The EU-Mercosur-Agreement

Where are the problems?

The EU and the Mercosur-States Argentina, Brasilia, Paraguay and Uruguay have been negotiating for a free trade agreement since 1999. The most controversial point are the quotas on agricultural products, which even led to a freeze of the negotiations in 2004. A few EU states fear that excessive import quotas would have negative effects on the European farming industry.

The Mercosur-States demand an open access to the European market for beef, ethanol, and sugar. This raises the fear of great financial losses on the European side. The European farming industry is afraid, that too high import quotas could bring an imbalance and could lead to a crisis. Therefore the European agricultural industry insists on preventing of price reductions and losses of market shares of the European farming industry on the Single Market. The especially concerned beef industry warns that the combination of Canadian beef imports and beef imports from the Mercosur-States could mean the end for the European cattlemen. The European sugar and ethanol industry fear that too high import quotas and low tariff quotas could lead to an important competitive disadvantage since the Brazilian industry is able to produce at much lower costs.

So far there no regulations have been defined for investment protection nor for investor-state arbitration. Only state-state arbitrations are foreseen, in which governments can represent their investors. Furthermore, this arbitration mechanism is missing instruments for the standards of investment protection, e.g. indirect expropriation. The planned measures to sustain environmental and labour standards are questionable and give reasons for concern, as in cases of violation only consultations are planned. In addition, the European Union is accused that the human rights and the sustainability standards would not be adequately incorporated in this agreement.

Despite difficult negotiations, the EU is expecting a privileged access to the Mercosur market. The agreement should lead to significant savings in customs duties and should create new opportunities for the European economy. Furthermore, it should lead to a new access to cheap raw materials and to a new service market. The Mercosur market has already been the eight most important export market for European services in 2014. Brazil alone, is the 10th most important trading partner of the EU and even the seventh largest market for European services. Among other things, the goal is to guarantee the equal access for European companies to the Mercosur market. However, the extent to which these objectives can be achieved, will depend on the next rounds of negotiations.