EU, South America Achieve Breakthrough in Free-Trade Talks

(Bloomberg) --

Europe and South America’s leading customs union struck a free-trade deal after 20 years of talks, notching up a major win in a global market-opening drive that counters the protectionism of U.S. President Donald Trump.

Top European Union officials reached a breakthrough in market-opening negotiations with counterparts from the Mercosur group of Argentina, Brazil, Paraguay and Uruguay, paving the way for an agreement to expand goods shipments worth almost 90 billion euros ($102 billion) a year. The pact achieved on Friday in Brussels is among the EU’s biggest.

Both sides settled longstanding differences over Mercosur demands for greater access to the EU agricultural market, including for beef and sugar, and European calls for South America to lower automotive-import barriers. Tariffs on around 92% of two-way trade will be eliminated mainly over 10 years and -- in the case of some “sensitive” Mercosur import markets -- over 15 years, according to European officials.

“This is a landmark agreement,” EU Trade Commissioner Cecilia Malmstrom told reporters in the Belgian capital 20 years to the day after the talks began. “They have been long negotiations, tough, difficult. And at least I have said many times ‘we’re almost there,’ and now we are.”

The deal follows groundbreaking European free-trade accords with Canada and Japan and adds political momentum to EU negotiations with Australia and New Zealand. It comes as government heads from the Group of 20 leading economies meet in Japan with the focus on Trump’s trade war with China and a planned meeting on Saturday with his Chinese counterpart.

Europe is fighting to uphold a 70-year-old global commercial order threatened by Trump’s “America First” agenda, which has sparked U.S. tariff battles against strategic allies and rivals alike, rattled the foundations of the World Trade Organization and darkened the economic outlook.

The EU, the world’s largest trading bloc with more than 500 million consumers, is also seeking to underscore its commercial clout as the U.K. prepares to leave by Oct. 31. While Brexit will force Britain to take charge of its own trade policy for the first time in almost 50 years, the country hopes to piggyback on the market-opening pacts already struck by the EU.

The EU-Mercosur draft accord still needs to be fine-tuned over the coming six months to a year. Before entering into force provisionally, the deal would then need to gain approval in Europe from EU governments and the European Parliament in a process likely to last about another year.

Latin Celebrations

The agreement is the largest and most complex ever struck by Mercosur and South American governments were quick to celebrate.

“Together, Mercosur and the EU represent a quarter of the global economy and now Brazilian producers will have access to this enormous market,” Brazilian President Jair Bolsonaro wrote on Twitter. “Great day!”

The Brazilian economy ministry said in a statement that the pact would result in an increase in gross domestic product of $87.5 billion over the next 15 years, a number that could rise to $125 billion.

In agriculture, the EU agreed to allow 99,000 metric tons of beef from Mercosur to be imported annually at a reduced duty of 7.5% over five years and 180,000 tons of sugar a year from the region to enter duty-free over several years, according to European officials. Mercosur agreed to phase out a 35% duty on EU cars over 15 years, the officials said.

"The Mercosur-EU deal is much more than a trade agreement," said Argentine Foreign-Affairs Minister Jorge Faurie. "It’s a strategic advance in Argentina’s position on the global stage that strengthens the commercial agenda of both our country and our bloc."

©2019 Bloomberg L.P.

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