The free trade agreement between the European Union and the Mercosur bloc of Latin American countries will benefit EU multinationals but pose serious disadvantages for local industries in Argentina, Brazil, Paraguay and Uruguay.
Veronica Ocvirk is a journalist based in Buenos Aires, Argentina
This article originally appeared in Spanish in Página 12. It has been translated into English by Tony Phillips, an Irish scholar based in Argentina who specialises in the political economy of Mercosur.
We have cross-posted it from Irish Broad Left
“President, we have an agreement!” This WhatsApp audio message went viral in Argentina with the excited voice of former Argentine Foreign Minister, Jorge Faurie. Just one year ago Ambassador Faurie sent this message to Mauricio Macri who was then president in Argentina. Trade negotiations had just ended, the conclusion of 20 years of free trade negotiations between the European Union (EU) and Mercosur.
Thus ended two decades of a stalled tug-of-war between government officials and businesspeople on both sides of the Atlantic. In 2016 these stalled talks gained a renewed momentum and on 28 June 2019, marathon deliberations on this trade treaty ended, though they are still not signed. The Argentine government announced it was a “key pillar of the national productive transformation”.
The final text of this agreement has now moved to the technical review stage, but it is by no means certain that this will be finalised. To begin with, it must be presented to each of the four national congresses of the Mercosur member states – Argentina, Brazil, Paraguay and Uruguay. In Europe the draft treaty must navigate a complex institutional framework to be ratified that will include some supranational bodies, such as the European Parliament and the EU Council, as well as other national authorities.
Last year the Austrian parliament declared their disagreement to the accord, while the Dutch parliament has just rejected it. The Dutch decision, although not binding, is starting to expose an adverse political scenario.
Who wins and who loses?
What would this Mercosur-EU agreement really entail? Who wins and who loses? And what impacts could the treaty have on the environment, on the nature of the national economies within these trading blocs, on employment, and on the daily lives of the nearly 800 million people who live within them?
Throughout the negotiations there was precious little public information and few rigorous impact studies that could quantify these effects. The technical review phase is also being held behind closed doors.
In order to look into these issues, the members of the Green bloc of the European Parliament generated a call for academics who could undertake a holistic, serious, acute and detailed impact study on the possible consequences of the treaty for those countries that sign on.
They chose two Argentine academics, a political scientist, Dr Luciana Ghiotto, member of Attac Argentina and researcher in the Argentine National Scientific and Technical Research Council (CONICET) based in the University of San Martín. Dr Ghiotto was recently in the news in Argentina when her name appeared among the academics spied upon by the Argentine Federal Intelligence Agency under the former Macri government. Javier Echaide, lawyer and CONICET researcher based in the University of Buenos Aires, and also in Attac Argentina, is the co-author.
Both authors studied every section of the more than 400 pages of the drafts of the agreement. They published their results in a book, The Agreement between Mercosur and the European Union: An integral study of its clauses and effects. A Spanish version of the report has just been published by the Latin American Council for the Social Sciences (CLACSO) in collaboration with the Rosa Luxemburg Foundation and is available here, while an English-language summary is available here.
Impact will reach beyond employment
“Trade agreements negotiated today shape economic exchanges in the long run. Industries and governments adapt to their rules, trade flows change, and development models are constrained or enabled by their content. Their effects are felt throughout economies”, warn Green MEPs Anna Cavazzini and Yannic Jadot in the foreword to the English edition.
“We didn’t just look at the impacts on trade, on how many jobs are lost in a certain sector, on the effect on employment. Of course that is important, but we added a chapter on services, another on public procurement and another on intellectual property,” explained Dr Ghiotto during the book’s presentation. Co-author Dr Echaide, MEP Cavazzini and María del Carmen Squeff, Undersecretary for Mercosur and International Economic Negotiations at the Argentine Foreign Ministry, were all present online at the book launch.
“[W]e are talking about access to health, access to medicines, access to water, access to education. We’re talking about amplified impacts. Today, how can we sign a free trade treaty if we don’t know the impacts on women? Holistics! This is a real look at the integral impacts of an agreement that isn’t just about the economy, not just about the farming sectors; rather we need to analyse the impacts on society as a whole,” added Dr Ghiotto.
Asymmetrical trading blocs
The agreement allows access for Mercosur firms for certain products to the EU market free of import duties. Other products are subject to quotas for preferential access. Meanwhile, for the EU, this agreement means commercial access to the most developed region of South America.
The end of these extremely drawn out negotiations, remarked the book’s authors, is indicative of the EU’s efforts to establish itself as the international defender of ‘free trade’. In contrast to the United States, which in its trade war with China seems to wish to withdraw and defend its national economy, the EU has become a “compulsive negotiator” of trade agreements that offer tariff reductions and facilitate the circulation of capital.
One of the crucial aspects of this agreement is that it binds two trade blocs that are vastly asymmetrical in trade terms. “This is a historical artefact; Mercosur sells primary products and raw materials, while the EU exports high and medium value-add manufactured products. This agreement will amplify these asymmetries, providing incentives to extend this industrial-agriculture model based on glyphosate and fertilisers made from fossil fuels. South American industry on the other hand will not be favoured; quite the contrary”, said Dr Ghiotto.
She also noted that the accord would facilitate the penetration of European manufactured products into sensitive local markets such as cars, autoparts, machinery, chemicals, textiles, footwear and medicines.
Argentine industry – which currently has 35 per cent import tariffs on automobiles and 14-18 per cent tariffs on machinery – has a fixed schedule of a maximum of 15 years from the date of signing to achieve equivalent levels of competitiveness as those of European firms, which generally benefit from lower financial and energy costs. This is one of the largest benefits of the agreement for European firms, for whom this treaty would represent €4 billion in reduced tariffs for their exports.
Mercosur economies face a different outlook for their industrial sectors; the insertion of EU-sourced elements into their local supply chains will cause disruption. While Mercosur specialises in exporting agricultural products outside the region, within the bloc Brazil and Argentina interchange mainly manufactured goods, many of them car parts.
The EU-Mercosur agreement could reduce Brazil’s purchase of Argentine products in the metallurgical sectors and autoparts, as well as processed foods products like olive oil and cheese. This would leave Argentine manufactures deprived of its main market. “The increase in the presence of European products on the Brazilian market will be at the expense of the Argentine and, partly, on Uruguayan industry,” the book highlights, although even so, opposition to the agreement has not yet formed, the authors add.
Effects on the environment
The agreement is not something reflecting European popular opinion, as can observed by the fact that most of the critical voices raised so far have been European ones. The agreement faces its most fierce opponents in EU agriculture, though there have also been a number of environmental tensions building. These exploded in August 2019 when the Amazon fires burned on the front pages and screens of global media, with many of these fires presumably intended to expand agricultural frontiers to produce more exportable agricultural commodities.
Environmental controls in agriculture are much less stringent in Mercosur than in the EU, which is why it is “not only trade asymmetries that exist between the blocs; but also regulatory asymmetries,” the book emphasises. It goes on to give a lurid example, the so-called, “Operação Carne Fraca“, relevant because Brazil is the largest exporter of beef in the world.
This scandal was triggered when the Brazilian Federal Police exposed that the country’s main meat producers – including market giants like JBS and BRF – had been adulterating rotten beef and poultry for export, changing the expiration dates, and hiding the bad smells with chemicals. “This issue is extremely sensitive for European consumers,” noted the authors.
Similar precautions apply to the use of Ractopamine (a hormone given to animals to increase muscle mass, which is allowed in Brazil) in pigs, and genetically modified organisms (GMOs) – approval for which varies across the EU. “These issues have a huge impact on what consumers find on the supermarket shelves,” the book adds.
The report is full of examples demonstrating the irrationalities of international trade, such as food products that are produced within a few kilometres of where they are consumed “will now travel 10,000 kilometres in vessels from, for example, Rome to Montevideo”.
The accord also introduces changes in public procurement, since it allows Mercosur states to award contracts to EU companies under the same conditions as local ones. Opening public procurement in Mercosur states will occur at multiple levels, Dr Echaide outlines – at the central state level in centralised purchasing, such as by national ministries, agencies and national universities; but also at sub-national levels such as provinces/states and municipalities.
“Those negatively affected will include cafés operating in public universities, which are often concessions run by small and medium-sized enterprises (SMEs) or cooperatives. These concessions will have to compete with European transnational companies, such as Segafredo, a well-known Italian company that is already operating in airports and shopping malls worldwide,” said Dr Echaide.
“I see a very large imbalance. I think the current [Argentine] government, of which I am part, does not view this agreement in such a positive light”, said Ambassador Squeff during the presentation, while recounting the necessary steps that this accord needs to pass through to be ratified such as local parliaments in Mercosur countries, “where we hope to show all of our positions on the agreement”. The ambassador also mentioned that the Argentine Foreign Ministry has already begun a round of consultations with the private sector.
Gerhard Dilger, director of the Rosa Luxemburg Foundation’s Southern Cone office, closed the online book launch, which was popularised via the hashtag #TratadoVampiro (Vampire Treaty). “Why ‘Vampire Treaty’?” he asked. “Because multinational corporations want to suck the blood of the Global South”. As the philosopher Susan George said: “These treaties are drawn up at night, in absolute secrecy,” adding that there was a solution at hand: “When they are exposed to the light of day – when we, as civil society, promote transparency and we make known, as we did with this very good study, realities and implications – then these treaties can easily die.”