Way back in 1999, the European Union opened up talks of a trade agreement with Mercosur, or el Mercado Común del Sur. Mercosur is a group of four South American countries: Argentina, Brazil, Paraguay, and Uruguay. Talks were tabled until 2010 and gained momentum in 2016, when both sides offered to remove tariffs on imports. On June 28, 2019, the EU and Mercosur reached an agreement. Now, over the course of 2020, they plan to conclude the trade agreement.
While the trade deal covers many topics related to trade, for our purposes, we will be focusing on the environmental aspects in our evaluation of the deal.
Today we will be looking at:
- The Backdrop of the Trade Deal
- Main Provisions
- Environmental Implications
- No Economic Penalties for Violating the Paris Agreement
- Cattle-Grazing and Deforestation
- Soybeans and Deforestation
- What Can I Do?
The Backdrop of the Trade Deal
The EU-Mercosur trade agreement was signed between the EU member states and four South American countries, namely Argentina, Brazil, Paraguay, and Uruguay. The EU is Mercosur’s biggest trade and investment partner. In 2019, EU exports to Mercosur totalled €41 billion, and Mercosur to the EU totalled €35.9 billion. The EU is also the biggest foreign investor in the region, holding €365 billion in stocks in 2017.
The trade agreement aims to do four main things:
- Get rid of tariffs
- Promote trade in other ways
- Show the world that the EU and Mercosur reject protectionism
- Pursue a value-based trade agenda
One of the biggest changes to come from this agreement will be the elimination of tariffs. Mercosur countries currently impose high tariffs on EU imports including: cars (35%), clothing (35%), and pharmaceuticals (up to 14%). The trade deal will remove tariffs on over 90% of EU goods exported to Mercosur, thus making it easier for the European Union to export to the 260 million consumers in Mercosur countries. The deal will, in turn, also make it easier for companies in Mercosur countries to export goods to the EU.
There are some other ways that the trade agreement will make trading easier between the two groups. For instance, the agreement contains provisions on “improving access to raw materials essential to the EU economy by lowering or removing export taxes and eliminating export restrictions and export monopolies.”
At a time of growing protectionism, the EU and Mercosur hope to show the world that they reject these practices and are open to trading on the basis of fair rules and high standards.
Finally, in pursuing a value-based trade agenda, both sides agree to, among other things, protect the environment, including fighting climate change and deforestation.
So by now you might be thinking, hey, this doesn’t sound so bad!
And while there is certainly an argument in favor of boosting international economic cooperation at a time when some leaders are turning towards protectionism, an analysis written by Dr. Lucinia Ghiotto and Dr. Javiar Echaide sheds light on the environmental consequences of the trade agreement.
No Economic Penalties for Violating the Paris Agreement
According to the European Union website, “Under the agreement, the EU and Mercosur commit to effectively implementing the United Nations Framework Convention on Climate Change and the Paris Agreement on climate change.”
According to the study by Dr. Ghiotto and Dr. Echaide, the agreement does not include any enforceable mechanisms to ensure that countries actually adhere to the Paris Agreement. This means that if one of the countries does not hold up its end of the Paris Agreement, or fails to comply with other sustainability provisions, there will be no sanctions imposed against that country, nor can it expect trade preferences to be withdrawn.
For instance, under the Paris Agreement, Brazil is committed to acting against illegal deforestation and to delivering 12 million hectares of reforestation in the Amazonian forest. However, the EU-Mercosur trade agreement does not include any penalties should Brazil fail to honor those commitments.
And that’s a huge problem. The Amazonian forest is absolutely critical in regulating the earth’s climate, and now Brazil has an even bigger economic incentive to continue destroying it.
To show how the EU-Mercosur trade agreement could lead to increased deforestation, we will be focusing on two major products from the region: cattle and soybeans.
Cattle-Grazing and Deforestation
Here are some worrying statistics about the Amazon and deforestation:
- The equivalent of 1.5 football stadiums are deforested every minute.
- In the Amazon, 63% of deforested land is occupied by grazing cattle
- Between 1985 and 2017, pastures have increased by 500%, causing 28.5 million hectares of deforestation
This trend of deforestation for cattle is likely to increase as a result of the EU-Mercosur trade agreement.
In 2018, the four Mercosur countries accounted for 78.8% of total beef imports to the EU. With the agreement, the export quota for beef will increase by about 57%. The Hilton Quota (high quality meat) will see the elimination of its 20% tariff, hormone-free beef will remain duty free, and fresh and frozen bovine meat will be included in a new quota, for which the tariff will be 7.5%.
According to the study, the increase in quotas will likely lead to a decrease in the price for beef imports, therefore making beef from Mercosur more competitive in the EU market.
While there is debate as to the impact of the new tariffs and quotas on the EU market for beef itself, it is likely these will affect the market for exporting beef from Mercosur countries.
According to the study, the increase in quotas will likely serve as an incentive for production and export, therefore expanding the beef sector in Mercosur countries. This will likely lead to more deforestation for cattle grazing.
Soybeans and Deforestation
The northward expansion into the Amazon of grazing land and land for growing soybeans has been going on since the 1980s. Mercosur countries alone accounted for 93% of EU soya meal imports in 2019.
In their study, Dr. Ghiotto and Dr. Echaide predict that, “due to the abolition of export duties, the cost to export soybeans and soy meal will most likely reduce, and therefore become more competitive, leading to a probable increase in production.” An increase in production will mean deforestation.
Brazil isn’t the only country at risk of increased deforestation due to this agreement. Brazil, Argentina, and Paraguay are all in the top 10 countries with the highest deforestation rates in recent years. Córdoba is a region of Argentina which is at the heart of the country’s soybean model. In the last 20 years, the region has lost a whopping 95% of its native forest, mostly to clear land for agriculture.
So while this trade agreement has some positive aspects, the lack of consequences for failing to honor commits made in the Paris Agreement gives an economic incentive for these countries to continue on a dangerous path of deforestation that will ultimately hurt us all.
What can I do?
The first and foremost thing you can do is to educate yourself. If you’ve made it to this part of the article then thank you! And good job, you’re on your way. You can help combat the lack of awareness of the general public by starting with informing those around you. Put pressure on those in charge and hold them accountable for their commitments to the environment.
Secondly, consider donating to organizations like Treefy. Treefy is committed to combating deforestation and helping people live carbon neutral lives. For every $5 donation, Treefy plants one tree, which counterbalances 0.5 tons of carbon dioxide. By filling out our quick carbon footprint calculator, you can donate the number of trees needed to counteract your annual carbon footprint.
For more information about the implications of the EU-Mercosur trade agreement, check out the full analysis by Dr. Ghiotto and Dr. Echaide here.