POLITICO brings you the new elements of Europe’s trade deal with South America struck last week.
BRUSSELS — Here are the new elements of the trade agreement between the European Union and the Mercosur bloc that European Commission President Ursula von der Leyen shook hands on with South American leaders at a summit in Uruguay last week.
Key elements include a “rebalancing mechanism” to be deployed in disputes where policy impinges on trade, along with a provision that would allow the trade deal to be suspended if one party is found to have violated the Paris climate accord, according to documents released by the European Commission on Tuesday.
These are the five most important elements of the EU-Mercosur deal:
– Dispute settlement
One of the biggest novelties of the new agreement is that the EU has granted the Mercosur countries a so-called “rebalancing mechanism,” which allows for compensation if one side finds that new policy measures nullify or impair the benefits of the trade agreement.
It is not yet clear whether Mercosur countries will be able to challenge the EU’s planned anti-deforestation rules — which would restrict imports of products grown on deforested land — or its carbon border tax.
The two sets of rules were at the center of concerns from the Mercosur side, and this rebalancing mechanism — a first in EU trade deals — can be seen as a win for the Latin American countries.
– The Paris Agreement
The parties recognize that “the global threat of climate change calls for the widest possible cooperation of all countries to reduce global greenhouse gas emissions and to adapt to the adverse effects of climate change in a manner that does not threaten food production, with developed countries continuing to take the lead.”
They also reiterate their commitment to implementing the Paris Agreement on climate change, and pledge to cooperate on trade-related climate change issues bilaterally, regionally and in relevant international fora.
It’s a broad statement that reflects the wishes of the European side, and above all France, in embedding climate concerns into the deal — especially keeping in mind the threat by Argentinian President Javier Milei, made after Donald Trump’s U.S. presidential election win, to pull out of the Paris accord.
Importantly, the agreement allows for the trade agreement to be suspended, in part or in full, if one party finds, on a factual basis, that the other has violated essential obligations under the Paris accord. The wording foresees “urgent consultations” on seeking a mutually agreed solution, and a review period, before any suspension can go into force.
The parties also make a fulsome pledge to tie trade to sustainable development in an annex which notes that the agreement is being signed “amidst an unprecedented combination of crises and challenges.” This declaratory annex does, however, specify that each party to the agreement is responsible for determining its own sustainable development priorities.
– Auto duties
The Mercosur import tariffs on cars will take anywhere from 18 to 30 years to be reduced to zero. Argentina and Brazil, the two largest economies in the Mercosur bloc, will have higher tariff levels than Paraguay and Uruguay.
EVs and hybrids will be the quickest to see their rates lowered, with a first 29 percent reduction as the deal enters into force. That means, for instance, that Argentina and Brazil will charge only 25 percent on European EVs and hybrids. The tariffs will then decline to 5 percent after 15 years and finally zero after 18 years.
Hydrogen-powered cars will not get their first Mercosur tariff reduction until six years into the deal. It then takes 20 years to reach zero.
Finally, regular petrol-fueled cars will still be tariffed until the 29th year after the agreement is applied. For the first six years, there’s no reduction at all. Considering the electrification of the transportation sector, that slower phase-out is meant to favor cars that don’t run on fossil fuels.
–Bilateral safeguards
The trade agreement includes safeguards on the import of autos that would consist of a temporary suspension of the tariff elimination schedule or a temporary reduction of tariff preferences.
“Bilateral safeguards for vehicles shall be applied only for the period necessary to prevent or remedy the injury and to facilitate adjustment of the domestic industry,” the agreement reads. It notes that these safeguards should be in force for no more than three years, although they can be extended by two further years if continuing injury is determined.
It’s an important win for Brazil, which sought the safeguards after the EU, the United States and Canada all slapped import tariffs on Chinese-made electric vehicles — sparking fears of wider trade disruptions that could lead a flood of exports to be diverted to South American markets.
– Raw materials
There won’t be any taxes on Brazilian exports of several raw materials to the EU, such as nickel, copper, aluminum, steel raw materials, germanium or gallium.
If Brazil decides to impose taxes, the exports to the EU should benefit from a minimum 50 percent duty preference, and it shouldn’t exceed 25 percent, the agreement notes.
Similarly, Argentina won’t be applying export taxes on its raw materials. In exchange, the country will be granted export duties for agricultural goods.
The region is known for its rich reserves, with Argentina a member of the so-called lithium triangle. Access to raw materials was a crucial goal for the EU in its negotiations with Mercosur.
This story has been updated.
