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International business management

MERCOSUR news. EFTA agreement takes shape

Marcos Piacitelli  

Marcos Piacitelli  

Mercosur country members and the European Free Trade Association (EFTA) bloc formed by four European countries – Switzerland, Norway, Iceland and Liechtenstein, have successfully completed the exploratory dialogue and preliminary negotiations for a free trade agreement.

From the Brazilian government’s point of view, this new FTA clearly promotes a significant update of its economic and trade policy by primarily focusing on ensuring a competitive advantage of Brazil into the global economy.

By working together with the other Mercosur members, a broader global reach for new partners is being sought to increase, diversify and improve trade relations ultimately contributing to the growth and stability of the Brazilian economy.

The prompt adoption of a discussion with the EFTA by the Mercosur Common Market Group is indicative of the high priority that all Mercosur members have given to these negotiations.

The acceptance for this FTA is best demonstrated by Brazilian exporters who are enthusiastic and encouraged with the prospect for new exports into these high purchasing power markets of the EFTA members. Likewise, EFTA which is heavily influenced by Switzerland has expressed special interest in having more access to these new markets in the Mercosur countries. For example, the EFTA member countries want to ensure their pharmaceutical products reach the South LATAM bloc on equal, or same, condition with the EU laboratories. This condition would provide a tax free environment on imports if this FTA is signed.

Trade exchange

Exports from Brazil to EFTA totaled US$2.4B, representing 1.3% of Brazil’s export operations in 2016, where manufactured goods accounted for 64.9%, semi-manufactured goods 25.9% and basic goods 9%. The main products exported by Brazil were drilling or exploration platforms (32.6%), aluminum oxides and hydroxides (24.3%), soybeans (4.0%), gold in semi-manufactured forms (3.7%) and coffee beans (1.9%).

With regard to import operations, in the same year, Brazilian imports from EFTA totaled US$2.4 billion, representing 1.8% of its Brazil’s import operations, where 5.8% accounted for basic products, 1.8% for semi-manufactured goods and 92.4% for manufactured. The main products imported from EFTA countries were medicines for human and veterinary medicine (21.5%), nitrogen compounds (13.0%), heterocyclic compounds (6.5%), fuel oils (6.4%), fertilizers and fertilizers with nitrogen and phosphorus and Potassium (4.4%).

The total exports of the EFTA countries in 2016 totaled US$400B, where only 0.8% of these exports were destined for Brazil. In turn, the total EFTA imports were US$333.4B in the same year, where only 0.9% of these imports were originated from Brazil.

Europe

In addition to this negotiation with the EFTA, Mercosur is negotiating a free trade agreement with the European Union (EU)[2].

The Mercosur-EU FTA must be negotiated separately from the Mercosur-EFTA Agreement, because the EFTA countries are non-EU countries. Differently from the EU, EFTA does not envisage political integration or issue legislation, nor does it establish a Customs union.

However, the EFTA and the EU established the European Economic Area (EEA) Agreement, which entered into force in 1994. The main objective was to extend the Internal Market of the EU to the participant EFTA States, creating a homogeneous European Economic Area.

The EU is a significant market for Brazil representing 21.49% of Brazilian Exports (US$33B) and 26.5% of Brazilian Imports (US$31B).  With the Mercosur-EU FTA an important pursuit for the Mercosur countries, the Brazilian Foreign Trade Minister recently met with Argentina’s Production Minister and discussed furthering the negotiations with the EU bloc. Both Ministers appear fully supportive and reinforced their interest in the continued negotiations in 2017, with a conclusion of the agreement slated for 2018.

Benefits

An agreement among both blocs involves mutual benefits. For Brazil, the biggest gains are concentrated not only in Brazil exports and access to imports, but also in major sectors: industrial goods, automotive vehicles, pharmaceuticals, machinery and equipment, chemical products, extraction of nonmetallic minerals, food products, tobacco, textiles, garments, leather accessories, footwear, wood, pulp and paper, petroleum products and biofuels.

Another opportunity is related to Government Purchasing. Studies by the “Confederation of Brazilian Industry” showed that the government purchasing market of the EFTA countries is over US$80B and none of the countries require preference to national products and suppliers. That is, the bloc maintains a relatively flexible stance in the negotiations, which will allow accommodating the interests of Brazilian companies.

Also, under the agreement, Brazil will be able to obtain cheaper inputs for the production of industrial goods with the total elimination of its import tariffs for several products, thereby eliminating some of the costs of production when buying these products from other markets.  Consequently these benefits will increase the competitiveness of Brazilian products.

Conclusion

Looking down the road, the EFTA has a relevant position in international trade in goods, with Switzerland ranking 11th and Norway as 24th (according to the World Trade Organization) for imports.  Brazilian exporters should benefit greatly once they increase their exports to these countries.


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ONESOURCE Global Trade For Free Trade Agreements

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