Mercosur–EU deal may boost Brazil GDP by $130 bi in ten years

New investments could add up to $117 billion in the period

Published in 02/07/2019 - 18:51 By Wellton Máximo - Brasília

The commercial agreement between Mercosur and the European Union (EU) may bring gains close to $130 billion to Brazil’s GDP in ten years. The estimate was made public Monday (Jul 1) by Lucas Ferraz, secretary for Foreign Trade with the country’s Economy Ministry.

The deal, he said, may generate additional investments amounting to $117 billion in the country in the first ten years in effect. Total trade—exports plus imports—should expand by $259 billion in the same period.

O secretário especial Marcos Troyjo, comenta acordo histórico entre Mercosul-União Europeia anunciado em Bruxelas na sexta-feira (28/6), durante entrevista coletiva para divulgação dos dados da balança comercial de junho
Special Secretary Marcos Troyjo talks about the Mercosur–EU deal. – Fabio Rodrigues Pozzebom / Agência Brasil

Marcos Troyjo, special secretary for Foreign Trade and International Affairs with the Ministry of the Economy, said the accord was beneficial to both sides. “We are convinced that the agreement is not a game where one side is the loser and the other the winner. Gains are collective; we’re talking about complementary economies,” he declared.

To be brought into force, the pact must be ratified by all Mercosur and EU countries. In some of them, like Belgium, the partnership must also be subject to vote by local Parliaments. Ferraz further reported that Mercosur is negotiating the possibility of having the treaty effective in each country of the bloc as soon as the Parliament approves the document.

Despite the possible delay in ratifying the agreement, Troyjo said the effects in the Brazilian economy may be felt early on. “The economy is made up both of fundamentals [current conditions]  and of the creation of expectations [future outlook]. Companies making long-term plans will bring into account that Brazil now has an agreement with the biggest economy in added value, namely the European Union,” he said.

“The agreement also brings along intangible benefits. It changes the world’s perception of Mercosur as a bloc, as an actor in international trade, besides bringing a new dynamic to deals currently under negotiation with Canada, South Korea, and the European countries out of the EU. The deal brings Mercosur in the Champions League of international trade,” Ferraz added.

Further gains

O secretário de comercio exterior, Lucas Ferraz, durante entrevista coletiva para divulgação dos dados da balança comercial de junho.
Foreign Trade Secretary Lucas Ferraz – Fabio Rodrigues Pozzebom / Agência Brasil

Another convenience for Mercosur, Ferraz went on to say, is related to how quickly tariffs are reduced to zero. The EU will be given ten years to eliminate tariffs on nearly all Mercosur goods, whereas the South American bloc will have 15 years to do the same with goods from the European group.

Under the terms of the document, the EU will have totally eliminated import tariffs on 92 percent of goods coming from Mercosur up to ten years after the new rules become effective. In the same time span, South Americans are to have completely abolished tariffs on 72 percent of goods coming from Europe.

Each product category will have its timetable and rule. In industry, the EU committed to eliminating import tariffs on all manufactured goods in up to ten years. Mercosur, in turn, will have ten years to thoroughly do away with tariffs on 72 percent of industrialized goods, plus five years to reach 90.8 percent, with no need for reducing tariffs on all products to zero.

In the agricultural arena, the Europeans agreed to remove tariffs on 81.8 percent of goods within a decade, whereas Mercosur is expected to cancel tariffs on 67.4 percent of products. In the auto sector, the 35 percent tariff on the import of European cars will be retained until the seventh year of the deal, and will be halved in the three following years, until it is fully done away with in 15 years’ time. Within a seven year–period, Mercosur may import a quota of 50 thousand vehicles (32 thousand for Brazil) with a 17.5 percent tariff. A 35 percent tariff will be charged for whatever exceeds this limit.

Global chains

As for auto parts, tariffs—currently varying from 14 to 18 percent—will be gradually lowered to zero over the course of ten years. According to Lucas Ferraz, the agreement will also be advantageous for the Brazilian industry, which will become integrated with global value chains by importing parts from other countries, manufacturing a final product or another component, and reexporting it.

“Making source rules flexible, we can buy parts from China, the European Union… Each product has its own defined ruled. This is not a concession, but rather a clear government decision ordering that Brazil must be integrated to global value chains. Brazilian goods will have more exported content, so they can be reexported more competitively,” he said. The secretary mentioned the gap between Brazil’s auto industry—which sells a mere 15 percent of its production overseas—to Mexico’s, exporting 60 percent.

Agricultural quotas

Alexandre Lobo, secretary for International Negotiations with the Economy Ministry, said that, in the case of quotas for agricultural goods, volumes increased while tariffs sank. The agreement introduces an additional quota of 180 thousand tons of chicken from Mercosur to the EU on top of the current exports of 200 thousand tons from Brazil every year. For beef, Mercosur got 99 thousand additional tons to enter the EU, a bulk expected to add to the 136.6 thousand tons sold yearly by Brazil to the economic bloc.

Regarding sugar, Mercosur managed to get another 180 thousand tons to be sold to the European bloc. As it stands today, Lobo said, within Mercosur, only the Brazilian Northeast exports sugar to Europeans—22 thousand tons a year. The pact also stipulates additional quotas adding up to 450 thousand tons of tariff-free industrial ethanol and 200 thousand tons of ethanol for general use with a third of the tariff currently charged by the EU.

Translation: Fabrício Ferreira -  Edition: Aline Leal / Augusto Queiroz

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