Overview of the EU-Mercosur Trade Agreement and Its Controversies

Key Aspects of the EU-Mercosur Trade Deal

By Philip Blenkinsop

Benefits of the Agreement

BRUSSELS, Jan 9 (Reuters) - European Union countries gave provisional clearance on Friday to a planned EU-Mercosur free trade agreement, the largest trade accord the EU has struck.

Criticism and Concerns

TARIFF CUTS, LARGER FARM PRODUCE QUOTAS

Efforts to Address Opposition

Mercosur will remove duties on 91% of EU exports, including for cars, from a current 35% over a period of 15 years. The EU will progressively remove duties on 92% of Mercosur exports over a period of up to 10 years.

Mercosur will also remove duties on EU agriculture-based products, such as the 27% on wines and 35% on spirits.

For more sensitive farm products, the EU will offer increased quotas, including 99,000 metric tons more beef, while Mercosur will give the EU a duty-free 30,000-ton quota for cheeses.

There are also EU quotas for poultry, pork, sugar, ethanol, rice, honey, maize and sweet corn and for Mercosur on milk powders and infant formula.

The extra imports represent 1.6% of EU beef consumption and 1.4% for poultry. Proponents of the deal point to existing imports as proof that Mercosur does meet EU standards. 

The deal recognizes about 350 geographic indications to prevent imitation of certain traditional EU foodstuffs, so for example the term 'Parmigiano Reggiano' would be reserved for specific cheeses from Italy.

WHAT PROPONENTS SAY

The Commission and supporters such as Germany and Spain say the deal offers a route away from reliance on China, especially for critical minerals such as battery metal lithium. It will ensure there are no taxes on the export of most such materials.

Proponents also say it offers relief from the impact of tariffs imposed by U.S. President Donald Trump.

The Commission says the free trade agreement is the largest it has ever agreed in terms of tariff reductions, removing over 4 billion euros ($4.7 billion) of duties on EU exports annually, and a necessary part of the EU's push to diversify its trade ties. 

It adds that, given Mercosur's modest collection of trade agreements, the EU would have an early-mover advantage and notes that EU companies will be able to bid for public contracts in Mercosur on the same terms as local suppliers - something Mercosur has not previously offered in trade accords.

There are also potential safeguard measures to address possible market disturbances. 

WHAT CRITICS SAY

European farmers protest that a deal would lead to cheap imports of South American commodities, notably beef, that do not meet the EU's green and food safety standards. The European Commission says the EU's standards will not be relaxed.

The deal does include commitments on the environment, including to prevent further deforestation after 2030. However, green groups say it lacks enforceable measures. 

Friends of the Earth has called the deal "climate-wrecking" and says it would lead to increased deforestation as Mercosur countries would sell more farm produce and raw materials, often sourced from forested areas, including the Amazon.

France, the EU's largest beef producer, had said it would sign the free trade agreement only if it "safeguards the interests" of French and EU farming. It now rejects the deal.

Italy, Hungary and Poland had also expressed opposition. Together, the four countries could have blocked the deal, but Italy's position shifted in the end.

HOW HAS EU TRIED TO WIN OVER SCEPTICS?

When the Commission put the agreement forward for approval in September, it set out a mechanism whereby preferential Mercosur access for sensitive farm products, such as beef, could be suspended.

The trigger for the Commission to assess the need for such safeguards would be if import volumes rise or prices fall by a set amount in one or more EU countries. The EU had previously agreed to a threshold of 8%, but ambassadors agreed to cut this to 5% after a request from Italy.

The EU executive said it would study potential alignment of production standards between domestic and imported products, notably regarding pesticides and animal welfare. It aims to strengthen import controls on food, animal and plant products entering the EU by increasing the number of audits and checks in third countries.

The next EU budget will offer a 6.3 billion euro crisis fund for EU farmers, which could cover the "unlikely event" that the agreement harms EU agricultural markets. Some 45 billion euros of support for farmers will also be brought forward.

Finally, the Commission has announced it will cut import duties for certain fertilisers, costs of which have risen by up to 60%.

($1 = 0.8587 euros)

(Reporting by Philip Blenkinsop; Editing by Frances Kerry, Alex Richardson and Toby Chopra)