What could the EU-Mercosur trade deal mean for UK dairy?

Published 11 July 19

It’s taken 20 years, but on 28 June 2019, the EU and Mercosur (Argentina, Brazil, Paraguay and Uruguay) agreed a trade deal. In this article, we look at the implications of this trade deal on EU agricultural trade and what it could mean for the UK.

What’s been agreed?

This deal would see a reduction of around €4 billion in terms of tariffs for EU exports to Mercosur. However, the main sectors that would benefit from this are car manufacturers, machinery, chemicals and pharmaceuticals, where tariffs of up to 35% will be gradually removed over 10-15 years.

In terms of agri-food trade, EU dairy product exports (especially cheese), along with chocolates and confectionery, wines, spirits and soft drinks, will benefit from the reduction of high Mercosur tariffs (ranging from 20-35%). However, for other sectors such as beef, the EU has had to make some concessions to the South American trade bloc.

What does this mean for dairy?

Currently, Mercosur imposes tariffs of up to 28% on dairy imports. Under the trade deal, various TRQs will be available to the EU, allowing eventual tariff free access at the end of a ten-year period:

  • Cheese – 30,000 tonnes (over 10 equal annual phases)
  • Milk powders – 10,000 tonnes (over 10 equal annual phases)
  • Infant formula – 5,000 tonnes (over 10 equal annual phases)

These TRQS will also apply to EU imports from Mercosur to accommodate the contrasting peak dairy production periods in the northern and southern hemispheres. Recent cheese trade between the EU and Mercosur shows an average of over 4,000 tonnes of cheese exported from the EU to Mercosur (majority going to Brazil) compared with just 23 tonnes shipped from Mercosur to the EU. This means that the EU is more likely to benefit from the introduction of these TRQs.

EU cheese exports to Mercosur

Standards

In terms of food safety, animal health and plant health, the agreement states that EU standards will not be reduced for the benefit of Mercosur. These sanitary and phytosanitary measures ‘are and shall remain non-negotiable’. The EU has also gained protection of around 355 Geographical Indications (GI) names of food, wine and spirit products as part of the agreement,  meaning imitations of products such as ‘parma ham’ and ‘gorgonzola cheese’ will not be allowed in the Mercosur bloc.

What does this mean for the UK?

The EU-Mercosur trade deal will only apply to the UK while it remains a member of the EU. Given the expected timeline for the deal to come into force, it is unlikely that the EU-Mercosur trade deal will apply to the UK (unless the UK decides to remain part of the EU).

However, even if the UK leaves the EU, it will still be indirectly affected by the trade deal due to the increased access of Mercosur countries to EU beef and poultry markets.

The EU-Mercosur trade deal highlights that agriculture is not always a government’s priority when it comes to negotiating trade deals. In this case, the EU industrial sector, particularly car manufacturers were the winners, with agriculture having to offer concessions. This is worth bearing in mind as the UK strives to make trade deals post Brexit, given that the manufacturing sector’s contribution to UK GDP is considerably higher than that from agriculture.

What next?

The EU-Mercosur agreement, if ratified by EU member states, is expected to come into effect at around 2022, with full concessions applying around 2027/2028. However, there is opposition from the EU farming sector, including the Irish beef industry, regarding the increased access to the EU market this deal provides for Mercosur. Environmental groups have also voiced their concerns citing that practices such as deforestation in South America are incompatible with the EU’s environmental targets.

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