Mercosur-EU Agreement: It’s Really Going to Happen Starting May 1

The Agreement provides for a range of measures, among them tariff reductions, that will be phased in over the coming years. A key feature is the gradual elimination of tariffs on various products, in many cases until reaching zero over the next fifteen years. While tariffs have ruled the headlines, the Trade Agreement also includes new rules on public tenders, intellectual property, and antitrust protections to name a few.

If, however, the Court of Justice of the European Union (CJEU) finds the Trade Agreement violates other EU treaties, or if the European Parliament votes against adopting the Trade Agreement, the implementation will grind to a halt and possibly repealed.

The following paragraphs outline provisions of the Trade Agreement that will take effect immediately as of Friday.

A significant portion of trade between both blocs will immediately benefit from the complete elimination of tariffs. Nearly 74% of EU imports from Mercosur will become duty-free instantly. These include a wide range of industrial products, animal-origin products and raw materials.

In the case of Mercosur, the loosening of import restrictions will be more gradual, with only about 14% of total EU exports to Mercosur becoming duty-free. EU products entering Mercosur without tariffs will include certain fish, seafood, and seeds.

A significant portion of bilateral trade will also be subject to gradual tariff reductions, ultimately leading to the full elimination of customs duties. Following initial tariff reductions this May 1, subsequent reductions will apply on January 1 of each year thereafter. These tariff reductions will cover a broad range of goods, including European automobiles, wines, clothing, and agricultural products, all of which currently face tariffs of up to 35%.

Finally, as of May 1, both blocs have agreed—subject to certain exceptions—not to levy any new tariffs or increase existing ones affecting commerce between them.

Even if the Trade Agreement is ultimately invalidated or rejected by the CJEU or the EU, time is on the side of free trade, as it would likely take years before this provisional application could be overturned. As a result, numerous products will benefit from significant tariff reductions and a significant increase in trade between the blocs will occur whatever the eventual outcome.

The Trade Agreement also establishes a common regulatory framework allowing companies from both Mercosur and the EU to participate in public tenders offered by members of each bloc. To level the playing field, a non-discrimination policy will apply to goods, services, and vendors of the two blocs participating in each other’s public tenders. The Trade Agreement calls for this policy to apply immediately.

This represents an important opportunity for companies of both blocs. Brazil alone has annual public tenders worth more than 8 billion euros. The infrastructure needs of Mercosur members make for an attractive market for experienced EU companies.

The Trade Agreement specifically gives assurances to EU and Mercosur members concerned with protection of their geographical domains. The Trade Agreement prohibits marketing products with domain names (e.g., “champagne”) that do not originate from those locations. Currently recognized domains are already included in the Trade Agreement and immediately protected as of May 1 effective date. Thereafter, each bloc may request the addition of new domains to the Trade Agreement’s protection.

While the future of a long-term free trade agreement between the EU and Mercosur remains uncertain, the provisional application has meaningful consequences. Companies affected by the Trade Agreement must remain circumspect of a possible unwinding by the EU, but, if so, it remains over the horizon and beneficiaries need not wait to benefit from a substantial part of the provisional arrangement. Businesses may enjoy the benefits of the Trade Agreement as of Friday without fear that their transactions may later be penalized or adversely affected.