Mercosur trade deal edging forward

A deal has been agreed for almost two years, but the ratification process still has long way to go.

The EU commission Services have released a 23 page policy paper which reveals the Commission’s position on the Sustainability Impact Assessment (SIA) carried out by the London School of Economics (LSE) on the Mercosur trade deal. The LSE report was finalised last last December. And an updated cumulative impact assessment was released by the EU in January on trade deals. Neither report did anything to soothe the fears of Irish beef producers and it is clear that the Commission are comfortable with the agreement notwithstanding concerns expressed on environmental issues.

Much of the LSE report’s environmental concerns are concentrated on Brazil and in particular the issue of deforestation. It noted that Brazil hadn’t included its forest related commitments in its most recent Nationally Determined Contribution (NDC) which is the action plan of countries to deliver the targets set out in the Paris climate accord.

The language used by the Commission policy paper is extremely diplomatic, simply saying that they agree with the SIA on “the need for Brazil to improve and nave in place robust anti-deforestation measures” and that they “share the deep concerns expressed by numerous stakeholders” They suggest a possible pledge could be linked to the signature of the agreement before going on to recognise that the issue of Brazil removing the references to deforestation made in its 2016 NDC in the 2020 update. 

Brazil’s performance on deforestation and its revised climate commitments for 2030 are widely criticised globally and present the biggest barrier to EU ratification of the Mercosur deal.

The Portuguese presidency has ambitions to move the ratification process forward and their foreign minister spoke of the EU’s trade credibility being on the line because of the slow progress with ratification. The latest policy paper from the Commission indicates that it remains content with the deal but it is a different issue in the EU Parliament and in member states. Austria have already committed to blocking the deal and the French Government have indicated that they won’t sign the deal in its current form. So far there isn’t an Irish Government position though as in Austria the Green party are part of the coalition Government.

Aside from the challenge to get approval in member states, there is also the issue of securing Parliament approval. Mercosur was the biggest area of challenge to Commissioner Valdis Dombrovskis when he went for his approval hearing before Parliament late last year. The Green party and several other MEP groupings are robustly opposed to Mercosur and even pro trade members have misgivings.

There is a strong economic case for a trade deal between the EU and Mercosur in every sector of the EU economy with the exception of beef farmers and sugar producers. With further restrictions on farming inevitable in the outworking of the EU farm to fork strategy through CAP, beef producers will look at the Commission’s policy paper in dismay. With CAP the EU have a very robust enforcement mechanism for making EU farmers comply, a disputes resolution mechanism in a Trade deal is slow and cumbersome.

The Commission’s impact assessment has quantified the cost of the Mercosur deal at 2.4% on producer prices. Applying this to the 2.2bn spent by Irish factories in the Grant Thornton report to the Beef Market Taskforce, it would mean a hit to Irish farmer of €52m annually.

Whenever the deal was announced in June 2019, then Agriculture Commissioner, Phil Hogan said that he had secured a Commission commitment for a €1bn fund to compensate farmers that were negatively impacted by the deal. The latest commission position paper only refers to being “ready to make available support for the agriculture sector in the unlikely case that the implementation of the deal would result in market disturbances.”

The irony of the EU aggressively pursuing strict environmental policy in its own production while being extremely flexible when it comes to international trade is well understood in farming. It is essential that farm organisations ensure that this is also understood in Government and the corridors of the EU institutions. Even then the case for the Mercosur deal will still be strong, nowhere more so than in Ireland where the huge chemical and pharmaceutical sector would be major winners and also have the ear of Government.

Source: FarmersJournal