Article: EU-Mercosur trade deal has ‘limited impact’ on European agri-food sector – Commission report

On 8 July, the European Commission published a preliminary sustainability impact assessment of the draft trade agreement between the EU and the Mercosur countries - Argentina, Brazil, Paraguay and Uruguay.

The report, prepared by the London School of Economics, found that the deal would have a limited impact on the economic stability of EU agri-food sectors.

Its conclusions were based on economy-wide analysis on how far tariff liberalisation could go in both blocs and how this would affect factors like production, consumption, consumer prices and income.

For the Mercosur bloc's agri-food market, the conservative scenario eliminates tariffs in 80% of all agricultural imports and 100% in the ambitious scenario. For the EU, its conservative scenario would see tariffs for rice, sugar, ruminant meat and other meat sectors set at 15% and at 30% for the ambitious one, while cereals and dairy would see cuts of 15% and 100%, respectively.

The report found that EU dairy could get a big boost and increase exports somewhere between 91-121%. This would happen alongside Mercosur countries increasing their own exports to the EU from 18-165%, depending how well the South American countries meet a range of criteria, like animal welfare and safety standards.

European beverages would also make large gains in the trade deal, with exports expanding by 36-38%, mostly concentrated in wine and spirits.

Meanwhile, EU beef imports from Mercosur could increase between 30-64%, causing EU output to drop between 0.7-1.2%. Pekka Pesonen, secretary-general of Copa-Cogeca, the EU's biggest farm lobby, has said that the agriculture sector is going to pay for this agreement, particularly those producers in sensitive sectors such as beef, poultry, sugar, cereal, rice, honey and citrus fruits.

Overall, the trade agreement was found to have a positive impact on the economies of both the EU and the Mercosur countries, raising wages and contributing to a reduction in inequalities.

Environment and social rights

The report also examined environmental and social factors, concluding that the EU-Mercosur deal might see a small expansion of agricultural production in South America, mostly associated to beef and sugar cane. The LSE researchers nevertheless found that the size of this increase will not lead to significant growth of the agriculture sector, which reduces the risk of the trade deal contributing to deforestation in the Amazon.

The report says the limited increase in agricultural production, and its low chance of leading to deforestation, means that the trade deal is not expected to have an impact on indigenous rights or raise further conflicts.

These findings contradict an earlier analysis funded by the European Greens which concluded that the trade deal will deepen Mercosur countries' dependency on the extraction of natural resources for domestic growth. Indigenous leaders of the Amazon have also said that the trade agreement threatens their communities and risks further violations of human rights, like the killing of activist Paulo Paulino Guajajara in November 2019.

LSE's report does acknowledge that their more positive analysis is dependent on the trade deal's flanking policies set out in the sustainable trade chapter. This part binds Mercosur countries, notably Brazil, into implementing the Paris Agreement, which includes a pledge to stop illegal deforestation in the Amazon by 2030 and legal commitments to protect forests.

Still, NGOs and green groups continue to campaign against the EU-Mercosur deal, claiming Brazil will not respect the trade deal's requirements, meaning it can lead to environmental degradation and cheaper agri-food products entering the single market.

Trade reform

Trade Commissioner Phil Hogan recently said that "global trade requires proper global rules" and only limited progress can be made without a functioning intermediary body, namely the World Trade Organization (WTO).

"We are vigorously pursuing WTO reform, because we believe that with the right leadership, and the right reforms, this organisation can be the beating heart of global economic recovery," he said, adding that this will depend on keeping trade open, free and fair, with predictable and enforceable rules.

Hogan was speaking at the launch of the Commission's trade review, which aims to build a consensus around the future direction of EU trade policy within the context of new global challenges, such as COVID-19 and climate change.

Another area the Commission is looking for input is how its trade policy can better support sustainable development around the world. A public consultation will open on 15 September and the results will feed into an overall communication that will be published towards the end of the year, which will shape the future orientation of EU trade policies.

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.