Summary
The structure of the EU-Mercosur FTA potentially holds important lessons for ACP governments. This is most notably the case in regard to the use of TRQs to carefully manage trade liberalisation in sensitive agro-food sectors. The EU makes extensive use of TRQs under trade agreements with its major agro-food sector trade partners in order to protect the interests of EU farmers, while meeting consumer demand. The contrasts sharply with the use made of TRQs by African governments in trade agreements with their major agro-food sector trade partner, the EU. With the exception of the EU-SADC EPA no other African governments have used TRQs to manage imports from the EU in sensitive agro-food products. In addition the application of tariff standstill commitments to products not subject to tariff reduction commitments under the EU-Mercosur agreement is potentially of concern to ACP governments if this approach is extended to the interpretation and application of EPA commitments. The use of regionalisation arrangements for SPS controls however would usefully be extended to the treatment of certain ACP exports to the EU (e.g. Namibian beef and lamb exports). Finally the ’non-alteration’ rule included in the Mercosur agreement could usefully be taken up and applied in an extended form in the context of a no-deal Brexit under the existing EU-ACP EPAs and rolled over UK-ACP Continuity Agreements.
At the end of June 2019, after 20 years of negotiations the EC reached a political agreement with Mercosur on a wide ranging Association Agreement which included a free trade area agreement. The EC see’s the agreement giving ‘European companies an important head start into a market with an enormous economic potential’. According to Trade Commissioner Malmstrom ‘The agreement will save European companies over €4 billion in duties at the border – four times as much as our deal with Japan’ (1).
According to Agriculture Commissioner Hogan the agreement is a ‘fair and balanced deal with opportunities and benefits on both sides, including for Europe’s farmers’. Particular importance is attached to those elements of the EU-Mercosur agreement which provide protections for ‘distinctive, high quality EU agri-food products’ (1).
However it is acknowledged the agreement ‘presents some challenges to European farmers’, with the EC making a commitment to helping farmers to meet these challenges. It is in this context that the Agriculture Commissioner highlighted how the EU ‘will only open up to agricultural products from Mercosur with carefully managed quotas that will ensure that there is no risk that any product will flood the EU market and thereby threaten the livelihood of EU farmers’ (1).
In terms of EU imports from Mercosur countries the EU will fully liberalise 82% of agricultural imports from Mersocur, ‘with the remaining imports subject to partial liberalisation commitments including tariff-rate quotas for more sensitive products with a very small number of products excluded altogether’ (2). In addition all goods imported from Mercosur countries will have to comply with the EUs’ rigorous food safety, animal and plant health standards as is the case today (1). Indeed the EC maintains the agreement ‘explicitly upholds the ‘precautionary principle’, meaning that public authorities have a legal right to act to protect human, animal or plant health, or the environment, in the face of a perceived risk even when scientific analysis is not conclusive’ (3).
However significantly from an ACP perspective, the EU-Mercosur agreement allows ‘regionalization’ of SPS controls, with this allowing exports to continue even where a disease is present in some areas of the EU (4).
The EC describes the agreement with Mercosur as involving a ‘careful opening of markets’, in ways which respect the interests of EU farmers. Particular importance is attached to the ‘limited and strictly controlled’ opening of access to the EU market in sensitive sectors. This is achieved through ‘carefully calibrated quotas’ which will be ‘gradually implemented’. This approach will be supplemented by safeguard measures to protect EU farmers against sudden import surges (5).
In terms of EU agri-food exports to Mercosur countries, tariff elimination will take place on 93% of EU agri-food exports in terms of tariff lines covered, but fully 95% of the export value of EU agricultural products. Overall it is held the ‘EU agri-food sector will benefit from slashing existing Mercosur high tariffs on EU export products, chocolates and confectionery (20%), wines (27%), spirits (20 to 35%), and soft drinks (20 to 35%)’ (1).
The EC has highlighted how ‘almost all of the EU’s key export interests are subject to full liberalisation, with in addition for a small number of imported products, zero duty quotas being opened by Mercosur’. This is particularly important in the dairy sector, especially for cheese. The EC also highlights how the agreement will promote ‘faster, simpler and more predictable export procedures’, as well as protecting EU GIs, thereby ensuring only EU exporters benefit from the price premiums such quality based differentiation gives rise to (1).
Illustrative Examples of the Value of Tariff Removal for EU Agri-Food Exports
| Product | Existing Trade | Current Tariff |
| Olive Oil | € 300 million | 10% |
| Malt | € 50 million | 14% |
| Wine | € 160 million | 27% |
| Canned Peaches | € 3-5 million | 55% |
| Spirits | € 180 million | 20-35% |
| Chocolates | € 65 million | 20% |
Source: ‘Better Export Opportunities for European Farmers’, EU-Mercosur Trade Agreement: Creating Opportunities while Respecting the Interests of European farmers https://trade.ec.europa.eu/doclib/docs/2019/july/tradoc_158059.pdf
Duty Free TRQs for EU Dairy Exports
| Product | Volume | Current Tariff |
| Cheese | 30,000 tonnes | 28% |
| Milk Power | 10,000 tonnes | 28% |
| Infant Formula | 5,000 tonnes | 18% |
Source: ‘Better Export Opportunities for European Farmers’, EU-Mercosur Trade Agreement: Creating Opportunities while Respecting the Interests of European farmers https://trade.ec.europa.eu/doclib/docs/2019/july/tradoc_158059.pdf
In addition provisions are included in the agreement which commit the parties to:
- a tariff standstill on all products, including all products not subject to preferential treatment;
- prohibiting the restrictive use of import and export licencing procedures; and
- ensuring any unilateral tariff reductions will be automatically applied to the party to the agreement (2).
The agreement also includes a ‘non-alteration‘ rule which ‘stipulates activities that may be undertaken for originating products in third countries, such as operations to preserve products, storage, splitting of consignments, exhibitions, etc’, without these products losing originating status (2).
Press reports suggest not all EU member states governments are in agreement with the trade accord concluded with Mercosur. The French Agriculture Minister has committed the French government to critically reviewing the negotiated text. Meanwhile the French Foreign Minister asserted it would still be necessary to determine whether the negotiated text actually meets the ‘red lines’ the French government had drawn up for the conclusion of a trade agreement with Mercosur (6). Press analysis has identified similar concerns in Ireland and Poland where powerful organised agricultural sectors exist. Particular concerns exist around ‘the supposed danger represented by meat and other food from South America, where the same legislation does not exist as in Europe’ (7).
The EU farmers’ organisation COPA-Cogeca has highlighted what it sees as the dangers of the agreement. It points out how the EU’s trade surplus with Mercosur has fallen in recent years. It describes Mercosur as the ‘EU’s primary supplier of foodstuffs’, with for example 80% of EU beef and 68% of EU animal feed imports coming from Mercosur countries (8).
What is more Copa-COGECA maintains that on a per capita basis Mercosur provides a higher level of farm support than the EU (€234 per citizen compared to €107 per citizen) (8). Overall Copa-Cogeca concludes the Mercosur trade deal:
- ‘will make European consumers more dependent on political decisions or climatic events in Mercosur countries.
- would not diversify sources of supply for European consumers and would, therefore, not be a guarantee against volatility in commodity prices’ (8).
The pan-European poultry organisation (AVEC) and the Irish beef farming sector have also reacted against the agreement claiming there is long standing proof Brazil does not respect EU rules with regard to poultry and beef meat standards. It accused the European Commission of sacrificing farming interests for the benefit of other EU economic sectors (9, 10).
EU farmers’ organisations have long called for a ‘fair and balanced trade and agreements that ensure that they do not encourage surpluses in our markets’. It is argued EU farmers ‘cannot afford additional income losses due to a trade agreement that puts even more pressure on the EU sugar, beef and chicken meat markets’. Farmers organisations across Europe have long expressed concerns that European farmers ‘cannot be used as small change when the EU negotiates free trade agreements’, for the benefit of other sectors (12).
It has been suggested French approval of the trade accord could be linked to the Brazilian government firmly committing to the Paris Climate Agreement and taking steps to halt deforestation in the Amazon (7). However it is unclear to what extent this is simply political posturing to placate the French farming lobby. This needs to be seen in a context where ‘it could take two or three years for the commercial part of the agreement to be approved’, with this providing time for the dust to settle before the agreement enters into effect (7).
| Comment and Analysis Mercosur is the major source of EU agro-food imports in a range of sectors which EU farmers see as ‘sensitive’. As such the European Commission’s approach to the EU-Mercosur FTA holds some important lessons for ACP governments as they review their economic partnership agreements with what for many of them is their major source of agro-food imports in sensitive sectors, the EU. The most important feature of the EU’s approach lies in its carefully managed approach to the opening up of sensitive agro-food product markets. This carefully managed approach hinges around the use of tariff rate quotas (TRQs), which restrict the volume of duty free access granted for sensitive agro-food products, so as to ensure there is no risk that any product will flood the EU market and thereby threaten the livelihood of EU farmers’. The careful opening of markets in ways which respect EU farmers’ interests is seen as critical to the process of agricultural trade negotiations. These TRQs are supplemented by safeguard measures to protect EU farmers against sudden import surges; while the agreement also continues to assure EU producers against imports of lower standard products through the application of the EU’s rigorous food safety, animal and plant health standards. This approach is seen as central to the EU’s defensive agro-food sector interests. Outside of the EU-SADC agreement this managed TRQ approach has scarcely been used by African governments in the negotiation of reciprocal trade agreements with the EU, despite the dominant role the EU plays as a source of agro-food imports to sub-Saharan African markets in sensitive agro-food sectors and the profound changes which the EU’s successful long term programme of agricultural policy reforms has brought about. These reforms have virtually eliminated the price disadvantage which would normally arise from the higher cost nature of European agricultural production (e.g. in the poultry meat and sugar sectors). This has given rise to dramatic increases in the volume of EU exports to African ACP countries, which would have appeared inconceivable when the EPA negotiations were first launched between the EU and ACP governments in 2005. The increase in EU exports in sensitive agro-food products is totally unrestrained by TRQs. Indeed where trade agreements have been negotiated the EC is looking to use the provisions of existing trade agreements to systematically remove such quantitative restrictions where African governments currently make use of such tools. This is likely to become a particularly contentious issue in East Africa, Central Africa and West Africa in the coming years, should regional EPA negotiation processes be completed in these regions. Given the tremendous scope for the structural development of African agro-food sectors which the rapid growth of African food demand is generating, it would appear important for African governments to review existing EPA commitments and seek to introduce the quota based ‘careful market opening’ which the EU is utilising in its trade relations with Mercosur. EU farmers have long argued they ‘cannot afford additional income losses due to a trade agreement’. It would appear to be time African governments similarly recognised the importance of traded agreements to farmers’ incomes, if agro-food sector development is to play a role in lifting rural populations out of poverty. In addition there is a further aspect of the EU-Mercosur Agreement which is of concern, namely the commitment which ensures a tariff standstill on all products, including products not subject to preferential treatment. It is hoped this interpretation of the tariff standstill commitments included in EU-ACP EPAs is never applied by the EU; since this would leave some of the most sensitive ACP agro-food sectors exposed to the continued growth in EU exports. One further general feature of interest to some ACP countries is the ‘regionalisation’ of SPS controls proposed under the Mercosur agreement. This is something Namibian beef and lamb exporters have long been seeking for their exports to the EU market, but where the EU has been backsliding in recent years. This EU backsliding has served to exclude smallholder cattle and sheep farmers producing on communally held land from high value export supply chains. A final area of potential interest to the ACP relates to the ‘non-alteration’ rule included in the EU-Mercosur Agreement, which could prove of value if extended to ACP exports under existing EU EPAs and UK Continuity Agreements in the context of a ‘no-deal’ Brexit. These ‘non-alteration’ provisions allow the retention of ‘originating status’ despite operation taking place to preserve, store or split consignments in a country which is not a party to the agreement. |
Sources:
(1) EC, EU and Mercosur reach agreement on trade’, 28 June 2019
http://trade.ec.europa.eu/doclib/press/index.cfm?id=2039
(2) EC, ‘EC, ‘New EU-Mercosur trade agreement: The agreement in principle’, Brussels, 1 July 2019
http://trade.ec.europa.eu/doclib/docs/2019/june/tradoc_157964.pdf
(3) EC, ‘Key elements of the EU-Mercosur trade agreement’, 28 June 2019
http://trade.ec.europa.eu/doclib/press/index.cfm?id=2040
(4) EC, ‘EU-Mercosur Trade Agreement: respecting Europe’s Food Safety Standards’
http://trade.ec.europa.eu/doclib/docs/2019/june/tradoc_157956.pdf
(5) EC, ‘Better Export Opportunities for European Farmers’, EU-Mercosur Trade Agreement: Creating Opportunities while Respecting the Interests of European farmers
https://trade.ec.europa.eu/doclib/docs/2019/july/tradoc_158059.pdf
(6) euronews.com, ‘EU-Mercosur deal: Is the agreement a threat to European Agriculture?’, 3 July 2019
https://www.euronews.com/2019/07/03/eu-mercosur-deal-is-the-agreement-a-threat-to-european-agriculture
(7) freshplaza.com, ‘EU-Mercosur deal very complex’, 17 July 2019
https://www.freshplaza.com/article/9127827/spain-eu-mercosur-deal-very-complex/
(8) Copa-Cogeca, ‘The agricultural impact of an EU-Mercosur agreement’
https://www.euronews.com/2019/07/03/eu-mercosur-deal-is-the-agreement-a-threat-to-european-agriculture
(9) IEG Policy ‘Is the EU-Mercosur trade agreement a threat to EU poultry production?’, 5 July 2019
https://iegpolicy.agribusinessintelligence.informa.com/PL220781/Is-the-EUMercosur-trade-agreement-a-threat-to-EU-poultry-production
(10) ‘globalmeatnews.com, ‘Mixed reaction to EU Mercosur trade agreement’ 1 July 2019
https://www.globalmeatnews.com/Article/2019/07/01/Mercosur-EU-agreement-fallout?
(11) thejournal.ie, ‘Why a new trade deal between EU and South American countries has gone down badly in Ireland’, 1 July 2019
https://www.thejournal.ie/eu-mercosur-deal-explained-4704790-Jul2019/
(12) New Europe, ‘EU-Mercosur nearing agreement, while Macron warns Brazil on Paris Accord’, 28th June 2019
https://www.neweurope.eu/article/eu-mercosur-nearing-agreement-while-macron-warns-brazil-on-paris-accord/