Free trade agreement numbers and guidelines
The agreement between the EU and Mercosur will have a significant impact on the European economy, generating a GDP increase of more than EUR 77 billion by 2040. The value of EU exports, estimated at around EUR 50 billion a year, and the number of employed people are also expected
For an initial estimate of the impact the EU-Mercosur agreement will have on their respective economies, it is necessary to refer to the official reference source: the EU DG Trade portal with the data released on the eve of the provisional application of the trade section, which took place on May 1st. We have already mentioned the participating Latin American countries - Argentina, Brazil, Paraguay and Uruguay - and the number of consumers (700 million). The EU's stated objectives are to eliminate trade barriers, increase employment levels, and create new business opportunities, while providing solid guarantees regarding compliance with (rigorous) EU standards and competition rules. From this perspective, the Agreement could also have a positive impact in terms of standardizing market rules, particularly for states with a federal structure such as Argentina or Brazil.
It is estimated that by 2040, the trade agreement between Europe and South America will produce an increase in European GDP of 77.6 billions of Euro, an increase in EU exports of 50 billion on an annual basis (+39%) and generate 600,000 new jobs. Looking at industrial goods, the agreement reduces tariffs on motor vehicles (now up to 35%), machinery (now between 14% and 20%), and many other industrial goods, saving EU companies over EUR four billion a year. The agreement also affects key EU agri-food products, such as wine and olive oil, reducing rather high tariffs and encouraging an estimated 50% increase in EU food exports. A target that, if actually achieved, could positively influence sales trends in the Italian agri-industrial sector.
To delve deeper into the terms of the agreement on specific goods, the starting point is Chapter 2 Trade in Goods Article in which Article 2.1 states that “The Parties shall establish a free trade area for goods …” and “Except as otherwise provided for in this Agreement, each Party shall reduce or eliminate its customs duties on originating goods in accordance with Annex 2-A”. Annex 2 specifies “Each Party shall reduce or eliminate customs duties pursuant to paragraph 1 of Article 2.4 in accordance with the tariff elimination schedule set out in: (a) for the European Union, Appendix 2-A-1; and (b) for Mercosur, Appendix 2-A-2”. The one of affecting Italian exporters is 2-A-1. This is a substantial document, whose Annex 2A alone with its appendices comprises over 2,300 pages. The appendices to Annex 2 contain the customs codes for each product and the categories for which the respective duties are applied or eliminated. For each customs item, the duties applicable from the first day are established, the times and methods for reducing or eliminating the duties themselves are indicated (with possible tariff quotas for some products), and the conditions for applying the elimination schedule are indicated. Since the mechanism can differ even between very similar products, great attention must be paid to the correctness of the customs code. The timetable shows that tariffs will be eliminated immediately only for some foods exported from the EU; for machinery, however, it will take at least up to 10 years. The standard mechanism provides for a proportional reduction in the basic rate: if the period is 10 years, the rate is reduced by 1/10 each year. Category 'E' includes products not included in the Agreement, while category 'SW12' envisages the elimination of duties in 12 years, which may be conditional on the value of the product. This is a protection mechanism established to avoid penalizing local products from the importing country. In some countries, import channels independent of the Agreement are still maintained for machinery supplied from abroad that does not have a local counterpart. The terms, although binding, are subject to change as there is the possibility of speeding up the process of eliminating customs barriers, given that “each Party may accelerate the elimination of customs duties on originating goods of the other Party, or otherwise improve the conditions of market access for originating goods of the other Party, if its general economic situation and the situation of the economic sector concerned so permit”. A final consideration—regarding the timing of tariff reduction—is to avoid delaying trade activity; Italian companies operating in South American markets confirm that the signing of the Agreement has stimulated local firms interested in partnering with EU firms.
