In recent weeks, news about the negotiations for a Free Trade Agreement between Mercosur and the European Union (EU) has once again emerged in the press. Since the beginning of the negotiation in 1995, there were moments when the talks between the blocs advanced, building hope that a final agreement was close, and, in other periods, silence prevailed. Besides its relevance from a business perspective—the EU is Brazil’s second-largest trading partner—, the entry into force of this agreement will represent a milestone in Brazilian history in terms of trade liberalization.
Currently, Brazil has a small network of Trade Agreements, thus reaping few benefits when compared to other markets around the world. For comparison purposes, the countries with which Brazil has free trade agreements represent only 2.6% of the global GDP and 12.9% of the country’s trade flow. Meanwhile, markets such as South Korea and Chile have agreements with trade coverage of 82% and 95.1%, respectively.
Free Trade Agreements are very effective instruments for integrating countries in global value chains and promoting the improvement of the economic well-being of their populations. These treaties usually have a comprehensive aspect and deal with relevant regulations regarding trade and economic development. They influence issues such as import tariffs’ decrease and removal, government procurement, intellectual property, the environment, and rules of origin, thus improving stakeholders’ access to cheaper and more efficiently produced goods.
As international trade evolves and becomes more complex, so do trade agreements. In the past, import tariffs dominated the negotiation process, but issues related to technical barriers, sanitary and phytosanitary measures, and the environment currently also play a central role in the discussions.
Even as countries accept commitments concerning the decrease of import tariffs, in the scope of the World Trade Organization (WTO), the trade agreements speed up and provide better access conditions. Traditionally more protected, the agricultural and livestock sector has higher tariffs when compared to other goods in most countries. Taking as an example the treaties negotiated by Mercosur, the average rates applied to agricultural products reach 56.8% in South Korea, 15.9% in Canada, and 11.7% in the EU, while for the other sectors, this index is 6.6%, 2.1%, and 4.1%, respectively. These high tariffs make it difficult to obtain access to third markets, given the low margins in the prices of agricultural products when compared to industrial goods, which makes it so that even low tariffs are often prohibitive.
One must remember that not only tariffs are trade barriers. However, they are still a major hindrance to the competitiveness of Brazilian products. One example is instant coffee. This Brazilian product is currently subject to a 9% tariff to enter the European bloc, while Colombia’s and Ecuador’s are imported at zero rates. According to what was negotiated between Mercosur and the EU, after four years of the agreement coming into effect, Brazilian instant coffee will also benefit from a zero tariff.
The good news is that if one uses as a reference the agreements already negotiated by countries with which Brazil has open deals, such as South Korea and Canada, significant gains in terms of tariff removal are expected. In the South Korean case, for instance, the average import tariff rates for agricultural and livestock products should fall by up to 95% in the agreement already signed with the United States. There is also a wide range in the number of products encompassed by the decrease in import tariffs. In the Canadian case, the negotiations with Peru allowed 97% of the set of agricultural and livestock, goods to have their tariffs zeroed in the agreement’s first year.
These patterns are also seen in the final text of the agreement negotiated by Mercosur with the EU, where more than 90% of the agricultural products of the South American bloc will have their import tariffs removed after ten years—when the decrease schedule will end. Despite the benefits and the fact that the deals have already been closed, the Mercosur–EU agreement’s ratification process has not yet started because the European bloc wants to include in the final text other commitments from South American countries in the environmental domain. Brazilian agribusiness has always been in favor of this agreement, but one must evaluate all existing costs, and reciprocity must be the main basis for concluding this long process.
The trade opening agenda must advance for the benefit of Brazilian social and economic development. Especially for the agricultural sector, which is subject to high import tariffs, the agreements’ network expansion is crucial so that the country can fully exert its protagonist role in world trade and contribute even more to global food security.
Sueme Mori is the Director of International Relations at the Brazilian Confederation of Agriculture and Livestock (CNA).
With the cooperation of Pedro Rodrigues, International Relations Advisor at CNA.
*Article originally published in Broadcast