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Agreement between Mercosur and the European Union 2019

Posted 2019-08-27

New Mercosur deal with Europe generates opportunities to invest in Brazil.

During the international G-20 summit in Japan, after 20 years of negotiations, Brazil and France reached the break-even point that previously prevented the deal between Mercosur and the European Union from being signed.

France in particular was concerned with the impact on its vast agriculture industry of South-American imports. Brazil didn’t have to adapt to the strict environmental regulations of the EU. In other words, if Brazil left the Paris agreement, it wouldn’t be possible to sign this international agreement. However, after everything was settled between Emmanuel Macron (President of France) and Jair Bolsonaro (President of Brazil) the agreement between Mercosur and the EU could be signed between the two blocs, and finally the countries could sign the new agreement that is expected to increase exports in 100 billion.

It took about 20 years of negotiation for this new agreement between Mercosur and the European Union (EU) to be concluded. Aiming at forming a free-trade area between the two blocs, the agreement provides that, within up to a decade, 90% of what Brazil exports will enter the EU without tariffs.

Nowadays, only 24% of products that Brazil exports are untaxed. The agreement will also facilitate the entrance of European products in Brazil, generating new business opportunities. Some sectors will have their import tariff eliminated after 15 years.

Brazil and France representatives labeled this agreement a “historic” moment for the World and mainly for the two continents, which have a combined population of 780 million and represent 25% of the World’s GDP.

Euronews – summarizes how was the Mercosur and European Union agreement..

Following the agreement negotiated in June / 2019, the Mercosur and EU countries are expected to formally pass the document in their parliaments. After that, the agreement will be able to be applied, in a provisory manner, after its confirmation in the European Parliament.

This scenery favors foreign companies willing to establish in Brazil, mainly to meet future demands, negotiations, storage, logistics, sales, customer service, and many other direct and indirect services that could emerge with the new international agreement.

Brazilian president Jair Bolsonaro celebrates the new agreement: “This will be one of the most important trade agreements of all time and it will bring enormous benefits to our economy”.

BBC NEWS – Brasil summarizes in 13 minutes the big Mercosur and European Union agreement. (Video in Portuguese)(Vídeo em Português)

Europartner’s (international accountancy specialized in Brazil) accounting analysts have elected the main impacts on tariffs that will benefit negotiations between Mercosur and European Union countries.

TABELA

MERCOSUR COUNTRIES EUROPEAN UNION COUNTRIES
Brazil, Argentina, Uruguay and Paraguay Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Spain, Sweden.

Tariffs: In the long term, over 90% of Mercosur exports will have zero-tariff in up to 10 years. The other 10% will have its import tariffs reduced. Translating to details the EU will suppress 92% of tariffs currently imposed to South American products that reach its territory.

The agreement will also eliminate 91% of tariffs imposed by Mercosur to European products – about 4 billion Euros, according to an estimate by the European Commission.
Impact: For the next 15 years of Brazilian exports to the European bloc, there could be an increase of almost US$ 100 billion.

On the industry: Mercosur tariffs will be progressively eliminated for vehicles (35%), auto parts (14% to 18%), industrial equipment, (14% to 20%), chemical products (up to 18%), clothing (up to 35%) and pharmaceutical products (up to 14%).

Farming: Mercosur’s agreement will cause many alimentary products to have its taxes eliminated. According to the calculations, wines should fall (27%), chocolate (20%), liqueurs (from 20% to 35%), canned fish (55%), soft drinks (20% to 35%) and olives will be eliminated.

Cheeses and dairy products from the European Union will benefit, according to the European Agriculture commissioner Phil Hogan, from “wide” zero-tariff quotas.

In return, the EU opens its market to South American agricultural products – its biggest concession – through quotas: 99 thousand tons of beef every year with a prime rate (7,5%), besides an additional quota of 180 thousand tons for sugar and another 100 thousand tons for poultry meat.

Safeguard to farming products: The agreement includes a “safeguard mechanism”, which guarantees EU and Mercosur the possibility to deploy temporary measures to regulate imports should an unexpected and significant raise that can “cause serious damage to their industry” occur.

Protected PDOs: Mercosur is committed to protect 357 European designations of geographic origin, such as the Prosciutto di Parma, the champagne, the Port wine and the Irish whiskey.
The EU will also protect some geographical indications from South America, such as the Brazilian cachaça and the Argentine Mendoza wine.

Health: The European Commission guarantees that “there will be no change in the way that the EU adopts and applies its food safety norms,” be it for European or imported products.
The agreement makes reference to the “precautionary principle” in order to make sure that authorities can “act to protect human, animal and vegetal health, or the environment, in the face of any detected risk, even if the scientific analysis is not conclusive.”

Environment: The text includes a chapter about sustainable development that covers “the sustainable development and the conservation of forest, the respect to workers’ rights and the promotion of a responsible management of the administration”.

It refers explicitly to the Paris Agreement on climate.

According to the Commission, both parties “are committed to fighting against climate changes and to working on the transition to a lasting economy of low carbon intensity”.

That includes “a commitment to fight against deforestation”, an important point for NGOs, which accuse Brazil of advancing in the destruction of the Amazon rainforest.

According to the Commission, this chapter will include “clear and strict norms, as well as an independent and unbiased evaluation mechanism of such matters by a group of specialists”, which hasn’t been detailed.

Public markets: Mercosur countries will open, for the first time, their public markets for European companies – a decisive step for the EU.

In practice, EU companies will be able to compete in public procurements in equal conditions to that of Mercosur companies.

The definite application of the agreement will happen after the national parliaments confirm the document – a proceeding that, from the European side, could take some years, starting from the provisory inure.

According to representatives and economic advisors from both blocs, it is estimated that the details should be adjusted in up to two years, a reasonable deadline for markets to prepare the beginning of operations.

For companies interested in commencing commercial operations in Brazil, to have an international accounting office with experience in the Brazilian legislation will be instrumental in avoiding setbacks, accelerating the company’s entrance in Brazil and establishing it.

Europartner’s team of accountants has been in Brazil for over 15 years helping companies of other countries of Europe, North America and Asia establishing in Brazil. Send an email with your doubts and we will be in contact.

Author's post: Europartner Accounting

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