03 Mar How can Mercosur benefit your company?

The Mercosur pact with the EU seems to be a closer reality every day for Europeans and the member countries of Mercosur (Paraguay, Argentina, Uruguay and Brazil). After more than 20 years of negotiations, on January 18, Spain ratified the agreement, pending the determination of the 27 as a whole. At Navarro Llima lawyers we have analyzed the pros and cons of this highly talked about trade agreement as well as the advantages it can bring to our clients.

What is Mercosur?

The Common Market of the South (MERCOSUR) is the most important economic and commercial integration mechanism in America, created with the signing of the Treaty of Asunción in 1991. This organization is considered by many to be an imperfect customs union, since it has a common external tariff but with many exceptions such as the possibility of countries to sign trade agreements individually, among others.

Why is this agreement so important?

The main reason to highlight its importance is the positive impact on the markets and the breadth of the market niche that your company can reach. This agreement seeks to unite more than 700 million people and bring together 25% of the world’s GDP in a single agreement.

The firm mainly seeks the development of the three sectors, in the European case to expand its current market niche in sectors such as the secondary and tertiary sectors and in the case of Mercosur to become the main distributor in the primary sector and improve the rest. All of this is produced by the lowering of tariffs between the different countries of the customs unions.

This union will not only have a direct impact on what we consume, but also on the cost of what we produce in Europe. Allowing us to offer more competitive prices and in the South American case to increase the demand of customers in the primary sector and mitigate this technological gap allowing the development of other industries, research or development thanks to the cooperation of EU member countries.

What has been signed?

The main measures that can be seen in this type of agreement are of two types: tariff regulation and regulation of trade barriers.

In the area of ​​tariffs, Mercosur is one of the customs unions with the most tariffs, we are talking about amounts such as 35% on cars and clothing and 25% for drinks and soft drinks, among others. This agreement cancels 90% of all these tariffs.

In the area of ​​regulation, the agreement eliminates discriminatory tax treatments on imported goods, opening up to public tenders, equal treatment with SMEs at European level, access to strategic raw materials.

If this agreement were to be signed, it would mean an impact of the EU on 94% of South American GDP, opening a window that is impossible for other countries such as China (14%) or the USA (44%).

Is it worth it or is it just a dead letter?

As we all know, not everything that glitters is gold, but after more than 20 years of negotiations, the plant is beginning to sprout. To determine whether it is valid, the different internal systems of each organization will have to be taken into account. On the Mercosur side, unanimity of the members is not required to be able to apply the agreement, but it would be delegated to the national parliaments. In the case of the EU, it would be much more complicated since it requires a 65% majority among all its members. The main opponents were France, Austria and Poland, and this opposition was not enough to be able to stop this signing.

Although nothing is 100% clear, we can determine that there is a great opportunity to benefit from these measures and, as always, you can only succeed if you have great advisors and the best legal assistance at an international level on your side.