Economy

EFTA, Canada and Korea: Mercosur readying new trade deals

25th July 2019

By Fermín Koop

EFTA, Canada and Korea: Mercosur readying new trade deals

The Mercosur bloc is trying to seize the momentum after reaching a deal with the European Union by speeding up negotiations with other trade blocs, and some new agreements could be in the pipeline before the end of the year, starting with the European Free Trade Association (EFTA) — a series of European countries not included in the Euro Customs Union — in August.

Argentine President Mauricio Macri and his Brazilian counterpart Jair Bolsonaro are leading the efforts towards a stronger Mercosur, hoping to revitalize the trade bloc after a stagnation period and discussions over its actual efficacy.

</p> <p>“Closing the deal with the EU was the start of a path that will lead to new trade agreements,” Marcelo Elizondo, trade expert at the DNI consultancy, said. “Without Bolsonaro and his attempt to open up the Brazilian economy, Macri alone wouldn’t be able to push the bloc ahead.”</p> <p>Mercosur currently has open negotiations with Canada, South Korea and EFTA (European Free Trade Association), all of which could move ahead in the medium term. Plus, the bloc hopes to start talks with the United States, which would take a longer time.</p> <p>“The deal with the EU proved the bloc has a strong capacity to carry out complex negotiations. It’s quite relevant considering months back there were doubts over the continuity of the bloc,” said Julieta Zelicovich, international relations expert and CONICET researcher.</p> <h2>Switzerland, Iceland, Norway and Liechtenstein</h2> <p>In only a few weeks, Mercosur could be celebrating a new trade deal, if all goes as expected. The bloc will hold a negotiation round at the end of August with EFTA, a trade bloc integrated by Switzerland, Iceland, Norway and Liechtenstein, and talks are moving fast.</p> <p>Seven out of the 13 areas of the negotiation have already been agreed, after having started talks in 2015. As is the case in most agreements, 90 percent of the trade would become free of tariffs, with exceptions in the remaining ten percent.</p> <p>EFTA was created in 1960 and represents a market of 14 million people. It annually exports to Mercosur more than US$3.6 billion, mainly of pharmaceutical products, while it imports US$2.1 billion, concentrated on chemicals, coffee and tea.</p> <p>The South American bloc hopes to increase sales of agricultural goods, while EFTA is aiming at selling more industrial manufactures. There would be a grace period of 12 to 15 years to avoid strong impacts on the local industrial sector.</p> <p>“It’s the deal most likely to move forward in the short term. EFTA is a sort of extension of the EU so it’s much easier to agree on now that the Mercosur has finished its deal with the EU,” said Elizondo.</p> <h2>Canada and South Korea</h2> <p>Mercosur is also aiming at accelerating negotiations with Canada, with the objective of closing the deal at some point before the end of the year. There will be a new round of negotiations in August to continue closing chapters of the negotiation, which started as an initiative of former Argentine President Carlos Menem.</p> <p>Canada is the 10<sup>th</sup> largest investor in Argentina and the only member country of the NAFTA bloc (United States, Canada and Mexico) with which Argentina has a trade surplus. With Mercosur, bilateral trade reaches US$6.3 billion per year.</p> <p>“Negotiations are well advanced and having signed an agreement with the EU creates more possibilities for it to move forward. Canada is a gentler negotiator than the EU and it will likely be more flexible on several aspects,” Zelicovich, said.</p> <p>Also on the table but further on the horizon, Mercosur hopes to sign a trade deal with South Korea, Asia’s fourth largest economy, at the end of 2020. Negotiations started last year, and they are now on their third round.</p> <p>Exports from Mercosur member countries to South Korea reached US$3.7 billion last year, mainly of agricultural goods and steel. Meanwhile, shipments from the Asian country totaled US$6.3 billion, concentrated on electronic products and vehicles.</p> <h2><strong>The US is more complex</strong></h2> <p>With no official negotiations open yet, Macri and Bolsonaro have <a href="https://www.perfil.com/noticias/bloomberg/bc-tras-pacto-con-ue-mercosur-apunta-a-un-acuerdo-con-trump.phtml">expressed their strong desire</a> of reaching a trade deal between Mercosur and the United States, Argentina’s third trade partner but with a deficit of US$2.5 billion.</p> <p>This is not the first attempt of a deal between the two. Argentina and 34 other countries of the region attempted to agree back in 2005 on the “trade deal of the Americas,” also known as ALCA. It was rejected by a lack of majoritarian support, at a time in which the political considerations were also quite different.</p> <p>Latin American governments leaned left and protectionist, while the US government favored the agreement. With Macri and Bolsonaro, two strong US allies who favor international trade, Mercosur leadership’s will to sign an agreement is in no doubt.</p> <p>Yet attempting a new deal would be complex considering that the economy of the Mercosur member countries competes with the US, with a large agricultural sector. Also, the US has long been pushing South American drug manufacturers over intellectual property, which would complicate trade talks further.</p> <p>Back in 2002 when ALCA was being negotiated, the Foreign Ministry issued a report that warned over the “threats” of a trade deal with the US. If it had occurred, Argentina would have lost 31 percent of its sales to Brazil in areas such as vehicles and auto parts, the study said, as Brazilians would opt to buy cheaper US products instead.</p> <p>But with the Mercosur-EU deal already hitting the protected sectors of the Argentine car industry, a similar knock at the same sector would not be a surprise.</p> <p>“It won’t be an easy negotiation. They are exporters of primary products, just like us. That doesn’t mean it can’t be achieved,” said Elizondo.</p> <p>

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Fermín Koop

Fermín Koop is an economic and environmental journalist from Buenos Aires. He is editor at Diálogo Chino and co-founder of Claves 21.