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The EU and the South American Mercosur Trade block (which includes Brazil, Argentina, Paraguay and Uruguay) struck a political agreement on a bilateral trade deal on June 28, bringing to an end 20 years of negotiations.

Mercosur has a combined population of 260m people. It is the fifth largest economy outside of the EU, with a GDP of €2.2 trillion and Ireland has seen a 25% growth in agri-food exports to this South American market over the last 8 years, largely driven by the dairy and drinks sectors. However, overall the opportunities offered by the deal for the dairy sector are quite limited due to the preference and limited buying power of Mercosur consumers. By contrast the deal poses a significant challenge for the Irish beef sector, particularly in the context of Brexit.

Mercosur includes both major dairy importers and countries which are dairy deficient (Brazil), as well as major world dairy exporters (Argentina and Uruguay). Within this deal, the EU has achieved notable improvements in market access for EU dairy exports, including a tariff reduction down to zero, over 9 years, for the following:

  • 30,000 tonnes of cheese, applicable to all products with the exception of fresh mozzarella. The EU currently exports 10,000 tonnes of cheese to Mercosur, so this is a considerable increase in market access. However, it is likely that this market will be dominated by international cheese products, with particular opportunities for EU GI cheeses, rather than being a potential market for high value Irish cheddar. Irish dairy cooperatives are currently diversifying their cheese production however, and therefore Irish exports of low moisture (non-fresh) mozzarella, for example, could be advantaged.
  • 10,000 tonnes of SMP. Brazil is a major global importer of SMP powder. However, the majority of its needs are fulfilled by its neighbours, Argentina and Uruguay. In the unlikely event EU SMP markets were to be on-par price-wise with this South American product, freight costs combined with customs costs would still reduce their competitiveness compared to South American SMP.
  • 5,000 tonnes of infant milk formula. Brazil is again a global importer of Infant Milk Formula and Ireland already exports a considerable amount to Brazil. While the deal does not offer massive potential to grow this market, it does agree to the co-ordination of export and customs procedures, to make them faster, simpler and more predictable. Theses customs procedures are a significant blockage for this market at present and therefore removing some of the burden and complexity would be a positive outcome.
  • It should be noted that these TRQs are reciprocal, meaning that the EU will offer the same market access conditions for these goods coming from Mercosur countries.

In addition, duties would be cut for EU butter by 30% on day one after entry into force of the agreement. In 2018 Brazil imported 5,000 tonnes of butter, however again mostly from Argentina and Uruguay. This concession therefore does not represent a hugely significant opportunity for Irish exporters particularly due to the limited buying power of Mercosur consumers and the premium position of Irish butter on the international market.

The deal is now undergoing a process of “legal scrubbing” (a review by lawyers to ensure consistency and certainty), which could take up to two years. It will then need to be approved by both EU Trade ministers and the European Parliament before it can be provisionally applied, with tariffs liberalised on a phased basis over 9 years. However, this trade agreement is just one aspect of a new political and economic partnership between the EU and Mercosur, which will ultimately need to be ratified by all EU member State parliaments, including by the Irish Dail.

Alison Graham – European Affairs Executive

Tags: EU, Irish dairy, Mercosur