EU deal with Mercosur faces many high hurdles

One of the dominant themes in global politics over the past couple of years has been a growing sense of nationalism and a move towards isolationist economic policies.

Nowhere has this trend been more obvious than in the UK decision to walk away from its free trade relationship with an EU market of 440 million people and the world’s third most populous area after China and India, and the election success and subsequent antics of Donald Trump.

A key part of President Trump’s pre-election appeal was his assertion that free trade deals have cost US jobs and are not good for the US economy.

He promised to re-negotiate the then titled North American Free Trade Agreement (NAFTA), which he has done, and also to pressure the Chinese on the trade front, which he is also doing.

While the Chinese situation is ongoing and is justifiably a source of deep concern, he is now starting to up the ante with the EU.

In marked contrast to the UK and US behaviour, the EU is continuing to plough ahead with the negotiation of trade deals.

Japan and Canada are some of the most significant deals agreed by the EU in recent times.

But the deal agreed with the four founding member countries of the Common Market of the South, also known as Mercosur – Brazil, Argentina, Uruguay, and Paraguay – is proving very controversial and will undoubtedly face many hurdles before it eventually sees the light of day.

The EU already has trade deals with most of the other countries in Latin America, so this is arguably a natural progression for free-trade driven EU.

The four Mercosur countries offer a market of 260 million people.

The EU already exports €45bn of goods and €23bn in services to the four countries.

However, there are significant barriers to trade in the shape of high import duties, burdensome procedures and different technical and regulatory standards.

The removal of these could have a very marked impact on trade flows.

Under the Mercosur deal, the EU is allegedly insisting that it will not undermine EU food safety and animal and plant health legislation; that it will protect the rights of the EU to regulate food safety, including genetically modified organisms, or GMOs; and the ability of the EU to set maximum levels of residues for pesticides, veterinary medicines and contaminants.

In a nutshell, the EU side is arguing that EU rules will apply to all products sold in the EU and that the EU will retain its right to regulate food safety in the interests of EU citizens’ health.

It is also argued that the EU and Mercosur will commit to implementing the United Nations Framework Convention on Climate Change, and the Paris agreement on climate change.

The reaction to Mercosur has been generally positive from those who believe in the virtues and benefits of free trade.

But beef producers in the EU in general and Ireland, in particular, are not buying into this and have thus far reacted in a very negative way.

The EU side is arguing that it is protecting sensitive agricultural sectors by setting quantitative limits on the importation of products such as pork, beef, ethanol, honey, sugar, and poultry.

For example, beef imports are being limited to 99,000 tonnes, but there is a total lack of clarity about where the various beef cuts such as steak fit into these overall limits.

This is an important issue for Irish beef farmers who are currently facing a perfect storm from issues such as consumer behavior, over-supply of beef produced from the dairy herd, environmental issues around beef production, reduced payments from the EU’s Common Agricultural Policy budget, and intense competition from much cheaper meat products such as chicken and pork.

Of course overriding all of this is that big elephant in the beef shed, Brexit.

Beef representatives are arguing with some justification that they are forced to adhere to very expensive and very stringent environmental standards, and are now being faced with unjustified competition from beef producers who currently operate under very lax environmental standards, to put it mildly.

Mercosur is far from a done deal and we can be certain that various lobby groups will become very vocal and possibly militant and at a political level, the just-agreed trade deal has many high hurdles to overcome.

Meanwhile, outside of the EU, other big trading blocks will continue to push the protectionist agenda.

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