Opinion

A reflection on the Mercosur agreement

The EU accepts the deal because it is worried about the catastrophic scenario of a world without the WTO.

By: Date: July 26, 2019 Topic: Global Economics & Governance

Just as Jean-Claude Juncker is leaving his post as President of the European Commission, and after 20 years of waiting, the European Union has signed a free trade agreement with Mercosur – the so-called single market, which is far from it given the recurrent differences in the economic policies of its Member States, especially between Argentina and Brazil but also of the smaller Paraguay and Uruguay.

Despite the large imperfections of this single market, its size – whether in population, with 260 million inhabitants, or in gross domestic product, of some EUR 2.2 billion – makes it undoubtedly of interest to the EU. This is because old Europe is increasingly dependent on other markets for growth in the face of an ageing population and a lack of structural reforms, factors that continue to reduce its already very limited potential growth.

Although the size of the Mercosur bloc well deserves Europe’s attention, the truth is that the more than 20 years of difficult meetings and the current transition of power in the European institutions made it seem unlikely that an agreement would be reached. The question, therefore, is how this has been possible?

The reality is that the EU, with the Commission alone responsible for trade policy, is increasingly concerned about what, until recently, was a catastrophic but highly unlikely scenario: a world without an arbitrator in multilateral trade rules, a role that until now was played by the World Trade Organisation (WTO) Court of Appeal.

But, by the end of this year the court will not be able to exercise its functions if Donald Trump’s administration continues to block the appointment of its judges. Faced with such an abyss, the European Commission can no longer wait to reform the WTO against the position of the US and a China that does not want to transform itself into a market economy. This pushes it to dust off stagnant free trade agreements such as Mercosur.

Thus, faced with the reality of an increasingly protectionist world, the finalisation of the Mercosur agreement, just before the very important G20 summit in Osaka – where the only main actors seemed to be Trump and Xi Jinping – has allowed Juncker to give a signal to the major world powers that the EU, which remains the world’s main exporter, is not prepared to keep knocking on the WTO door without preparing for a new lawless world, at least in the area of trade.

The signing of trade agreements with relevant areas of the world (before Mercosur, the EU also reached a similar agreement with Japan that also seemed impossible), is therefore the European response to the prevailing protectionism. In this sense, the trade agreement with Mercosur is undoubtedly good news for Europeans, despite the fact that some sectors lose and others win. It shows that Europe is waking up from lethargy. Better late than never.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to [email protected].

Read article More on this topic More by this author
 

Blog Post

What the EU should do and not do on trade in medical equipment

The European Union has introduced export controls on some medical supplies. This was a mistake. It should announce that it is withdrawing the measure, and call on other countries to do the same.

By: André Sapir Topic: European Macroeconomics & Governance Date: March 25, 2020
Read about event More on this topic
 

Past Event

Past Event

CANCELLED: India-EU Partnership: New Vistas for the Next Decade

Policymakers, academics and private sector actors from the EU and India come together to work on common issues and explore further areas of cooperation.

Speakers: Yamini Aiyar, Suman Bery, Navroz K Dubash, Alicia García-Herrero, Rajat Kathuria, Partha Mukhopadhyay, Ananth Padmanabhan, Georgios Petropoulos, André Sapir, Shyam Saran, Simone Tagliapietra and Marc Vanheukelen Topic: Global Economics & Governance Location: India International Centre, Lodhi Gardens, Lodhi Estate, New Delhi, Delhi, India Date: March 12, 2020
Read article Download PDF
 

Policy Contribution

A European carbon border tax: much pain, little gain

The European Commission should not make the implementation of a carbon border adjustment mechanism into a must-have element of its climate policy. There is little in the way of strong empirical evidence that would justify a carbon-adjustment measure. Moreover, significant logistical, legal and political challenges will arise during the design. The EU should instead focus upon the implementation of measures to trigger the development of a competitive low-carbon industry in Europe.

By: Ben McWilliams and Georg Zachmann Topic: Energy & Climate, European Macroeconomics & Governance Date: March 5, 2020
Read article More on this topic
 

Blog Post

What can the EU learn from the China-Switzerland free trade agreement?

The US-China trade war has placed EU trade relations with China under the microscope. Should the EU challenge China’s trade practices and employ trade defence measures? Or should they be diplomatic and embark on negotiations, perhaps paving the way to a Free Trade Agreement? Close examination of the 2013 agreement between China and Switzerland suggests much will have to change for trade negotiations between China and the EU to succeed.

By: Uri Dadush and Marta Domínguez-Jiménez Topic: Global Economics & Governance Date: March 3, 2020
Read article More on this topic More by this author
 

Opinion

Companies must move supply chains further from China

Virus shows Southeast Asian factories too dependent on imported production inputs

By: Alicia García-Herrero Topic: Global Economics & Governance Date: February 28, 2020
Read article More on this topic More by this author
 

Opinion

Why the US Trade Agreement will slow China’s economy

The response of the global financial markets to the trade agreement reached between the United States and China has been very positive, probably excessively so given the relatively limited size of the agreement reached.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: February 20, 2020
Read article More on this topic More by this author
 

Podcast

Podcast

The EU's plan to catch up on artificial intelligence

While the US and China have been setting the pace when it comes to Artificial Intelligence, the European Union seems to be lagging behind. What are the Commission's plans to finally catch up? Will AI increase the gap between big and small companies? This week, Nicholas Barrett is joined by Julia Anderson and Guntram Wolff to discuss the EU's plan for AI.

By: The Sound of Economics Topic: Innovation & Competition Policy Date: February 14, 2020
Read article Download PDF More on this topic More by this author
 

Working Paper

Zsolt Darvas - Resisting deglobalisation: the case of Europe

Resisting deglobalisation: the case of Europe

Global trade and finance data indicates that the pre-2008 pace of economic globalisation has stalled or even reversed. The European Union has defied this trend, with trade flows and financial claims continuing to grow after the recovery from the 2008 global economic and financial crisis. Immigration, including intra-EU mobility, has also continued to increase.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: February 4, 2020
Read article Download PDF More on this topic More by this author
 

External Publication

From globalization to deglobalization: Zooming into trade

This article shows some evidence of the decrease in merchandise, capital and, to a lesser extent people to people flows.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: February 3, 2020
Read article More on this topic More by this author
 

Opinion

European capital markets union, by rule and by choice

While the euro is now a leading global currency and the European Central Bank has become a comprehensive banking supervisor, Europe’s markets have been treading water.

By: Rebecca Christie Topic: Finance & Financial Regulation Date: January 23, 2020
Read article More on this topic More by this author
 

Blog Post

European green finance is expanding, a discount on bank capital would discredit it

If EU banks are to mobilise a greater share of loans for sustainable projects they will need a reliable policy framework, clear internal performance targets and the relevant skills. A discount on bank capital underlying such assets is neither justified nor likely effective. A comprehensive review of how climate risks are reflected in prudential regulation is nevertheless in order

By: Alexander Lehmann Topic: Energy & Climate Date: January 15, 2020
Read article Download PDF More on this topic
 

Policy Contribution

Market versus policy Europeanisation: has an imbalance grown over time?

This Policy Contribution tests the hypothesis that an imbalance has grown in Europe over the last few decades because markets have integrated to a greater extent than European-level policymaking, potentially creating difficulties for the democratic process in managing the economy. This hypothesis has been put forward by several authors but not so far tested empirically.

By: Leonardo Cadamuro and Francesco Papadia Topic: European Macroeconomics & Governance Date: January 9, 2020
Load more posts