Frolicking in Free Trade: EU and South America make a monumental trade deal

July 23, 2019

2 min read

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What's going on here?

20 years of negotiations comes to a close as the EU and Mercosur, a South American economic bloc, agreed a trade deal this June. This is the biggest trade deal the EU has secured to date.

What does this mean?

The EU-Mercosur trade deal, which has been in negotiation from June 1999 until June 2019, is estimated to open up a market of almost 300 million people. The trade deal proposes to slash 92% of all trade tariffs between the EU and Mercusor (consisting of Brazil, Argentina, Uruguay and Paraguay). This will save EU companies 4 billion every year in custom duties, leading to a boost in companies’ exporting activities as well as making imported products cheaper for consumers.

For Mercosur, it is a huge win for South American farmers who will finally gain access to Europe’s food markets, particularly in agricultural products such as beef, sugar, and poultry. For the EU, granting Mercosur access to EU food markets was the necessary concession to lower tariffs for European industrial products and cars (currently 35%) and open up its procurement markets. Opening up Mercosur’s public procurement markets mean European companies can now participate in tender bids with public authorities (such as a construction contract to build roads or hospitals).

What's the big picture effect?

The EU-Mercosur deal represents another step in Europe’s urgent race towards globalisation whilst the U.S. seems to be retreating into protectionism. The EU has made no secret of this; “we reinforce multilateral agreements whilst others rip them up” tweets the EU Trade Commissioner Cecelia Malmstron (on the EU-Mercosur trade deal).

This is a larger trend amongst all major economic players in the world. Countries like Australia, Canada and Japan are working on a flurry of bilateral and multilateral trade pacts. The Mercosur countries, just after inking the EU-Mercosur accord, are starting to eye Canada and South Korea for trade pacts opportunities next. The EU, however, has been amongst the most active. Since Trump took office, the EU has already secured free trade deals with Canada, Mexico, Japan, Singapore and Vietnam and currently, it is in deep talks with India, Australia, New Zealand and Chile.

What this trend means for the US, is that US businesses will increasingly find themselves playing at a disadvantage, whereas major economic players, particularly the EU, march towards free trade and open markets. This spells potential disaster for the U.S. who may soon find itself on the outside looking in as the world reaps benefits from cheaper goods, preferential exports, further economic growth and job creation.

Report written by Roslyn Lai

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