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Mercosur & EU Free Trade Agreement

MERCOSUR is a trade bloc established by Argentina, Brazil, Paraguay, and Uruguay to promote international trade and investments.

The Southern Common Market (MERCOSUR) is a trade bloc established by Argentina, Brazil, Paraguay, and Uruguay to promote trade and investment opportunities in national economies and international markets. The free movement of goods and services between MERCOSUR members is the most fundamental policy of the Bloc. Member countries are also allowed to keep certain goods outside this market in order to protect their local industries. MERCOSUR also signed commercial, political, and collaborative agreements with a wide range of countries and organisations around five continents.

What Is MERCOSUR?

MERCOSUR represents;

  • A region that holds over 260 million consumers,
  • The fifth biggest economy outside the EU, which has an annual GDP of €2.2 trillion,
  • Covered markets with high tariff and non-tariff barriers,
  • The destination of €45 billion worth of EU goods (in 2018) and €23 billion worth of EU services (in 2017),
  • A potential market for 60,500 EU companies,
  • And an essential destination for EU investments with a €381 billion investment stock in 2017.

Only the EU’s exports to Brazil creates job opportunities for 855 thousand people in the European market. The same way, Brazil provides employment to 436 thousand citizens with its exports to Europe.

After 20 years of negotiations, the European Union and MERCOSUR reached an agreement in July 2019. This agreement is a historical milestone in MERCOSUR-EU relations. Because this partnership represents about 25 per cent of the world’s GDP and a market worth of almost $780 million. Amidst the tensions and uncertainties in international trade, such an agreement underscores the commitment of the two blocs to grow their economies and increase their competitiveness.

What Will MERCOSUR Bring to the EU’s Economy?

MERCOSUR will set the customs duties to zero, which represent 90 per cent of EU’s exports in the automotive, automotive spare parts, machinery, chemistry, and pharmaceutical industries. And the EU will set the tariffs on orange juice, fruit, and coffee, which are integral parts of Brazil’s exports, to zero. The EU will also implement tariff quotas in livestock, sugar, and ethanol exports from Brazil.

According to the estimates of the T.R. Ministry of Trade, the MERCOSUR-EU agreement will increase Brazil’s GDP by $87.5 billion in 15 years. Considering the decrease of non-tariff barriers and the expected increase in the overall efficiency of production factors, the number can even reach $125 billion. Investments in Brazil are also expected to increase $113 billion in the same period. The EU will also provide privileged access to MERCOSUR by making 82 per cent of the trade volume of the agriculture industry and 77 per cent of the tariffs free.

Upon the entry of the free trade agreement between MERCOSUR and the EU into force, we can prevent the market access advantages of our competitors’ products by signing a free trade agreement with MERCOSUR.

Turkey-Latin America Business Council Coordinator, Melike Hocaoğlu Çağlıöz

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