The EU-Mercosur trade deal: Why this is the worst time to leave the EU

PUBLISHED: 13:23 04 July 2019 | UPDATED: 14:14 04 July 2019

It will be difficult for the UK to replicate a deal like the EU-Mercosur deal. Picture: Kirsty O'Connor/PA Wire/PA Images

It will be difficult for the UK to replicate a deal like the EU-Mercosur deal. Picture: Kirsty O'Connor/PA Wire/PA Images

PA Wire/PA Images

While the UK struggles even to roll over its current trade arrangements, the EU has created a market of 700 million people in a historic trade deal. DR PAUL BEHRENS argues why replicating that after Brexit is no simple matter.

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These are exciting times for the European Union: on Friday, the EU concluded its trade deal with Mercosur, the South American trade bloc. It did not exactly make front page news in the UK, and that is not surprising: while Brexit is still the default course, interest in EU politics beyond that topic seems limited. And yet, the new deal offers fascinating insights for Brexit as well.

Mercosur itself is interesting: the 'Southern Common Market' was partly modelled on the European Communities when it was created in the 1990s. Only four states belong to it, but they include big economies: Brazil and Argentina are members, as are Paraguay and Uruguay. Bolivia intends to join, six other states are associate members. Importantly, the Mercosur Residence Agremeent also provides for freedom of movement, though it's a bit different from that of the EU: Mercosur citizens have a right to reside and work in other member states for two years, but this can then be transformed into permanent residence.

But it gives the lie to those who claim that only the EU has a system of open borders for citizens of member states. On the contrary: an increasing number of countries realise that freedom of movement often makes economic sense. In the UK itself, the Common Affairs committee called on the government to make it easier for Indian nationals to come to Britain, in order to facilitate a trade deal with India.

The market created by the Mercosur deal is one of the largest in the world: it will bring down tariffs on many goods for more than 700 million people. Both sides have high expectations: the South American countries are hoping to sell beef and other farm products. The EU expects savings for European companies to the amount of no less than 4 billion euros. And it looks forward to selling more of its own industrial products: machine parts for instance (which currently attract tariffs between 20% and 35%) and cars (35%).

Cars? What an interesting idea.

It is well known that the car industry in Britain is heading for troubled waters. Honda has announced the closure of its Swindon plant. Nissan will no longer produce the X-trail in Sunderland. Ford has decided to close the Bridgend factory. Part of the problem is the potential disruption of supply chains in case of a hard Brexit, and it is not surprising that Japan, as one of the major stakeholders, is worried: only a few days ago, the Japanese ambassador warned of the negative consequences of a no-deal Brexit. To proceed with any kind of Brexit, at a time when the EU has just opened up a large market for the automotive industry, is what Yes Minister's Sir Humphrey would have wryly called a 'courageous decision'.

It is true that the Mercosur deal has attracted criticism too. Greenpeace in particular is uneasy about the deal: an increase in beef exports can lead to more agricultural activity and wider destruction of the Amazon rainforest. These are legitimate concerns, and they must not be taken lightly.

On the other hand, the EU commissioner for trade, Cecilia Malmström, stressed in a press statement that the agreement builds a framework "to jointly address issues like the environment" and reinforces commitments for sustainable development made under the Paris Agreement.

One thing is clear: we do not live in a world in which environmental concerns can be handled by one state alone; climate change cannot be prevented by unilateral efforts. If two major trading blocs agree on common values in that regard, they can make an effective contribution to the benefit of the whole of mankind.

The question remains: can't the UK simply do its own trade deals with big economies? After all, if Liam Fox is to be believed, negotiating trade deals does not really seem such a difficult business. There is even some truth to that - as long as you are prepared to give the other side everything they want. In the case of a deal with the US, for instance, that might mean American exports of chlorinated chicken and access for American companies to NHS contracts. As soon as you insist on upholding your own standards, things get more difficult. And apart from companies, there are other groups who want to see their concerns reflected: trade unions, for instance, environmental organisations, and animal rights groups. Then there is the tricky question of dispute settlement: who gets to decide if there are disagreements about the treaty? And who has the right to start legal action? And there is the curse of changing governments: the one with which you started your negotiations, may be all in favour of a trade deal.

But as time goes on, it may be replaced by protectionists who are afraid of consequences for their own industry. In that regard, the EU-Mercosur agreement offers yet another lesson for Brexit: it took the EU a staggering 20 years to conclude the deal, and it still needs to be ratified to enter into force.

Britain has neither the economic clout of the EU or the attractiveness of the European market. But let's be optimistic - we might have our own Mercosur agreement before the year 2040 is out. Still - that is nothing to scoff at. Twenty years into the reign of Boris Johnson, a deal with Mercosur will most certainly feel like a breath of fresh air.

Dr Paul Behrens is Reader in Law at the University of Edinburgh.

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