Members of the Latin American trade bloc Mercosur and the European Union (EU) are meeting today and tomorrow in Montevideo, Uruguay to discuss making certain concessions to liberate trade movement between the two blocs. Draft proposals were submitted by Mercosur and the EU last month, however they have only been released publicly today.
“We are in the initial line of negotiation, that we have been waiting so long for,” stated Argentina’s Secretary of Commerce, Miguel Braun, who traveled to the Uruguayan capital today. Uruguay and Paraguay have favored a system of free trade between the blocs for a number of years, however Argentina and Brazil have so far resisted the conditions of the negotiations, seeking instead to protect their national industries from European imports.
This looks set to change, however, since for the first time since 2004 (when negotiations started), Argentina and Brazil are willing to look for a mutual agreement. “There is the intention to advance to reach an agreement once again,” affirmed Braun. Both the EU and Mercosur submitted their suggestions last month, with the joint commitment being to bring import taxes down to zero on most goods, with a few exceptions. Overall, the EU proposed to deduct 90 percent of its import taxes from Mercosur within 10 years, while Mercosur hopes to reach this target within 15 years.
According to EU data, the continental bloc imports US $133 billion worth of food every year, and while Argentina is the third largest supplier of agro-industrial products to the EU, it still only accounts for 5 percent, surpassed by Brazil (11 percent) and the United States (9 percent). In total, 59 percent of goods bought in the EU are primary products. The new treaty would therefore significantly boost exports from Argentina, including soybeans, which currently have a 30 percent export tax if they leave the country.
“Argentine exports to the EU translate into big business opportunities to access a market of 28 countries,” said an official government statement. “Other competitors who have signed free-trade agreements have increased and diversified agribusiness exports to the EU, incorporated products that add value to regional economies and promoted investment in the agribusiness sector. Most importantly, it positions our country as a world power in the production and export of food,” the declaration affirmed.
Particular care will be taken, however, regarding labor-intensive industries, which produce what the Argentine government considers to be “sensitive goods.” These include manufacturers of toys, footwear, textiles and appliances. An industry that holds particular concern over the new concessions is the car and auto parts industries. The intention is to bring taxes on cars and auto parts down to zero in 15 years’ time; currently, there is a 35 percent tax on a European car entering a country in Mercosur, while taxes on auto parts stand at between 14 and 18 percent.
The executive director of the Association of Component Manufacturers of Argentina (AFAC), Juan Cantarella expressed his concern regarding the new proposals: “Historically, not only AFAC but also Mercofac (the auto-parts section of Mercosur) requested that the auto parts industry be excluded from the negotiations, because it has nothing to gain.” The auto parts industry ended last year with a trade deficit of US $63.3 billion, with 37.1 percent of imports coming from Brazil and another 22.2 percent coming from Europe. “There is a structural deficit in auto parts,” Cantarella explained.
Nonetheless, Argentina’s Minster of Commerce is optimistic about the new negotiations. “To develop, you have to go out and sell to the rest of the world,” he explained, referring to Argentina’s willingness to open itself up to international trade since the new administration took office in December 2015. Earlier this month, Argentina’s request to join the Pacific Alliance trade bloc as an “observer” state was approved, meaning that it now joins 42 other countries allowed to take part in seminars and trade forums in order to gain a better understanding of the Alliance. Since taking up his presidency, Argentine President Mauricio Macri has made significant efforts to engage in trade talks with international organizations and forge stronger relations with other countries.
Meanwhile, the Mercosur and European Union negotiators will meet again in September with the intention of reaching a finalized agreement. “The scenario remains complicated. The difference is that there is a political will from both Argentina and Brazil,” concluded Mauricio Claverí, an economist from ABECEB, speaking to TN.