faq
Free trade agreement
Why Mercosur is – and remains – so controversial
Negotiations have taken place for more than 25 years and the EU’s Mercosur free trade agreement is now in place. What exactly is it about? What do the supporters and opponents say? And how could the contract be implemented despite the skepticism?
What is the agreement about?
The South American confederation Mercosur will reduce tariffs on 91 percent of EU exports. This affects, among other things, cars, which currently have a 35 percent tariff. The dismantling should take place over a period of 15 years. In return, the EU will gradually eliminate tariffs on 92 percent of Mercosur exports over a period of up to ten years.
“This is a real milestone, especially in these times,” says the President of the BGA foreign trade association, Dirk Jandura. “The Mercosur agreement will lead to greater growth and prosperity on both sides of the ocean.”
What does this mean for agriculture?
This is the most sensitive point. The Mercosur bloc will remove tariffs on agricultural products from the EU such as wine (currently 27 percent) and spirits (35 percent). The EU, in turn, offers higher import quotas for some agricultural products. This includes an additional 99,000 tonnes of beef per year and a duty-free quota of 30,000 tonnes for cheese. There are further quotas for poultry, pork, sugar and ethanol.
Proponents argue that the additional imports only account for 1.6 percent of EU beef consumption. The agreement also protects around 350 geographical designations of origin such as “Parmigiano Reggiano” for the famous Italian hard cheese.
Who is in favor of the agreement and why?
The EU Commission and supporters such as Germany and Spain see this as an opportunity to reduce dependence on China. This is particularly true for critical raw materials such as the battery metal lithium. The pact also offers relief from the tariffs imposed by US President Donald Trump.
The Commission emphasizes that this is the largest agreement it has ever agreed on tariff reductions. It saves EU exporters more than four billion euros in tariffs every year. In addition, EU companies received an advantage as they would be able to apply for public contracts in the Mercosur states on the same terms as local providers.
Who is against it and why?
European farmers fear the agreement will lead to cheap imports of South American goods – particularly beef. These would also not meet EU environmental and food safety standards. Environmental groups such as Friends of the Earth also describe the agreement as “damaging to the climate”. They warn it will lead to increased deforestation of forests like the Amazon as Mercosur countries will be able to export more agricultural products and raw materials.
France, the EU’s largest beef producer, rejects the agreement. Hungary and Poland also spoke out against it.
How did the deal come about despite skepticism?
The EU Commission has made several concessions to the skeptics. A protection mechanism was agreed that can suspend preferential imports for agricultural products such as beef. This can happen if import volumes in one or more EU countries increase by a certain amount or prices fall. At Italy’s request, this threshold was lowered from eight to five percent. There should also be more import controls.
In the event that the pact harms the EU agricultural markets, a crisis fund of 6.3 billion euros is also available for farmers. Finally, the Commission announced that it would reduce import duties on certain fertilizers, the cost of which has risen sharply. Politically, the necessary majority was achieved because Italy changed its position and ultimately agreed to the agreement.
How many German companies are affected?
A total of 12,500 German companies export to Mercosur, says the German Chamber of Commerce and Industry (DIHK). Of these, 72 percent are small and medium-sized businesses.
With material from the Reuters news agency
