The EU and Mercosur (Brazil, Argentina, Paraguay, and Uruguay) agreed recently on a draft-free trade agreement that, if implemented, will create the largest free trade area in the world, connecting over 770 million people. The free trade agreement has been agreed in principle and will now move to legal revision. This will lead to a final text of the agreement being sent to the member states of both blocs for approval.
Under the deal, the EU will eventually abolish 92% of tariffs on imports from Mercosur member states. Mercosur will remove duties on EU manufactured/industrial goods, a historically heavily-protected sector in South America. This includes removing duties on cars, car parts, machinery, textiles, along with other industrial goods. Mercosur will gradually eliminate duties on EU food and drink exports, including wine, chocolate, biscuits, whiskey, and soft drinks.
A key feature for textile industries is the reduction or elimination of duties currently imposed on raw materials, including current duties Mercosur places on hides and skins. Additionally, reductions on duties on soybean products should make it cheaper for European farmers to feed their livestock.
A major section of the free trade agreement covers agriculture. Duties on 93% of tariff lines on EU agri-food exports will be gradually eliminated. In return, the EU has agreed to liberalise 82% of agricultural imports, including increasing the beef quota to 99,000 tonnes at a 7.5% tariff rate. Poultry, pig meat, sugar, ethanol, rice, honey, and sweetcorn are among additional Mercosur exports that stand to benefit from tariff rate reductions. The free trade agreement does provide trade remedies and bilateral safeguard clauses that cover both industrial and agricultural goods.
For trade and industry professionals, the free trade agreement seeks to modernise and automate customs procedures in order to expedite the clearance of goods. The agreement also provides for the mutual recognition of Authorized Economic Operator programs and requires that exporters leverage the Registered Exporter (REX) system for managing proof of origin.
If the free trade agreement enters into force, it will be important for traders to review rules of origin procedures to ensure that they can benefit from reduced tariff rates provided by the agreement.
Should you need assistance with reviewing your supply chain and leveraging the upcoming EU-Mercosur, or any other Free Trade Agreement, please let Tradewin know. Our trade compliance consultants are here to help.