By Tim Maler, AgraEurope
Negotiations between the EU and Mercosur group of Latin American countries on a free trade agreement continue with both sides reportedly optimistic that a deal can be reached in the near future.
As Europe takes a pause this week to vote on the composition of the new European Parliament and elect a new European Commission President, the Mercosur group is busy preparing an initial offer to exchange with EU negotiators.
In an exclusive interview, Luigi Gambardella, President of EUBrasil – a networking platform promoting business relationships between the EU and Brazil – tells Agra Europe why he is optimistic an agreement can be reached and why, despite doubters on both sides of the Atlantic, a trade agreement will be beneficial to all concerned, including those in the EU agricultural sector.
Q. How do you respond to EU farm lobby Copa-Cogeca’s recent call to halt EU-Mercosur trade talks? What would you say to allay their concerns that European farmers could potentially lose out on billions of euros?
R. It has been proven in several studies that the European and Brazilian economies will benefit from the eventual free trade agreement between Mercosur and the EU. A study commissioned by the Directorate-General for Trade shows that for agriculture, the value of Mercosur exports to the EU would see an increase of €4 billion to €5 billion, corresponding to around 34%.
For industrial goods, Mercosur can expect to increase its exports to the EU to €9 billion. This corresponds to a 50% rise in Mercosur industry exports in the scenario of a deep trade agreement.
On the other hand, the increase in EU exports to Mercosur in the largest scenario is estimated at €32 billion (a 105% increase). Even agriculture exports would increase by €0.4 billion, corresponding to 69% in the scenario of the largest liberalisation. In addition, industry exports would increase to €29 billion (a 118% increase) and services exports would grow to €3 billion (a 51% increase).
The Brazilian agri-food sector is very competitive and the concerns of the European agricultures producers are understandable. However, an agreement would enable a more balanced trade between the blocs.
EU exports are concentrated in high-value products such as olive oil, wine, malt and other beverages. With the eventual agreement, EU agri-food products will also have a greater share of the Brazilian market and consequently Mercosur. Complementarity is the key word!
Brazilian senator Katia Abreu has said that EU farming would likely be the biggest loser in a deal with the Mercosur bloc. Do you agree?
Katia Abreu is very committed to have an agreement EU-Mercosur and I’m not aware of these declarations.
However, I would like to remind [readers] that beef production in the EU is around 8 million tonnes and Brazilian exports are now equivalent to less than 2% of the total produced in the EU, taking into consideration the data from 2013. It shows that only 9% of the volume exported by Brazil was destined to the EU, equivalent to 132 000 tonnes.
Copa-Cogeca mentioned in its letter addressed to [EU Farm Commissioner] Dacian Ciolos that more than 70% of meat imported into the EU is from Mercosur, but they do not take into account the relationship between imports and internal production.
Brazil nowadays has consolidated other international markets and EUBrasil does not believe in this old belief that Brazilian agri-products will invade the European market. The EU is only the fifth biggest destination for Brazilian agribusiness.
Is an agreement on improving sanitary and traceability standards for livestock and meat products one of the stumbling blocks towards a potential EU-Mercosur agreement?
I don’t think so. Brazil already fulfills with traceability requirements for beef exports to the EU.
For poultry meat, the integration system has control of the entire production chain, as is also the case for commercial pork production if Brazil exports the product in the future to the EU. However, Brazil needs to improve the traceability system in order to answer to the requirements regarding disease control and consumer satisfaction.
Both sides have sensitive demands and the scope of the negotiations between Mercosur and the EU is a perfect moment to unravel those issues. In general, the reports from the Food and Veterinarian Office, from DG SANCO, are favorable towards the traceability system located in all four Mercosur countries. Concerning Brazil, the country follows the rules of the Codex Alimentarius Commission from the World Health Organization for food standards, residues control and growth hormones. It means we believe there is a structured framework where the discussions can happen in order to find a common sense solution for both sides.
How did the other members of the Mercosur bloc get Argentina on board in terms of agreeing on a joint proposal for tariff elimination with the EU, considering their reluctance for such a long time? What concessions needed to be made?
EUBrasil does not see it as a matter of concessions but a matter of how each Latin American country wants to place itself as a global player. Paraguay and Uruguay, smaller bloc members, recently expressed interest in joining the Pacific Alliance, a regional bloc that has been more open to free trade, both regionally and globally.
Brazilian industry supports the EU-Mercosur agreement and must continue to push the government in order to seize this opportunity. The world continues to work and make progress: everyone is negotiating, such as the United States and the EU, the US and its partners in the Pacific and Japan and the EU, etc. It is very important that the Brazilian Government maintains its strong commitment [to the EU-Mercosur deal].
Regarding Argentina, in April the Government announced it would exempt tariffs for 87% of imports from Mercosur countries. The expectation is that the Argentinians will grant clearance to include 90% of the products when the proposal to reduce rates will again be discussed between the EU and Mercosur.
To what degree do you envision harmonising regulatory standards on food safety and animal welfare taking place as part of an EU-Mercosur agreement? EU and US negotiators have often said that their own deal, the TTIP, could act as a de-facto global standard for such agreements. Where do you see Mercosur fitting in?
We do not see harmonising as a solution for most of the cases. We believe in equivalence − a recognition that a country can have high standards on food safety but in different ways. The goal is the result. Organics from Brazil for example is one of the requests, pork meat another.
We do not see either that TTIP will be easier in that matter than the negotiations with Mercosur. There are some barriers with the US and it is not clear yet how they can be transposed.
For example, the legislation on Genetically Modified Organisms (GMOs). Although Americans are more interested in exporting equipment for GMO production, Europe still has to solve internal issues. The pending legislation in the EU says that a country may accept GMOs and not others. If Europe has this internal issue, how it will manage the exports of GMOs from third countries, even from Brazil?
What do you envision as some of the most contentious, difficult elements to negotiate? What agricultural files do you see as being particularly difficult?
Services from the EU towards Mercosur is a big challenge. The Chapter of SPS issues is one of the toughest. The more you go into details, the more differences we see between the EU and Mercosur.
EUBrasil’s suggestion would be to adopt, for example, a forum between the two sides with a mandate to discuss the issues on sanitary and phytosanitary measures and continue in future understandings. This could be a solution. It means including a simple text on the agreement and continuing the discussions in a further forum.
When do you ultimately think an EU-Mercosur free trade deal will get done?
I am an optimist. I still keep pushing for a common offer from Mercosur side as soon as possible and an official exchange of offers in June.
EUBrasil believes barriers are holding back trade in both directions. Trade and investment are growing in both directions after the [financial] crisis, but they are still below potential levels. Tariffs and non-tariff barriers are holding back significant amounts of trade and investments that, despite their sheltering effect on certain so-called sensitive industries, deprives consumers and exporters of considerable benefits.
High tariffs on several agricultural products are maintained at European borders, keeping Mercosur producers from supplying the EU market at competitive prices. In the same way, tariffs and non-tariff barriers on European manufactured goods like cars are reducing the opportunities for Mercosur consumers to buy some of their preferred goods. In the increasingly important service market, barriers are also holding back both cross-border trade and establishment of foreign affiliates.
Partly for these reasons, policy makers from the EU and Mercosur have decided to resume the negotiations that were suspended in 2004, with the hope of finding new ways to free up the potential welfare gains for consumers and businesses through a possible free trade agreement.