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Mercosur-European Union Agreement: what are the pros and cons for Brazilian agribusiness?




Since 1999, Mercosur (a trade organization to which Brazil is a member) and the European Union (EU) have been negotiating an agreement to reduce or eliminate import and export tariffs between the two blocs.

This means that, if the agreement is put into practice, there will be free trade of products between countries, mainly in agribusiness, in which Brazil is the leader in several rankings, such as soybeans, for example.

However, as the process takes so long, there is a risk that the agreement will not be implemented, taking away the market potential for Brazilian agricultural products.

With this in mind, below we will explain how the Mercosur-European Union agreement will work, what the pros and cons are for Brazilian agribusiness and what is holding the treaty back.


How does the Mercosur-European Union agreement work?


As we mentioned above, the free trade agreement between Mercosur and the European Union began to be negotiated in 1999 and has not yet been finalized due to several issues. In theory, the agreement mainly provides for the exemption of export tariffs from South America to Europe and, in return, Europe needs to remove 91% of the export tariffs it imposes on Mercosur.

In other words, import and export tariffs would reach zero between the two blocks for 10 years. Remembering that Mercosur is made up of Brazil, Argentina, Paraguay, Uruguay, with Venezuela being suspended in 2016. And the European Union is made up of the countries: Germany, Austria, Belgium, Bulgaria, Cyprus, Croatia, Denmark, Slovakia, Slovenia, Spain, Estonia, Finland, France, Greece, Netherlands, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Poland, Portugal, Czech Republic, Romania and Sweden.

Currently, Brazil is the second largest country that exports agricultural products in bulk to the EU, such as: orange juice, fruits, instant coffee, fish, crustaceans and vegetable oils. EU exports to Brazil include, for example, vehicles, machinery, chemical and pharmaceutical products. Thus, with the agreement, in addition to zero tariffs, Mercosur countries would guarantee a price reduction for products exported in large quantities.


Obstacles of the Mercosur-European Union agreement


Since 1999, several obstacles have occurred to postpone the negotiation of the Mercosur-European Union agreement. However, in 2019, during the presidency of Jair Bolsonaro (PL), both blocs signed the agreement. However, for it to come into force, there must be a technical review and ratification by the parliaments of all countries involved.

Thus, after four years of paralysis, the agreement was once again negotiated with the arrival of Luiz Inácio Lula da Silva (PT) as president, but what is catching on now are European environmental requirements. Because, as was evident at the United Nations climate conference (COP 28), in Dubai, French President Emmanuel Macron made a statement against the agreement for environmental reasons.

Remembering that France is the second largest economy in the European Union and the French agricultural sector has already demonstrated against the conclusion of the agreement with several protests on the French streets.

In addition to France, rural producers from Germany, Italy, Belgium, Poland, Romania and Lithuania also took to the streets to protest against imports of cheaper products from Mercosur, causing an increase in their agricultural costs.


Advantages and disadvantages of the Mercosur-European Union agreement for Brazilian agribusiness


Thinking about the advantages and disadvantages for Brazilian farmers, the agreement allows the diversification of commercial partners and reduces dependence on imports of our agricultural products from China.

However, according to the Brazilian Agriculture and Livestock Confederation (CNA), the treaty would be very good for our agribusiness due to the exemption from taxes, but as the EU has implemented a law that bars the import of products from deforested areas, it may be that the agreement does not work, as it goes against some rules of the Brazilian Forest Code. In other words, the agreement for both blocks is blocked.

However, the situation of dependence on exports to China may be the biggest asset of the agreement for Brazil, as this makes it possible to diversify Brazilian trade. For example, in 2023, according to the Ministry of Agriculture, Chinese purchases of Brazilian agribusiness reached US$60.2 billion, with emphasis on exports of soybeans (US$39 billion) and meat (US$8 billion).

And, behind China, in fact, the EU is the second largest importer of Brazilian agricultural products, with a percentage of 13% of the sector's exports. In other words, the Mercosur-European Union agreement would be a good option for our agriculture.


Why did European Union environmental laws hold up the agreement?


In addition to the environmental legislation implemented by the EU recently not being in line with Brazilian environmental rules, in December 2022 the bloc implemented the Anti-Deforestation Law which means that, from January 2025, Europe is prohibited from purchasing goods from deforested areas. . And, the law includes products such as meat, soy, cocoa, coffee and chocolate coming from the Amazon and part of the Cerrado.

However, according to the Brazilian Forest Code, rural producers must reserve only a portion of their land for environmental preservation. In this sense, the other part can be used for agricultural and livestock production, which is in line with European law.

Therefore, the Brazilian Agriculture and Livestock Confederation (CNA) sees serious impasses in the implementation of the agreement because, for example, in the case of the Amazon, owners can use 20% of their land to produce, but must leave 80% for the legal reserve. In the Cerrado, the Legal Reserve Area (ARL) is 35%.

Therefore, it is important that Brazilian farmers inform themselves about the negotiations of the Mercosur-European Union agreement, as this treaty will have commercial and environmental changes, if the authorities reach an agreement.

Source:BlogSensix

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