On 28th June, Mercosur (comprising Brazil, Argentina, Paraguay and Uruguay) and the EU reached a landmark agreement twenty-years in the making that creates a market of 800 million people. The amount of information, disinformation, analysis, opinions and passionate comments on both sides can be mind-blowing. Thinking about our UK clients, most of them manufacturers, and our readers, we are putting together a series of short, to-the-point posts to help you navigate this (exciting but understandably complex) maze.

To start with, let’s summarise the very, very basics:

The agreement will extensively liberalise trade in goods. Mercosur will fully liberalise 91% of its imports from the EU over a transition period of up to 10 years for most products. Longer linear liberalisation of up to 15 years is reserved for some of Mercosur most sensitive products. The EU will liberalise 92% of its imports from Mercosur over a transition period of up to 10 years. In terms of tariff lines, Mercosur will fully liberalise 91% and the EU 95% of lines in their respective schedules.” (source)

Mercosur HQ, Montevideo, Uruguay. Source: www.mercosur.int

Mercosur HQ, Montevideo, Uruguay. Source: www.mercosur.int

 

The good:

  • Achieving this agreement clearly shows political willingness on both sides (32 sides, even) to open up trade, against current protectionist trends.
  • Import duties will be reduced (more on that soon).
  • Customs procedures will be simplified.
  • Companies will be able to bid for government contracts.
  • Even in the case of Brexit, the agreement serves as a model for others, as The Economist points out, so it could be good for Britain post-Brexit, too, eventually.

The bad:

  • The agreement was in the making for 20 years: we can’t expect it to be implemented overnight – analysts give it around 6-10 years.
  • The agreement has to be ratified by the parliaments of 28 EU members and 4 Mercosur members.  There is scepticism in some countries like France, and there could be some resistance particularly in Argentina if, after the October elections, the country swings back to its former protectionist left (there is a “standstill” clause, as The Economist highlights, but that will only applied, obviously, if the agreement is ratified)
  • Not everyone will benefit, some sectors will be hit harder than others.

The ugly:

  • If Brexit does happen, UK exporters will not benefit from the agreement unless they can manufacture in the EU (as many of our clients do) or unless the UK pulls off agreements with Mercosur and/or its individual members on the basis of this EU agreement.
  • Depending on timings, while Brexit happens, your EU competitors will be preparing for and benefiting from access to these markets.

That’s the whole thing in a nutshell…

Our next posts will look at the agreement itself and also discuss Mercosur and its potential as a key market for British exporters. If you don’t want to miss out on these posts, follow me on Twitter @uklatinamerica or sign up for the newsletter!

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