South American Mercosur Bloc and EU Move Closer to Trade Deal

07/02/2015 - 09h53

Mercosur and the EU appear set to exchange formal offers on tariffs by the end of the year, raising hopes that the South American bloc is close to clinching the biggest trade deal in its 24-year history.

Armando Monteiro, the Brazilian trade and industry minister, told the "Financial Times" in an interview that the exchange of market access offers would mark an important step towards full implementation of the proposed trade deal as early as next year.

The South American bloc and the EU have been engaged in on-off talks on a deal since 1999.

Mercosur - known as Mercosul in Brazil - includes Brazil, Argentina, Uruguay, Paraguay and Venezuela, and is the world's fourth biggest trade grouping.

"Everything indicates we will finally be able to exchange offers this year," said Mr Monteiro. "They [the EU] even confirmed that technically, the European offer is already prepared."

Any move towards clinching the long-delayed trade agreement with the EU would mark a significant victory for exporters in Mercosur, which has struggled to sign deals with countries outside South America.

Since its founding in 1991, the bloc has achieved such accords only with relatively small economies, such as Israel and the Palestinian Authority.

Critics say that while there is a growing clamour in Brazil, Mercosur's biggest economy, for the country to become more open to trade to counter a slowing economy, the bloc has been held back by the protectionism of some members - particularly Argentina.

Venezuela, while strongly protectionist, is only an observer in the talks with the EU.

"We have been working for a long time to harmonise our offer within the bloc, and I would say we will be ready to do this exchange of offers," said Mr Monteiro.

"For Brazil, Uruguay and Paraguay this question is already very advanced... Argentina is making a strong effort and we will be able to arrive at the level [of proposed tariff reduction] necessary to submit an offer."

Mr Monteiro said Mercosur had alleviated Buenos Aires' concerns by agreeing that each country would have the flexibility to lower tariffs at their own pace over a 15-year period.

"It is not something you have to do in one day. There is the possibility of a timeline for tariff reduction that does not have to be linear; you could have lower tariff reduction in the early years," he said.

The aim for Brazil was to integrate its economy, which remains one of the most closed in the world, into global supply chains and enhance its export competitiveness, Mr Monteiro added.

Agriculture remained a sensitive area for the EU because of its subsidy schemes, but under the agreement, Brazil expected to receive higher quotas for its beef and other agricultural exports.

Brazil is also working on trade initiatives with North America, mostly in the area of trade facilitation and harmonisation of standards, said Mr Monteiro. President Dilma Rousseff of Brazil is set to fly north on Sunday to visit her US counterpart Barack Obama.

China has become Brazil`s biggest trading partner, but Brasília is rediscovering the importance of commerce with the US. While China mostly wants Brazil's unprocessed agricultural goods and natural resources, the US is a big importer of Brazilian manufactured goods, such as aircraft and other equipment.

Despite an overall fall in trade volumes to the US, Brazil has posted a 3 per cent increase in manufactured goods exports to its northern neighbour so far this year, compared with the same period in 2014.

Copyright The Financial Times Limited 2015