9 July 2019
Originally published by CapX.
The free trade agreement between the European Union and the South American trading bloc Mercosur (namely Brazil, Argentina, Uruguay, and Paraguay) should be celebrated by consumers across the EU. Ideally, by dining out on the suddenly more affordable beef, poultry, sugar, and honey imported from the Mercosur countries. But before that meal comes, the EU-Mercosur free trade agreement (FTA) must undergo a complex ratification process.
Much has been said about the significance of the deal, and not without a reason: it’s a historic event. With 93% of tariffs to be scrapped on both sides, the agreement will not only put cheaper and more diverse products on the shelves, it will also send a powerful pro-trade message to the world.
There have not been many significant global trade agreements since the Uruguay Round of 1986-1993. Every FTA should be thought of as an attempt to put consumers first. The fact that after 20 years of negotiations, the EU-Mercosur deal had been finally concluded signals a crucial thing: the EU has changed the rules of the game in favour of consumers and weakened the power of protectionists. This is a momentous victory as the EU’s determination to protect domestic agriculture is well known and it has blocked numerous trade deals to date.
Winning the battle, however, is far from winning the war. The agricultural lobby will strike again on a member state level, and it is essential that national governments do not fall prey to their calls for special protection. Irish Prime Minister Leo Varadkar has already voiced his concerns that the deal would hurt the beef sector, which is why Ireland is inclined to vote against the deal. Yet the Mercosur bloc would only be able to export 99,000 tonnes of beef into Europe annually, with an average tariff of 7.5 per cent. Since Ireland alone produces 520,000 tonnes of beef annually, Varadkar’s opposition to the deal seems political rather than economic.
All deals involve compromise and difficult choices. In terms of FTAs, the choice is either to protect a vulnerable sector from foreign competition at the expense of consumers, or to shift the benefits to consumers by weakening vested interests. By choosing the former, opponents of the EU-Mercosur FTA would prevent consumers from enjoying lower prices and, therefore, make them bear the costs. Not only is this unfair since consumers are a far larger group, but it also means that choosing protection is more politically profitable.
Why? Because there is an asymmetry of information in place: protected industries know what they are going to lose as a result of free trade agreements while consumers are unaware of how they might benefit them. They therefore have little incentive to organise against protectionists which allows policymakers to act at the whim of special interests.
It cannot go on like this anymore. The failure of Transatlantic Trade and Investment Partnership negotiations and the hostile uncertainty around the current trade negotiations between the EU and the US are signs that the interests of European consumers have been ignored for too long. The EU-Mercosur deal is an fantastic opportunity to finally put consumers first.
The deal is perceived as a threat by many because they fail to recognise there is a difference between ‘free trade’ and a ‘free trade agreement’. Free trade is the unhindered flow of domestic and foreign goods, and FTAs are far from this ideal. Trade agreements these days cover a broad spectrum of issues and represent a commitment to trade liberalisation mixed with a need to retain some regulations.
It’s also important to remember that all changes following from the deal would be implemented over the course of five years. This would give domestic producers time to prepare for an increase in supply from abroad. In the meantime, consumers should keep an eye on the ratification process and continue to emphasise the values of international trade. Trade is about interstate cooperation, increased choice, and cheaper products. Trade agreements such as the EU-Mercosur deal make the world more open, more interconnected, and more peaceful. Now that is something worth celebrating.
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