EU-Mercosur Free Trade Agreement - An Explainer
The European Union has negotiated a free trade agreement with Mercosur member countries Argentina, Brazil, Paraguay and Uruguay. But the problem is, like TTIP and CETA, the agreement prioritises profits for transnational companies and investors, while lowering social and environmental standards for workers, farmers and citizens. There is still time to stop it though…
What is at stake?
Climate change & destruction of the Amazon
At this critical moment where we face irreversible climate disaster, we urgently need to make and implement policies that will enable us to ensure that life on earth is sustainable. European citizens have shown enormous support for this kind of policy change in the recent EU election. Yet, this trade agreement that the European Commission is pursuing with Mercosur countries would achieve exactly the opposite.
To meet the huge new demand for beef and soybeans that would be created by the agreement, it is expected that large areas of the Amazon rainforest in Brazil – the world’s largest carbon sink – will be destroyed to create more space for intensive farming. Brazilian President Bolsonaro has already indicated that this will happen and even threatened to withdraw Brazil from the Paris Agreement on climate change. If this goes ahead, carbon emissions will rise by 1.3 gigatons a year, according to the country’s scientists, as well as reducing biodviersity. Ironically, even the companies that would benefit are objecting, due to fear of damage to their reputations.
Market demand from Europe is also expected to lead to an increase in fracking gas, oil and ethanol production in Mercosur countries, which will further increase carbon emissions and threaten water supplies with contamination.
Reduced food safety
The standards for food safety in Mercosur countries are unfortunately much lower than in Europe.
Regulations on the use of pesticides and antibiotics are much weaker, production of GMO crops is widespread, meat from hormone-fed animals is permitted and the trustworthiness of the inspection services is highly questionable.
For example, in Brazil, the Bolsonaro government has approved the use of 200 new pesticides (30 of them are considered very dangerous by the World Health Organisation), which are forbidden elsewhere. Similarly in Argentina, among the 150 pesticides used in soybean farming, 35 are banned in the EU.
As we have already seen with products imported under the EU-Canada free trade agreement (CETA), when a free trade agreement is implemented food safety controls conducted at EU borders are not applying standards rigorously enough to prevent unsafe products from entering the EU.
While the EU is supposed to exercise the ‘precautionary principle’ for issues such as food safety and health, this is not being taken seriously enough by customs controls and only mentioned once in the agreement with Mercosur, as a “discussion point” in a non-binding chapter rather than an undebatable requirement by the European Commission’s trade negotiators.
Alternatively, trade agreements could be used to improve food safety standards among the EU’s trade partners, but until there is a radical change in policy, this one is likely to bring large volumes of unhealthy products into the EU.
Replacing local farms with agribusiness
In both the European Union and the Mercosur countries, family and cooperative farmers as well as food sovereignty will suffer as a result of this agreement, while unsustainable monoculture driven by agribusiness thrives.
European farmers, especially meat and crop producers, will be forced to compete with imports from large agribusiness companies in Mercosur countries that cut costs by using pesticides, antibiotics and hormones. This competition is likely to result in increased dependency on imported products.
Smaller farms in the Mercosur countries and indigenous peoples will lose access to land due to pressure from the large companies that will be seeking more land to produce more to meet export demands. This will not only mean losses to the smaller farmers’ livelihoods, it will also reduce national food security because smaller farmers produce for more stable local and national markets.
Even the European Commission’s impact statement (produced by Manchester University) identified these problems, yet the Commission has – as usual – simply ignored this.
Loss of tax revenue
One of the main arguments put forward by the European Commission to seek support for this agreement is that it will cut taxes for exporters. It is estimated that large companies will save 4 billion euros on export taxes as a result. However, these taxes that countries collect on imported and exported products help to fund public services that people need like hospitals, schools and public transport. By reducing these taxes, budgets for public services will be reduced. This usually leads to privatisation of public services and increased costs to people.
For example, Argentinian President Macri has already drastically cut export tariffs on soybeans which has benefited landowners and agribusiness, but more than doubled the public debt, destroying the Argentinian economy.
Furthermore, there will be no possibility to reverse these tax reductions in future because the agreement negotiated also contains a ‘standstill’ clause that prevents tariffs from being reintroduced.
Public budgets will not only be reduced by tariff cuts, but also by the liberalisation of financial services under the agreement. This is expected to increase tax evasion and money laundering, as explained in the GUE/NGL report titled ‘Shady Deals – How the EU-Mercosur Free Trade Agreement would encourage illicit financial flows.
Job losses & attacks on workers rights
In Europe, job losses, ‘flexibilisation’ of the workforce and social cuts are expected as a result of the EU-Mercosur free trade agreement.
In Brazil and Argentina, the large-scale loss of decent jobs is also expected in the car, auto parts, metalwork, chemical and textiles industries.
The agreement is expected to lead to increased production in ‘maquiladoras’ – factories in Latin America that import parts and assemble them into products, then export them. This style of factory usually benefits from a lack of import and export taxes, but is renowned for exploiting workers through long overtime hours and paying less than minimum wages. The result is cheap products with which other factories – both in Europe and Mercosur countries – cannot compete.
Brazilian President Bolsonaro has declared that “workers have to choose between jobs and rights”, while allowing companies to negotiate contracts with employees on an individual basis instead of collectively through their trade unions. He has also introduced new laws that deprive trade unions of their established financing structures.
For the less developed Mercosur countries of Uruguay and Paraguay, tough market competition from European imports is likely to make industrialisation impossible in future.
Lack of respect for human rights & democracy
Once again, there has been a lack of transparency over the European Commission’s negotiation of this agreement. The Commission took 15 years to make the negotiating mandate for this agreement available to MEPs and the public and did not make the text under discussion available until after the conclusion of the negotiations.
The Commission has also ignored concerns over impacts on climate change raised by over 600 scientists, an appeal from 340 organisations to halt the agreement and a letter from 67 MEPs urging the Commission to at least postpone it until the newly elected European Parliament has debated it.
Previously, during the negotiation of the EU-Colombia/Peru free trade agreement, the European Commission made claims about using human rights and sustainable development clauses to push for improvements in human rights in those countries, however, this has not amounted to any real action at all because the Commission doesn’t pursue it seriously.
Meanwhile, the Commission is negotiating with Brazil without raising any criticism of the serious human rights issues there. The country’s far-right President Bolsonaro – who was elected after a coup against former President Dilma Roussef and the illegal disqualification of his main competitor Lula Da Silva from the election – has shown no regard for democracy as he abolished the advisory and participatory organs of all government ministries, including state bodies which are enshrined in the constitution or exist due to internationally binding agreements.
He has also announced that land reserved for indigenous peoples will soon be used for industrial farming instead and indigenous people must either adapt or “simply vanish”, provoking the largest protest by the indigenous population in Brasilia in history.
In the slums of Rio and other large cities, extrajudicial killings by police forces also occur on a regular basis, yet the European Commission has remained silent about all of this while rushing to finalise the trade negotiations.
Privileges for investors to be pursued later
While the controversial investor-state dispute settlement (ISDS) mechanism that was so unpopular that it derailed or delayed other trade agreements (like TTIP and CETA) is not included in the EU-Mercosur free trade agreement, it is expected that the European Commission will pursue the addition of such a mechanism later.
The Policy Process
The EU-Mercosur free trade agreement is part of an ‘association agreement’ in which the EU, its Member States and another country define their plans for political and economic cooperation. It has been under negotiation since 2000.
In June 2019, an agreement on the chapter on trade was announced and an overall agreement in principle (which has no legal force at this stage) was released. In July, the Uruguayan government and the European Commission published some of the text, but some of the most important elements are still not published, which means that the negotiations could continue.
Once the text is agreed upon between the European Commission and representatives of Mercosur countries, it will go through a process of ‘legal scrubbing’ in which the details of the agreement will be fine-tuned. Then it will be translated into all the official EU languages.
Next it goes to the new European Commission for approval, then to the Council. As this agreement is an association agreement, any country in the Council has the power to block it.
If approved, it will then be officially signed by representatives of the EU and Mercosur.
Then comes the ratification by the European Parliament in which MEPs vote. This is usually followed by the provisional application of the agreement (though the Council also has the power to apply it earlier if it wants).
Finally, for the agreement to be concluded and officially enter into force, it must be ratified by all the national parliaments of the EU. However, if one parliament with national competences (in Belgium there are 7 of these, for example) votes against it, then the government of this country must inform the Commission and the whole agreement fails.
What our MEPs are doing about this
- not to conclude the agreement before the newly elected MEPs have thoroughly analysed and debated it;
- to provide regular updates during the final phase of the negotiations, in order to ensure an informed debate in the European Parliament; and
- to bear in mind that supporting the implementation of the Paris Agreement must be a precondition to concluding an agreement with the European Union.
In January 2019, GUE/NGL published a report titled ‘Shady Deals – How the EU-Mercosur Free Trade Agreement would encourage illicit financial flows’, which exposes the huge potential for tax dodging and other illicit financial flows that could result from the EU-Mercosur free trade agreement.
In November 2018, eight MEPs wrote a joint letter to Commissioners Juncker, Mogherini and Malmström, calling on them to suspend negotiations on the EU-Mercosur free trade agreement. The letter came in response to statements from the new President of Brazil, Jair Bolsonaro, in which he plans to allow destruction of the Amazonian rainforest and to imprison or exile dissidents. Given the circumstances in which Bolsonaro was elected, the MEPs have significant concerns about trading with a government whose respect for democracy is highly questionable.
In May 2018, GUE/NGL held a two-day hearing for 15 people from across the political spectrum in the European Parliament to discuss the agreement, including its contents, beneficiaries and implications for democracy.
What our MEPs say
MEP Helmut Scholz, who is a Member of the International Trade Committee and the GUE/NGL Shadow on the EU-Mercosur free trade agreement, comments:
“This agreement is a lose-lose deal. In Europe, our farmers will suffer from low-price imports from Mercosur. Our consumers don’t want food that containing GMOs and pesticides. On the other hand, the Mercosur countries will be forced to abolish tariffs for cars, machinery, and chemicals from Europe.”
“The EU’s trade should be oriented to ensuring the implementation of all 17 of the United Nations Sustainable Development Goals, based on the joint commitments to the UN 2030 Agenda. The EU’s approach must be brought into line with these goals and support regional cooperation for any future trade deal with Brazil and other Mercosur countries.”
“As Brazil is the largest trading partner among the states that are members of Mercosur, to continue negotiating the EU-Mercosur free trade agreement with Bolsonaro’s government would send a message that the EU doesn’t really care about climate change, environmental sustainability, human rights or democracy.”
MEP Emmanual Maurel, who is a member of the International Trade Committee, also comments:
“This free trade agreement between the EU and Mercosur must be stopped. It is dangerous for our farmers and a disaster for our food security. It is our right to refuse to import products full of pesticides, antibiotics and GMOs. Why should we sign this agreement and sacrifice the health of our citizens, the future our farmers and impede our own right to regulate?”