Countries of Friday 6th December Mercosur And that of the European Union They signed an important free trade agreement. The most important part of this new international agreement is the progressive reduction to the almost total disappearance of customs duties between the EU and the countries of the Atlantic coast, which could radically change the economies of both blocs.
Both sides stand to gain. The EU wants to tap into South America’s fast-growing markets for products such as clothes, cars and wine, which have been hit hard by high tariffs. Europe is also interested in South American raw materials, above all lithium, which is used to make batteries for electric cars. Mercosur, on the other hand, aims to more easily export its agricultural products to the EU, a process that was highly discouraged before the agreement. Protectionist policy The EU’s own agriculture.
What does the agreement between the EU and Mercosur provide?
After nearly 25 years of negotiations, European Union and Mercosur They signed an important free trade agreement. Mercosur is the common market organization of South America, and includes Argentina, Brazil, Bolivia, Paraguay and Uruguay. So the Pacific Rim states, Suriname and Guyana are not part of it, but many of them remain with the bloc in some form of agreement, while Venezuela was suspended in 2016.
Mercosur is different from the European Union. It does not have the characteristics of a political confederation of the European Union. In fact, it focuses almost exclusively on the free exchange of goods between countries on the South American continent. It was established in 1991 but since 2000 its representatives have been trying to end the agreement with the EU. Customs duty Between two blocks.
Mercosur aims to find an outlet market for its core sector products in Europe. raw material Energy (Brazil is the world’s eighth-largest oil producer), agricultural products primarily from livestock farming and, more recently, mining. Particularly important in this regard is lithium, of which Argentina and Brazil are the fourth and fifth largest producers in the world. The material is crucial for electric car batteries and a deal to import it could help lower its cost.
The EU’s interests are focused on the automotive sector. Although some companies, such as Stellantis, have managed to establish a presence in some countries. South America With plants and lines specific to the local market, car imports from Europe are almost nil due to high duties. However, there is a lot of potential in the market and could help the sector recover from last year’s severe crisis. The same is true of clothing, while winemakers are also watching Mercoser with interest.
The question of agriculture
The reason the agreement between Mercosur and the EU, which seems to have benefited both parties, took almost 25 years to ratify, lies in the protectionist policies of both countries. For if South America This concern is linked to the threat that European industrial products will compete fiercely with local products, preventing full industrialization of the continent.
Since its inception, the European Union has always had one attitude. Very protective of their agriculture. Freedom of trade between member states is compensated by high duties on agricultural and livestock products coming from outside the bloc’s borders. This, combined with a complex system of subsidies and production quotas, keeps the prices of these products high and makes it difficult for European agricultural companies to compete abroad. The only exceptions relate to high-quality products, such as wine or cheese. For those that are mass produced, such as grains or meat, the only realistic outlet is the internal market.
The arrival of grain and above all meat from Latin America, At a lower price after the duty cuts, this will put European agricultural companies in trouble but also lead to lower prices for consumers. However, the doubts are not only economic in nature. South American meat does not always comply with EU production standards in terms of animal feed and hormones, and deforestation necessary to create pastures and fodder fields.
Italy’s position
The agreement with Italy has a complex character. Mercosur Farmers have long enjoyed political representation in centre-right parties. So the Maloney government would have had excellent reasons to try to oppose it, but an analysis of the economic sectors affected by the deal makes it clear that there are potential benefits for our country in many other sectors as well.
The first is precisely the part of agriculture, and that of wine production. A sector of agriculture that is almost exclusively export oriented and which may find a new outlet in South American markets for further growth. Next is the automotive sector. Stilents, especially with the brand fiat, It has a very significant presence in South America. However, it does not import cars from Europe, but manufactures them locally to avoid the 35 percent duty. Removing these customs barriers could give new impetus to the group’s Italian plants.
Apart from these two sectors, textile companies and industrial machinery companies, the two most productive sectors of the Italian secondary sector, also hope to benefit from new potential markets opened up by the agreement. According to EU data, About 100 thousand jobs In Italy they are already supported by trade with Mercosur. Our country is one of the countries most economically connected to South America, France and the entire Union Germany
For this reason, the concerns of the farmers, though taken into consideration, were overcome and the agreement was signed. The European industrial system is in crisis and new markets are needed to revive it. A similar argument prevailed in France and in particular. Germany, While the crisis in the automotive sector has had devastating consequences for the entire economy, which has been in a mild recession for two years, it has slowed down many other European countries.
