After 25 years of talks, the European Union (E.U.) and South America’s Mercosur bloc reached an agreement on a free trade agreement. The deal, which was formally signed on Jan. 17 in Paraguay, cuts nearly all trade tariffs in a market of 700 million people. However, four days later, the European Parliament voted for a legal review of the pact by the E.U. Court of Justice, which could delay or derail the deal. What would be the economic impact of the E.U.-Mercosur trade deal? Who are the main winners and losers from the deal? What will result from continued opposition to the trade accord, including from French and Polish agricultural lobbying groups, who argue the deal threatens local farmers by opening the door to unfair competition?
Mariano Machado, principal Americas analyst at Verisk Maplecroft: “The deal lays bare the collision between long-term geoeconomics and short-term political risk. On the economics, it removes tariffs on more than 90 percent of bilateral trade and reduces non-tariff friction by locking in rules on standards, procurement and investment conditions. For the European Union, the most tangible benefit is improved export competitiveness in historically protected Mercosur markets, plus duty savings; for Mercosur, the value lies in preferential access to a high-income market and an investment signal that can lower perceived policy risk and support capital inflows. Winners and losers are divided less by passports than by exposure. Europe’s winners are its export machinery: autos and components, machinery, chemicals and pharmaceuticals that monetize predictable market entry. Mercosur’s winners are agroindustry and resource-linked value chains that will gain preferential access, provided they are able to climb the European Union’s steep compliance ladder. Losers largely mirror these: E.U. farmers in sensitive commodities (even with quotas and safeguards) and Mercosur manufacturers competing over imports amid higher compliance costs. That is why European agricultural pressure is not a footnote, but the deal’s tripwire. By framing the pact as ‘unfair competition,’ critics have pushed the European Parliament toward judicial review, a move that could stretch timelines out by a further 18 to 24 months, chill investment and invite brinkmanship over any provisional application of an interim trade pillar. The irony is that litigation could also harden the deal: A court-endorsed outcome could reduce the scope for further scrutiny and make ratification more durable.”
Bartłomiej Znojek, Latin America analyst at the Polish Institute of International Affairs: “The European Parliament (EP) voted on Jan. 21 to ask the Court of Justice of the European Union about the legality of the just-signed E.U.-Mercosur Partnership Agreement (EMPA), abruptly halting celebrations. The decision not only delayed ratification but also shows the EP’s consent will not be so certain. The motion’s sponsors cited concerns about the legal strategy the European Commission (EC) used to expedite the launch of free trade provisions, as seen in recent agreements with Chile and Mexico. The EC prepared two separate instruments for approval: EMPA and an interim trade agreement (ITA)—a copy of the trade part of the former. Unlike the full accord, the ITA does not require E.U. national-level ratification to take effect. Approvals by the Council of the E.U. (confirmed on Jan. 9), the EP and one Mercosur country suffice. Reports suggest the EC could try to apply the ITA provisionally, bypassing the EP but risking confrontation. The EC has tirelessly argued that EMPA safeguards and intra-E.U. mechanisms provide a robust safety net for E.U. farmers. The agrifood sector’s opposition, however, continues to dominate political debates and public opinion, overshadowing voices highlighting the EMPA’s benefits. That makes it difficult to explain that the accord is much more than food imports. It aims to liberalize over 90 percent of merchandise trade, open the service and public procurement sectors, and reduce non-tariff barriers, among other arrangements. With political and cooperation provisions, it will establish a broad framework for strategic relations between the European Union and Mercosur.”
Allison Fedirka, director of analysis at Geopolitical Futures: “While the E.U.-Mercosur trade deal’s ratification is closer than it has ever been, all parties signing on remains in question. European opposition to the trade agreement asked for the E.U. Court of Justice to review the agreement to make sure its compatible with E.U. law, a process that could take a year or more. If it conflicts with existing law, the text would need to be changed. In the meantime, it’s expected the E.U. Commission will use its powers to provisionally enact the agreement in March. Notably, the current levels of trade can continue at pace. That said, ratification of the agreements would help make manufactured goods from Mercosur more competitive in E.U. markets and give Mercosur a stronger alternative to U.S. markets. The European Union, meanwhile, has its eye on mineral resources in South America. Ultimately, Mercosur is the big winner. This is less because of the deal with the European Union itself and more about the bloc’s ability to reach a deal with Europe and the global geopolitical environment, which is prompting other major economies like Canada, Japan, South Korea, India and the United Arab Emirates to pursue free trade agreements with Mercosur.”
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