation pillar – on which negotiators already reached a general agreement in June 2018 in Montevideo – and a trade pillar.

The negotiation started in 1999, when the European Commission (EC) obtained the mandate from the Council of Ministers. The talks formally began in the year 2000, although the differences in the offers and positions, added to the tensions generated before the incorporation of a group of Central and Eastern European countries to the European Union made the talks problematic. Nevertheless, the negotiation went through a period of great dynamism until 2004, when the respective offers made in the commercial chapter were not deemed sufficient for the expectations of both parties.

The European proposal was strongly asymmetric. While asking for a complete opening in industrial goods, services, government purchases, geographical indications, and so on, the EU only offered modest tariff quotas in the agricultural sector. Furthermore, it conditioned the negotiation to the conclusion of the Doha Round negotiations of the World Trade Organization, which were expected to be concluded by 2005.

In 2009, within the framework of the international economic crisis and with the Doha Round negotiations stalled, with no prospects for significant progress in the medium term, the Paraguayan Pro Tempore Presidency of Mercosur agreed with the EU to explore the possibility of resuming trade negotiations for the bi-regional Association Agreement. The negotiators of the parties agreed to meet informally in the city of Lisbon, in June 2009, to review the topics on the agenda and seek approaches that would make it possible to recommend to the member states of both regional organizations the resumption of the talks. In November 2009, the second informal meeting of the negotiators took place. It was an exchange of views, including the expectations of the negotiation. The parties reiterated their positions, although they expressed willingness to consider the topics of mutual interest, without giving details in this regard.

The regional crisis in Europe and the loss of relevance of its products in the South American market at the hands of Chinese competition reignited the EU’s interest in an agreement. In 2010, the leaders of both regions announced the reopening of the talks. However, progress was limited in the context of the intransigence of the European Union to grant preferential access to Mercosur agro-industrial products and the threat that industrial goods of European origin would generate on the industrial networks of the two main Mercosur economies (Argentina and Brazil).

As of 2016, the confluence of shared worldview governments in Argentina and Brazil gave new momentum to the negotiations. However, the position of the European Union, and in particular of countries with a strong agribusiness tradition (France, Ireland, Belgium and Poland), hardened due to the pressure of growing nationalist positions.

The Argentine government sought to formalize an agreement on the occasion of the G20 summit held in Buenos Aires in December 2018, fearing of a change of scenario due to the elections results in Brazil, to no avail. The parties continued their negotiations and finally reached “a political agreement for an ambitious, balanced and comprehensive trade agreement”. The agreement was possible, among other things, because Argentina was very much in favor of the agreement and managed to convince Brazil to have a more flexible position; and because the parties considered they were in an exceptional circumstance due to the fact that the current European Commission ends its mandate in a few months and the next will be more nationalist -and consequently less pro-agreement-.

As Peña explained, in this journey, the idea of promoting negotiation with the EU had a strong / of successive Argentine Governments. “Both Mercosur and the idea of partnership with the EU are considered examples of the Argentine ability to articulate agreements on strategic issues with long-term effects. In both cases, however, there is a need to show a similar ability to translate ideas into concrete realities”.

Main features of the trade agreement

The negotiation of a bi-regional agreement is often a very multifaceted and difficult task that involves the harmonization of different political and economic interests of States and sectors through complex mechanisms of coordination at numerous levels. The result is frequently the lowest common denominator which is perceived by some actors more as a negative outcome than a benefit for the region. As Pescatore stated many years ago, referring to the European integration process, in any regional integration agreement there will be some sectors that will benefit from the agreement and others that will suffer the consequences of these agreements.

According to a document released by the EU, “the agreement in principle” covers the following areas:  1. Trade in Goods; 2. Rules of Origin; 3. Customs and Trade Facilitation; 4. Trade Remedies; 5. Sanitary and Phytosanitary Measures (SPS); 6. Dialogues; 7. Technical Barriers to Trade (TBT); 8. Services and Establishment; 9. Public Procurement; 10. Competition; 11. Subsidies; 12. State-owned Enterprises; 13. Intellectual Property Rights, including Geographical Indications; 14. Trade and Sustainable Development; 15. Transparency; 16. Small and Medium-sized Enterprises; and 17. Dispute Settlement. Also a preliminary legal text was made public recently.

The EU underlined that the region-to-region agreement will remove the majority of tariffs on EU exports to Mercosur, making EU companies more competitive and, as regards EU industrial sectors, it will help boost exports of EU products “that have so far been facing high and sometimes prohibitive tariffs”. It will also benefit the EU agri-food sector reducing existing Mercosur tariffs and providing duty-free access subject to quotas for certain EU products. The EU also emphasized the consensus reached on intellectual property issues, including geographical indications.

Mercosur highlighted that the Association Agreement, inter alia, will boost its exports of goods due to the EU elimination of tariffs for 92% of Mercosur exports and grants preferential access for another 7.5% (quotas and other access modalities that do not imply total elimination of tariffs). Less than 1% was excluded. On the other hand, Mercosur will eliminate tariffs for 91% of imports from the EU and will leave 9% of sensitive products excluded from the agreement. The Mercosur services sector will benefit from the removal of most existing barriers and will be able to compete on equal terms in the European market.

As it has been pointed out, the agreement implies the creation of a market of goods and services of almost 800 million consumers and almost a quarter of the world GDP. In this sense, Mercosur will have a network of commercial agreements with partners that they represent more than 30% of the world GDP. The trade agreement would also provide better conditions for foreign investments, reducing restrictions and simplifying operating procedures.

The geo-economic relevance of the agreement

As Roberts, Choer and Ferguson points out, the world seems to be moving towards a new Geoeconomic World Order. “This new order, which is characterised by a growing ‘securitisation of economic policy and economisation of strategic policy,’ has the potential to significantly reshape the rules, norms and institutions of international trade and investment law”.

Considering the Mercosur-UE Association Agreement from this point of view, the consensus reached by these two regions should be celebrated. After a prolonged period of stagnation in extra-regional negotiations of Mercosur, this progress in the bi-regional link not only benefits the trade between the two blocks, but also allows a greater internal consolidation of Mercosur, reaffirming the South American integration process, harmonizing the current regulations and simplifying the internal procedures.

Notwithstanding this achievement, the agreement takes place at a certain historical time, which provides its temporal context. A time when the unipolar moment that Krauthammer talked about at the end of the Cold War has disappeared and a new multipolar order has begun, where China and India are emerging, Russia is re-emerging and there is a decline in the hegemonic position of the United States. One of the victims of this new order is multilateralism – the international order based on norms – that emerged after the Second World War and that today is seriously challenged by a United States that has lost its interest or faith in it and by powers that have not been characterized by their defense of democracy, the rule of law and unrestricted respect for human rights.

In this context, the EU, plagued by its own internal disagreements, which includes an eventual Brexit, perceives that on the other side of the Atlantic there is a community of countries with which it shares a set of values and principles. In the same way, they disagree with powers that brand military policies or marked nationalist and protectionist strategies. This common vision of basic societal values and conceptualization of the international system constitutes the geopolitical basis on which the agreement is based. Both regions share the view that it is necessary to implement alliances that enable them to face the challenges to multilateralism within the framework of a complex globalization process and to establish a rational and viable alternative to a nationalist, protectionist and militarized order.

Although both the EU and Mercosur engaged in similar “Association Agreements” with other countries or regional trading blocs, as the President of the European Commission Jean-Claude Juncker said “This is a landmark agreement for a number of reasons” and “the largest trade agreement the EU has ever concluded”.

Therefore, this agreement should be seen as an achievement, since its signing exceeds the economic and commercial framework and creates an alternative option in a polarized world where the guiding principles of a new multipolar order are not the power or force but the administration of political, economic, financial and technological relations through an order based on norms. The agreement supports of a rules-based order by, inter alia, addressing issues like the environment and labour rights, as well as reinforcing sustainable development commitments that both regions have already made. For example, they commit to effectively implement the Paris Climate Agreement. A dedicated sustainable development chapter will cover issues such as sustainable management and conservation of forests, respect for labour rights and promotion of responsible business conduct. It also offers civil society organizations an active role to overview the implementation of the agreement, including any human rights, social or environmental concerns. At the same time, the agreement sets up a dispute resolution system that bolsters the WTO by establishing the possibility of solving a dispute through this system or under the WTO Dispute Settlement Understanding if the dispute matter arises under the scope of Mercosur_EU agreement and under the WTO agreement or under any other agreement to which the relevant Parties are party, at the discretion of the complaining Party (Art. 21).

This agreement strengthens the links both at a political and economic levels between Mercosur and the EU with a view to developing a strategic political area that contributes not only to the consolidation and deepening of the bi-regional relationship but also to the creation of a fairer world order.