Farmers block the junction of the A35 and A36 motorways near Mulhouse, eastern France.
©Sébastien Bozon AFP
Advantages of free trade
The conclusion of a free trade agreement with the Mercosur countries would significantly increase the exports of European industry and make it possible to regain market share against China.
Atlantico: What are the main arguments in favor of a free trade agreement between the European Union and Mercosur ? What are its main advantages, particularly on an economic level? Won’t not signing the agreement harm Europe’s interests?
Jean-Luc Demarty: Mercosur is the world’s fifth-largest economic zone outside the EU, with high tariffs on industrial goods and significant entry barriers in the services sector. Furthermore Mercosur has no free trade agreements (FTAs) with other significant countries. When the agreement comes into force, the EU will benefit from significant gains linked to its first-mover status, including the elimination of 4 billion euros in customs duties for European companies. Mercosur is also rich in essential raw materials for the energy transition.
Furthermore, we must not neglect the geopolitical dimension of this agreement in the fractured world that is expected to last for a long time. Alongside the FTA there is also a political association agreement negotiated in parallel. If this agreement is not concluded by 2025, there are fears that the door will be closed forever. This would be a tragedy for Europe, whose presence would quickly become negligible on the Mercosur market. France certainly has even a greater interest in it. Indeed, Mercosur is one of the rare areas in the world where France has a significant trade surplus, of the order of 4.5 billion EUROS in goods and services.
Why is this question often diverted from real issues, particularly on the economic level, through ideological biases, for example on environmental standards?
First of all, for 15 years, all FTAs have had a new architecture with an important sustainable development chapter. All EU partners must commit to ratifying and implementing key multilateral environmental agreements and key ILO conventions. This is how the EU was able to force Korea to ratify three ILO conventions. Furthermore, the notion of an essential clause was introduced, covering human rights and the non-proliferation of weapons of mass destruction. A significant violation of one of these clauses is sufficient to justify a suspension of the corresponding FTA.
The main novelty is the addition of the Paris climate agreement in the essential clauses of all new agreements since 2020. I launched the idea in December 2017 in a letter from President Juncker to President Macron. The French government took up the idea, claiming that it was its idea as all French governments do in such cases with the usual arrogant formula “on the initiative of France”. Finally, the arrival of the new European Commission, under the Presidency of Ursula von der Leyen, made it possible to definitively adopt the concept in 2020 in all new agreements. The Swedish Trade Commissioner from 2014 to 2019, Cecilia Malmström, the main opponent of the clause, then left Brussels.
The addition of the Paris climate agreement to the essential clauses is one of the main points to be resolved in the negotiation of the FTA with Mercosur. For the EU this is a fundamental issue which is non-negotiable. The same applies to the deforestation regulation which prohibits the importation of products resulting from deforestation and the carbon border adjustment mechanism (MACF). For the moment, Mercosur claims to be able to suspend the agreement if these two provisions were applied to it. This is obviously unacceptable. The agreement also includes a detailed protocol on deforestation.
It is clear that, if the agreement is concluded, the environment will be very well covered. Pretending to condition the conclusion of the Mercosur agreement on compliance with other mirror clauses in the environmental field beyond the fight against climate change and deforestation is not serious. It is not clear why Mercosur would accept such clauses when it only obtains very limited access to around 1% of EU consumption for beef, poultry and sugar through quotas. tariffs. In addition, it should be remembered that EU farmers benefit from 40 billion EURO in income aid, 7 for French farmers, precisely to cover differences in production costs and environmental requirements with third countries. It’s trying to get the best of both worlds with the probable aim of blocking the negotiation.
Finally, it must be remembered that all products entering the EU market must comply with its sanitary and phytosanitary standards without exception. Animal products must be guaranteed to have been produced without the use of hormones or other growth promoters, in particular antibiotics. Plant products on which pesticides banned in the EU for health reasons are used are generally de facto prohibited by setting maximum residue levels below the detection threshold. The precautionary principle applies. This means that the EU retains the possibility of applying stricter regulations than when the agreement entered into force.
Pretending to go beyond all of the conditions mentioned above is political bad faith.
Will the perceived disadvantages of the agreement on the French beef and poultry sectors fuel the anger of farmers? Will this impact the European elections next June?
Mercosur poses a particular difficulty because it is the most competitive area in the world for the EU’s most sensitive agricultural products, more particularly in France, beef, poultry and sugar. This is why enormous precautions have been taken with the setting of tariff quotas with low or zero customs duties around 1% of total EU consumption. Beyond these quantities, normal and dissuasive customs duties apply. This means that these quotas function de facto as an absolute ceiling.
The effect of additional imports at this level will be negligible, except for beef. Thus additional poultry imports will be less than the one-year increase in EU poultry consumption. For beef whose consumption is stagnating or decreasing, production would fall by 0.5 to 1% and the price by 2 to 2.5%. This has nothing to do with the disasters announced but is not negligible for farmers who have among the lowest incomes of French farmers. According to my calculations, it would be enough to pay an annual envelope of 100 million EUROS to French producers of extensive beef who use our magnificent permanent meadows, pride of our landscapes and carbon sinks.
It is understandable that the farmers concerned are unhappy with the prospect of the Mercosur agreement, even if other French farmers will benefit very significantly in the dairy and wine and spirits sectors. As already indicated previously, their problems have a solution, especially if the French government finally seriously tackles the fundamental problem of French agriculture, its lack of competitiveness compared to its EU competitors.
Renouncing the Mercosur agreement in the name of surmountable agricultural difficulties of a magnitude out of proportion to the overall gains of the agreement would be a major strategic error to which all French governments for 25 years have unfortunately accustomed us, obsessed by their short-termism. Keynesian. However, it would be politically prudent not to conclude the agreement before the European elections in such a heated climate.
How would deepening ties with Mercosur countries reduce the EU’s risks and ensure its diversification of economic ties outside of China? Will delays in signing this free trade agreement not benefit China?
In 20 years the EU’s market share in Mercosur has been halved, from 35 to 18% to the exclusive benefit of China. Over the same period, the EU was able to maintain its market shares with other Latin American countries with which it has an FTA: Mexico, Chile, Colombia, Peru, Ecuador, Central America. If the agreement is concluded by 2025, the EU will be the only one to have preferential access to the Mercosur market. This will allow it to quickly regain market share from China, which will continue to pay high customs duties which reach, for example, 38% in the automobile sector. There is no prospect of Mercosur concluding an FTA with China that scares the whole world. Australia was able to measure that its FTA with China did not protect it for a minute from…