European Union signs trade agreement with Mercosur

By Simon Pitman

- Last updated on GMT

Getty Images
Getty Images
The European Union has signed a big trade agreement with Brazil, Argentina, Paraguay and Uruguay that will see many tariffs eliminated in the two regions, including chemicals.

The move is expected to increase trade in a range of chemicals, including fine chemicals used for cosmetic and personal care formulation.

The current bilateral agreement for goods between the Mercosur countries – Brazil, Argentina, Paraguay and Uruguay – amount to an estimated annual trade of Euros 88 million, but eliminating tariffs is expected to see a spike in trade in the coming years.

The tax on chemicals will go

Currently chemicals are taxed at 18% as part of the current bilateral agreement, a tariff that will be gradually removed for this category between the two region, as will be the case with 91% of existing tariffs.

Other areas where tariffs will be removed including machinery, pharmaceuticals, cares, textiles, and a large number of foodstuffs, including soft drinks, chocolate, wine and spirits.

"Today's agreement brings Europe and South America closer together in a spirit of cooperation and openness,” said EU ​Commissioner for Trade Cecilia Malmström.

 Once this deal is in place, it will create a market of 780 million people, providing enormous opportunities for EU businesses and workers in countries with whom we have strong historical links and whose markets have been relatively closed up to now.”

Savings will give a competitive edge

The agreement is also expected to save almost $5 billion in duties between the two countries, saving money and giving a competitive edge over other international players.

The move is seen as a backlash to the recent trend for protectionism. President Donald Trump has imposed high tariffs on many of its trading partners, including Canada, China and the EU, as a means of creating better trading terms for the world super power.

But contrary to this, EU and Mercosur leaders have decided to take the plunge, going against this trend as a means of capitalizing on the lower volumes of global trade bought about by the protectionist policies after the last two years.

Negotiations 20 years in the making

Indeed, the EU-Mercosur negotiations have been 20 years in the making, but have stalled in recent years for a number reasons, including the fact that Brazil has been under a succession of left-wing governments that stalled the talks.

The advent of the right-wing Jair Bolsonaro government, installed in January of this year, helped resurrect the negotiations, which has also been hastened by the global trade wards.

Bolsonaro tweeted a photo of himself giving the thumbs up to the deal at the end of last week, while the President of Argentina, Mauricio Macri, referred to the deal as ‘historic’.

Both Mercosur and the EU have said that the exact terms of the agreement will be reviewed and agreed on, before being given the final approval by the EU parliament and Mercosur board.

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