Mercosur and European Union release the text of the Free Trade Agreement

On July 12, the Brazilian government and the European Commission released the text of the trade agreement negotiated between Mercosur and the European Union (EU).

Although the lists of commitments made for tariff reduction, for liberalize services and geographical indications recognized by the parties have not been disclosed, the text released confirms the broad scope the agreement. The agreement includes provisions on: technical, sanitary and phytosanitary measures; e-commerce; telecommunications, postal, financial, insurance, among others services; automotive and wine and alcoholic beverages sectors; government procurement; state-owned enterprises; small and medium-sized enterprises; intellectual property; trade and sustainable development; import and export monopolies; settlement of disputes; among other topics

It is worth mentioning that the text released still depends on legal and formal review and, consequently, may undergo changes until the signing of the agreement. In addition, the agreement will only enter into force after the conclusion of the ratification procedures by Mercosur member countries and the EU.

We highlight below some of the main matters covered by the agreement.

1. Trade in Services

As mentioned above, the commitments made by Mercosur member countries and the EU in relation to each service sector have not been disclosed yet. However, the chapter dealing generally with trade in services already clarifies that it does not apply to cabotage, inland waterway, air transport and audiovisual services. In addition, this chapter already contains general rules on postal, telecommunication, financial and e-commerce services.

2. Rules of Origin

The chapter on rules of origin and the list of specific rules of origin disclosed already allow companies to assess whether their products would benefit from the negotiated tariff preferences in the way they are currently produced or whether some adjustment would be needed in their production process. In general, for products produced from inputs from third countries (ie non-Mercosur or EU), the rules of origin require a tariff jump (change in the two, four or six Harmonized System / NCM) and / or minimum local content (in value or weight). Due to the complexity of the rules, the numerous exceptions and the difficulty of scrutiny, the chapter on rules of origin is one of the most extensive of the agreement.

3. Customs and Trade Facilitation

The chapter on customs and trade facilitation provides for cooperation between EU customs and Mercosur member countries by exchanging information and developing joint initiatives to enforce the rules of the agreement. With regard to the AEO (Authorized Economic Operator) program, the agreement provides that the parties will work together for the mutual recognition of their respective programs. It is also worth mentioning that this chapter contains a specific section under the special regime of temporary admission that harmonizes the basis of its regulation in Mercosur and European Union.

4. Government Procurement

The chapter on government procurement stipulates that companies from Mercosur and EU member countries shall not be discriminated from domestic companies in bidding procedures for government purchases. This chapter also provides detailed rules on tender procedures, conditions for the participation of companies, how bidders are qualified, how the products and services to be supplied should be specified, how to deliver documentation, among other topics.

5. Bilateral Safeguard

The agreement provides for a bilateral safeguard mechanism that will allow Mercosur and the EU, under exceptional circumstances, to impose temporary safeguards in case imports of a product under preferential terms have increased in such quantities, absolute or relative to domestic production or consumption of the importing Party, and under such conditions as to cause or threaten to cause serious injury to the domestic industry of the importing Party. In addition, in the case of unfair trade practices, the agreement reinforces that stakeholders can use the trade defense instruments (antidumping, countervailing measures and safeguards) allowed by the World Trade Organization (WTO).

6. Dispute Settlement

The agreement also creates a mechanism for the settlement of disputes between Mercosur and EU member states, which basically consists of consultation, mediation and arbitration procedures. This mechanism could be an alternative to the WTO dispute settlement mechanism for trade disputes between Mercosur and the EU

Demarest’s International Trade and Customs team is available for any further information or clarification on this matter.