The EU–Mercosur Reach an Agreement in Principle on Trade

On June 28, 2019 the European Union and the Mercosur reached an agreement in principle (the “Agreement”), that is part of a broader Association Agreement between the two regions, which will be subject to further revision and market access offers.

This Agreement is the conclusion of over 20 years of negotiations and, for both Parties, will be the largest trade agreement in place. In addition to reducing tariffs on most products, the Agreement includes chapters on other disciplines that are key for granting market access to the Parties.

The main sections of the Agreement are described below:

1.  Reduction of tariffs

The Agreement will extensively liberalize trade in goods including industrial goods and agricultural goods. For most products, tariffs will be eliminated over a transitional period, while others will remain subject to certain tariffs and quotas:

1.1.  Overall market access

• Mercosur will fully liberalize 91% of its imports from the European Union over a period of up to 10 years for most products. Mercosur’s most sensitive products will be subject to a longer linear liberalization of up to 15 years.
• The European Union will liberalize 92% of its imports from Mercosur over a transition period of up to 10 years.
• In terms of tariff lines, Mercosur will fully liberalize 91% and the European Union 95% in their respective schedules.

1.2.  Market access for industrial goods

• The European Union will eliminate duties on 100% of industrial goods over a transitional period of up to 10 years.
• Mercosur will fully eliminate duties in key sectors such as cars, car parts, machinery, chemicals and pharma. For each of these sectors, liberalization will take place for over 90% of the European Union exports.
• All cuts made by Mercosur are linear, except for passenger vehicles that will be fully liberalized by Mercosur over 15 years, with a sevenyear grace period that will be accompanied by a transitional quota of 50,000 units. This transitional quota will have an in-quota rate of half the MFN duty.
• Tariff lines on cars parts will be liberalized mostly within 10 years.
• For the European Union machinery, 93% of exports will be fully liberalized, mostly within 10 years (67% of exports to Mercosur).

1.3.  Market access for agricultural goods

• Duties will be gradually eliminated on 93% of tariff lines concerning the European Union agrifood exports (95% of the export value of the European Union agricultural products). These lines correspond to 95% of the export value of the European Union agricultural products.
• The European Union will liberalize 82% of agricultural imports, and the remaining imports subject to partial liberalization commitments including tariffrate quotas for more sensitive products, with a very small number of products excluded altogether.
• The Agreement establishes import quotas to the European Union of beef, poultry, pork, sugar, ethanol, rice, honey and sweetcorn.
• Reciprocal tariffrate quotas will be opened by both sides  over a 10year period regarding cheese, powdered milk and infant formula.
• A series of other key products of the European Union export interest will be liberalized by Mercosur such us wine, olive oil, spirits, fresh fruit, malt, and chocolate, among others.
• The European Union import tariff will be reduced to 0% since the effectiveness of the agreement for soybean and soy flour, peanuts, nuts, certain fruits, vegetables and some fish. The tariff for other products will be reduced to 0% in 4 to 10 years, such as for: certain fish, vegetables, critic fruit, biodiesel, and confectionery.

2.  Non-Automatic Licenses

Non-automatic import or export licenses are prohibited, except for those needed to implement measures of this Agreement (e.g. tariff rate quotas for products not fully liberalized).

3.  Rules of Origin

These include: i) the requirements for originating products including wholly obtained products, ii) the absorption rule and iii) the principle of territoriality. The Agreement preserves the traditional  European Union list of insufficient operations, which do not confer origin. Regarding verification, customs authorities of the importing party may request administrative cooperation to obtain information from the exporting party. Direct verification visits by the customs authorities of the importing party are not allowed.

4.  Trade remedies

The Agreement includes a bilateral safeguard remedy, which allows the Parties to avoid the economic damage caused by unexpected or significant increases in preferential imports resulting from the Agreement. This clause is limited up to 18 years from the entry into force of the Agreement and allows the suspension of preferences during a period of up to two years with a possible extension of another two years.

5.  Technical Barriers to Trade

The Agreement aims to eliminate unnecessary barriers and facilitate trade, creating the framework conditions for more convergence on technical regulations and standards. To facilitate regulatory convergence, the Parties agreed on a closed definition of international standard-setting organizations, with specific mentions of the International Organization for Standarization (ISO), International Electrotechnical Organization (IEC), International Telecommunications Union (ITU) and Codex Alimentarius.

6.  Public Procurement

Entities covered at federal and central level are central government ministries and other governmental and federal agencies. In Argentina, it will cover procurement of central-level entities such as ministries, agencies and national universities.

The European Union and Mercosur agreed to apply modern disciplines based on the principles of non-discrimination, transparency and fairness and the detailed rules as set out in the revised version of the WTO’s Government Procurement Agreement.

7.  Intellectual Property Rights

The Agreement has an extensive agreement regarding geographical indications, recognizing 355 of the European Union indications and 220 geographical indications from the Mercosur.

8.  Dispute Settlement

As a first step, the Agreement aims for an amicable resolution of disputes. If this fails, the claiming Party may request the establishment of an arbitration panel with three arbitrators with experience and expertise in law and international trade. The panel’s report is final, is not subject to any appeal and is binding for the Parties.