Dec 09, 2024
Mercosur and EU Reach Long Awaited Trade Agreement
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
After 25 years of negotiations, Mercosur and the European Union announced last Friday, December 6th, that they had agreed on a new trade agreement between the two blocks. While everyone was proud to make the announcement, the trade deal is not valid until both blocks ratify the agreement and there is significant resistance on the part of several EU members.
After being in limbo for 25 years, what caused the parties to finally agree on a deal? The simple answer is American protectionism and the voracity of Chinese exports. More than 15% of the world's total imports go to the United States and a second Trump administration is threating to "close the door" using tariffs. The Chinese are also ramping up their exports to a frightening level. The EU and Mercosur both view this agreement as a lifeline for both sides.
Some of the main agricultural components of the agreement include:
- Beef - Mercosur is already a major supplier of beef with annual exports of 100 and 120,000 tons. With the new proposal, there will be an additional quota of 99,000 tons with reduced tariffs.
- Poultry - Mercosur is the lead supplier with Brazil exporting 300,000 tons annually. The agreement establishes an additional quota of 180,000 tons.
- Sugar - The agreement creates a quota of 180,000 tons with zero tax. The sugar will be directed to deficit regions of southern Europe and threatens France's sugar exports.
- Corn - The EU already imports 25% of its needs with 6-7 million tons coming from Brazil. The agreement includes an additional quota of 1 million tons of corn and unlimited imports of corn derivatives. This measure represents direct competition to French production of corn derivatives.
- Additional products - The agreement provides new quotas for pork, ethanol, rice, honey, sorghum, orange juice, cachaca, cheeses, yogurt, butter, and fruit.
The agreement expands the scope of Mercosur agribusiness in the European market with an estimated gradual elimination of 4 billion euros in tariffs over the next few years. European manufacturers would also benefit from reduced barriers to entering the Mercosur market. For the agricultural sector, Brazil is positioned to be the big winner and France the big loser.
The trade deal calls for the approval of 15 of the 27 EU members representing 65% of the EU‘s population, as well as a simple majority in the European Parliament. South American negotiators remain optimistic that the EU will eventually give its approval and that France will not be able to bring together a blocking minority.