Something very strange is happening in Brasília. A lack of rationality leads the Lula government to commit one of the biggest mistakes of its administration: the hasty conclusion of the Mercosur agreement with the EU (European Union).
This column demonstrated on two other occasions the trap this agreement represents. I have listed technical, economic and geopolitical arguments that reveal commercial and technological asymmetries that are unfavorable to the South American economy. Let’s look at exports and imports between Brazil and the EU: the graph shows that raw materials account for 51% of our exports to the EU, compared to 3% of imports from this region.
The opposite is true in the capital goods sector, which is more technology intensive (7% versus 32%).
The agreement consolidates our position as suppliers of raw materials by not supporting technologyintensive sectors. Instead of promoting this objective, Brazilian negotiators are defending the interests of some sectors of medium and low technology industries (in practice they are importers) that will benefit from this agreement negotiated by the Bolsonaro government.
This makes it easy for the Europeans to distract us with partial concessions on environmental regulations and public procurement while preserving their commercial advantages.
For Mercosur, the effort to reduce tariffs is much greater: the average European tariff is 1.8%, while Mercosur’s is 15%. And the guarantee of minimum export quotas for the EU for some important products is lower than the amount currently exported. It makes no sense to expose our industry to European competition without ensuring, in practice, better access to the European market.
Two recent events illustrate what a fiasco this agreement is. In 2024, the EU’s agreement with New Zealand will come into force, providing tariff reductions for the export of sophisticated EU goods such as chemicals and cars in exchange for access to the European market for lowcomplexity goods such as beef, lamb and butter Cheese. Detail: There are restrictions on export quotas for New Zealand beef, as seen in the Brazilian case.
Although New Zealand’s GDP is equivalent to 1.5% of the EU’s GDP, simulations show no economic impact for the country, which has few active trade tariffs (unlike Mercosur).
According to the World Bank, raw materials and animal protein accounted for 80% of New Zealand’s exports to the EU in 2021 and just 5% of imports. More sophisticated sectors such as machinery and electronics account for just 7.3% of exports to the EU, compared to 25% of imports from this region. The same applies to capital goods (15% compared to 35%). The agreement exacerbates this technological asymmetry.
The “success” of the New Zealand case raised alarm bells for Australia, which has been negotiating with the EU since 2018. The country wanted to increase agricultural exports by eliminating EU tariffs and expanding quotas, while Europe demanded better access to Australia’s critical minerals. It was Europe’s intransigence in yielding agricultural quotas that led to Australia’s agricultural industry rejecting the deal. Australian negotiators will soon discover that it was an exemption.
Since our negotiators do not defend national interests, we can only hope for European intransigence. Ultimately, President Lula should think twice before signing an agreement with the Bolsonarist DNA.