The European Commission this week formally started the process to ratify the Mercosur trade deal that was agreed last December.
If approved, the agreement between Brazil, Argentina, Uruguay and Paraguay will be the largest ever entered into by the EU.
This was in fact the second time it was agreed, the first was in June 2019 but subsequent to that an outcry in Europe about environmental standards in South America led to a negotiation to strengthen the environmental demands in the agreement. On the big issue for Irish farmers, the level of access for South American beef was not revisited and the quota at a tariff rate of 7.5% as agreed when Phil Hogan was agriculture commissioner, remained.
There is huge concern among Irish farmers and the beef processing factories that this is sufficient to undermine beef prices in Ireland and throughout the EU. Advocates of the deal will point out that this is only 1.5% of the beef that is consumed in the EU. While they are technically correct, the 99,000 tonne quota isn’t spread across the full range of cuts in the carcase and what is likely to happen is that Europe will be targeted with high value steak meat and this has much greater potential to disrupt the EU steak meat market.
Pressure to ratify
The pressure on Ireland to support the deal will be immense. The next step is that it will go before the Council of Ministers under the Danish presidency and despite the rumblings in France, Italy and Poland, even if these are converted to votes against the deal it wouldn’t be sufficient to block it. Even if Ireland was to join as a fourth country, it still doenst represent the necessary population level to create a blocking minority.
Case for Mercosur
The big argument in favour of the Mercosur deal is that with the exception of beef and poultry it is an excellent deal that would benefit the rest of agriculture and be a huge boost for the wider economy. The auto and car parts industry, white electronic good, pharma and technology are all set to benefit from the deal as is the dairy sector while it is neutral for pig meat and Europe including Ireland is a major importer of South American grain.
The second pressure point on getting the deal over the line comes from the huge political desire for the EU to reassert their place in global trade. Current trade policy by the US is particularly disruptive and the recent agreement between the EU and US was very much on US terms. The US has difficult relations with South America and Brazil were recently singled out for an additional 50% tariff which all but ends Brazil’s beef exports to the US. A comprehensive agreement in operation between the EU and Mercosur countries would create a huge trade block and enable both sides.
Beef is the problem
The only problem with the Mercosur deal is that the beef sector becomes exposed to a supply jolt. Brazil, Argentina and Uruguay are three of the top five beef exporting countries in the world and all have long experience of supplying Europe. Their main market currently is China where demand for imported beef increased dramatically over the past decade. If that market was to slow down or be disrupted as has been the case with the US, then the EU market could experience a surge in beef supply from South American countries. The EU are keen to emphasise the safeguards against these imports undermining the EU market but of course we don’t know how effective they would be in practice until they are needed. The Irish Government has very much kept its council so far on how they will vote on the deal and the members of the European Parliament who will have the last word on the deal are divided from those that are hostile to those that are keeping an open mind. It is there that the real battle for and against the deal will take place.
Commission moves forward with Mercosur