On 28 June 2019, the European Union and the South American customs union Mercosur (Brazil, Argentina, Paraguay, and Uruguay) struck a sweeping trade agreement covering almost 100 billion dollars’ worth of bilateral trade annually. Twenty years in the making, with stop-start trade negotiations having started in 1999, the EU-Mercosur political agreement is considered by the negotiating parties on both sides as a significant achievement. However, the terms of the deal - which have been published in draft individual chapters as both sides undertake a legal review of the text - have elicited sharp criticism.

The European Commission characterises the accord as its most lucrative to date, saving businesses about 4 billion euros ($4.55 billion) in tariffs on exports, quadruple the amount achieved on its trade deal with Japan. For Mercosur, this would be its first deep trade agreement, which could spur economic growth in the region and strengthen Mercosur’s ability to compete in international markets. The Commission therefore has been quick to defend the deal, highlighting that it includes strong provisions on environmental protection and promotes sustainable development, notably by insisting that both parties maintain commitments and engagement under the Paris climate change agreement. EU Agriculture Commissioner Phil Hogan has been particularly vocal in support of the deal, underscoring that while including some trade-offs, it opens up new markets for EU agricultural producers and protects European food standards. While Irish Prime Minister Leo Varadkar has stated that he would not vote for the deal if it runs contrary to Ireland’s interests, Varadkar recently agreed to Hogan staying on in the next European Commission term, thereby positioning him to continue his strong advocacy in support of the agreement.

EU parliamentarians, several EU Member States and lobby groups, on the other hand, have decried the EU-Mercosur agreement as being detrimental for the environment, food safety and the EU’s agricultural sector. Surrounded by protesting Irish farmers, on 11 July, the Irish Parliament rejected the deal in a symbolic vote, citing as the main reason its damaging impact on Ireland’s beef industry. French and Polish Agriculture Ministers also oppose the agreement. Leading EU farming trade bodies issued a joint statement when the deal was announced, denouncing it as creating unfair competition and jeopardizing European agricultural production model through lack of parity in production standards. Earlier this week, farmers used tractors to block roads in Brussels to express their opposition.

The agreement proposes to remove duties on 91 percent of EU exports to Mercosur and liberalize 92 percent of Mercosur exports to the EU over a transition period of up to 10 years for most products. For more sensitive products not fully liberalized, partial liberalization commitments such as tariff-rate quotas will apply. The EU will gain greater market access for key manufacturing export interest products, some of which face high tariffs, such as cars and parts (35 percent), chemicals (18 percent) and machinery (14 to 20 percent), as well as important concessions for European agricultural products like wine (27 percent), dairy (28 percent) and confectionery (20 percent). Mercosur countries also will protect 355 European food products from imitation via geographical indications. Mercosur will benefit from EU’s elimination of tariffs for 82 percent of agri-food imports, including for fruits, instant coffee and orange juice, with the remaining agricultural imports given improved access via tariff-rate quotas, e.g. for poultry, beef, pig meet, ethanol, and sugar. Businesses, moreover, will enjoy greater access to services and government procurement markets in both blocs.

The backlash concerning the EU-Mercosur deal highlights the challenges for the European Commission to push through trade deals once finalized. While the Commission has exclusive competence to negotiate trade agreements on behalf of the EU, their ratification falls to other political actors which may be more reluctant to accept a trade deal unpopular among supporters. In this regard, “EU-only” agreements, which include only provisions falling under exclusive EU competence, require consent by the European Parliament. “Mixed” competence agreements, which cover areas of shared and concurrent EU and EU Member State competence, will enter into force only if also approved in line with EU Member State national ratification procedures. This could require approval by up to 40 regional and national parliaments. The Commission can propose that accord provisions falling within the EU’s exclusive competence (e.g. trade) be applied provisionally while the ratification process is pending. This requires approval by the Council and ratification by the European Parliament. The Commission also can opt to draft two independent texts with different ratification procedures, effectively dividing up the EU-only and mixed competence provisions, to facilitate entry into force of trade arrangements in bilateral agreements as it did in the recent EU trade deals with Japan and Singapore.

Until the final text of the EU-Mercosur trade deal is available, and the Commission has indicated its position on competence, it is not possible to make a definitive statement regarding the agreement’s ratification procedure or timeline. A preliminary analysis of its content, however, suggests that the agreement falls under mixed competence, as it contains elements of political cooperation which are the exclusive competence of EU Member States. Companies already can begin analysing potential impacts of the EU-Mercosur trade agreement on their businesses and consider engagement with the EU institutions to advance and protect interests. Kelley Drye has a strong track record in representing clients’ interests before the EU institutions and in providing legal and practical advice on EU procedures and trade agreements. Please contact either of the authors for more information.

Challenges ahead for European Commission in pushing through EU-Mercosur trade deal