Is it Time to Get the EU-Mercosur Deal Across the Finish Line?
Anna Carle currently works as a trainee at the European Parliament, and is a recent masters graduate in international development from the IE School in Global and Public affairs.
Image courtesy of Shutterstock
After successfully settling the European Union-United Kingdom Trade and Cooperation Agreement, and reaching an agreement in principle with China on investment, the EU will turn its focus towards other trade agreements, including those that have yet to make it across the finish line. One candidate is the EU-Mercosur Association Agreement, which was finalized on June 28, 2019, but has yet to be ratified. However, the deal has faced strong opposition, particularly from environmentalists who argue that increased trade will intensify Brazilian deforestation rates and violate indigenous rights. It has also faced criticism from European farmer cooperatives who claim that lower production standards in Mercosur will create unfair competition for EU farmers.
So, what should the EU do? A trade agreement between the EU and Mercosur presents an opportunity for the two regions to strengthen their commercial and political ties, and it must be seized without delay. Opposition to the deal is misplaced. Any potential concerns with the deal as it stands are too minor and tentative to restrict the benefits it will provide to both blocs. Below, I take a look at some of the major constraints in getting the deal across the finish line, and why these are not convincing enough to justify postponed ratification.
Trade does not necessarily correlate with deforestation
The political constraints that prevent the EU-Mercosur deal from entering into force seem to be based on weak assumptions. The main concern regards the potential threat to the Amazon forest and its indigenous communities from tariff reductions that will increase European demand for Brazilian beef and soy, two commodities known as notorious drivers of deforestation. Brazil’s National Institute for Space Research (INPE) showed an increase of 85% in deforestation rates in the Amazon between 2009 and 2020, of which 80% was accounted for by cattle ranching. Propelling this concern is the fact that Brazilian President Jair Bolsonaro is reported to have associations with so called “rainforest mafias” - organized criminal networks driving illegal deforestation. Environmental NGOs and international human rights organisations insist that the Agreement will worsen the already limited protection of indigenous land rights and the Amazon forest, and urge for its annulment to prevent further destruction.
Undeniably, the Agreement will lead to increased European demand for Brazilian beef and soy, but it is unclear to what extent this demand will affect deforestation levels. First, reports have shown that while South America has experienced significant losses in forested area since 1990, "there has been a declining trend in net losses." Furthermore, the volume of EU beef imports from Brazil has also experienced a decline relative to Brazilian beef imports from other regions. The same holds for soya beans. Second, deforestation is generally related to the expansion of livestock pastures with significant interrelations between the conversion of pastureland to soy production. Such conversion can lead to furthering pasture expansion into forest areas, a point that has been raised in public comments by Sabine Weyand, EU Director General for Trade, to highlight that domestic production methods, rather than increased trade, have a larger impact on deforestation rates.
In fact, a recent study by the National Board of Trade in Sweden claims that both Brazil and Argentina, the two biggest economies in Mercosur, have the potential to intensify production and increase product output with less consumption of land. They also predict a minimal effect on indigenous territorial rights due to this expected limited increase in agricultural production. Thus, it is too simple to correlate trade with deforestation. There are several elements that need to be accounted for, many of which cannot be measured in the current scenario, but depend on Brazil’s environmental policy, among other things, which arguably can be strengthened with EU involvement rather than without.
Threat to European agriculture?
Some political actors have publicly denounced the trade agreement, including the governments of France, followed by Italy and Luxembourg. These countries have refused to back the deal unless Bolsonaro takes considerable action towards changing domestic environmental policies. The Netherlands, Austria and Ireland have already voted against the Agreement. Proponents of the deal have asserted that the acclaimed environmental concerns by political figures such as Macron is only a form of disguised protectionism for fear of commercial competition. Together with the voice of European farmer cooperatives, Macron and other Members of the European Parliament, stress the potential threat toward local and sustainable European agriculture from Latin American agribusinesses. They highlight the fact that many Latin American countries use chemicals in their production process that are illegal in Europe (e.g. pesticides, herbicides and GMOs) and that the difference in production standards will create unfair competition and lead to harmful health and environmental implications for the EU.
As a result, European producers insist that food-stuffs from Mercosur should have stricter requirements, akin to those established in the EU. However, the LSE Sustainability Impact Assessment has emphasized that the Agreement includes requirements for Mercosur suppliers to adhere to the same production standards as the EU Single Market. It predicts that alongside European knowledge exchange and support to Mercosur, the deal will lead to significant improvements in production methods and legislation on animal welfare, phytosanitary and sanitary measures, and the use of antibiotics and pesticides in Mercosur countries. These provisions will not only ensure that competition isn’t distorted between EU and Mercosur producers, but also promote positive effects on both healthcare and the environment in Mercosur countries.
Meanwhile, industrial oorganizations from Mercosur -Confederação Nacional da Indústria (CNI), Unión Industrial Argentina (UIA), Unión Industrial Paraguaya (UIP) and Cámara de Industrias del Uruguay (CIU)- and the EU (BusinessEurope), have made urgent calls for the Agreement’s entry into force, arguing that a delay will jeopardize the potential for business opportunities, particularly at a time when global economic outlook is bleak. For Mercosur, the trade deal with Europe will provide a channel for its respective countries to engage with a large, globally integrated market.
Furthermore, the Trade and Sustainable Development chapter (TSD), which obliges the parties to effectively implement the Paris Agreement, would require Bolsonaro to, among other things, send nationally determined contributions and commit to domestic efforts aimed at combating climate change. This would support the EU’s global climate ambitions. Of course, the level of enforceability of this chapter is weak since it is not subject to the Agreement’s state-to-state dispute settlement mechanism. Therefore, the EU will not have recourse to apply sanctions under the framework of the Agreement if theBrazilian government fails to comply with the TSD rules. Some environmentalists regularly highlight this weakness and have demanded that the Agreement be re-opened to correct this.
However, others have noted that the Agreement still provides tools for monitoring compliance with obligations, and that the current deal is much better than no deal at all. The Commission has also tried to assuage these concerns, pointing to the fact that the provisions on both environmental and labour rights allow for consultations and the establishment of a Panel of Experts to address conflicts if they arise. There are also other tools available to the EU within the Agreement, such as SPS measures and the precautionary principle. Furthermore, re-opening the deal would not be a productive way forward as it could add additional complexities to a deal that has already taken two decades to negotiate. As a compromise, the EU has proposed to add a mechanism to the Agreement that would strengthen enforceability of the TSD chapter, without reopening the original deal. This is an important signal that the EU has taken these concerns seriously, and those opposed to the deal should take note.
It’s time to get the EU-Mercosur deal across the finish line
The EU-Mercosur deal is now in its 21st year and reopening the deal would set back the hard-fought achievements of its negotiators. The EU cannot afford further postponement in a time of global uncertainty when multilateralism is being threatened and protectionism is on the rise. Adding an additional instrument here or there won’t necessarily lead to significant changes but may help to address controversies and speed up the ratification process. The Commission needs to finalize these additions promptly, so that the deal can finally get across the finish line. It is a political and economic opportunity that is too important to lose, and will bring both regions closer together. Moreover, it would be a key step in the EU’s endeavour to reinforce and restore rules-based trade and help make it stand out as a leader in developing new global trade rules.
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