Following the planned agreement between Mercosur and the European Union (EU), the first challenge in the history of the South American bloc is presented: to work seriously to increase production, its quality and exports. That was one of the conclusions left by Gustavo Idígoras, president of the Argentine Chamber of the Oil Industry and the Center of Cereal Exporters (CIARA-CEC) in an interview granted to Customs News. He explained that there are many opportunities, despite the high level of protectionism in international trade. Why he recognizes Mauricio Macri's management. The vision of a leader.
Question: Is the European Union-Mercosur agreement really an understanding?
Answer: The so-called European Union-Mercosur agreement is, in reality, a political understanding of what concessions are to be granted by both the European Union and Mercosur, and now the “fine print” is being written, which we will surely have access to in three or four weeks to find out how the concessions and tariff lists will turn out. In general terms, it seems to me to be the end of a long decade and a half of anguish between two blocks that have finally reached a relevant political understanding, a historic event that closes the first successful negotiation for Mercosur, which has thirty years of history. It is the first trade agreement with one of the most important blocks in the world, Europe. Until now, Mercosur had only made further economic complementation agreements, that is, it had taken from ALADI to deepen it with Chile, Mexico, Ecuador, Colombia, the Andean Community, but it had never made a complete trade agreement on goods and services, rules of origin, intellectual property. In this sense, it is clearly a historic agreement. I think it could put Mercosur in a different position since it had not entered into this international circle of trade agreements.
Q: And what are the opportunities for trade in goods?
A: In terms of goods, the first benefit has to do with the elimination of import duties in Europe. The elimination will be done with a tariff reduction schedule, this means that each year the reduction will have a similar percentage, until reaching zero, in agro-industrial and industrial goods. Another group of goods will have quotas, because Europe did not clearly dare to eliminate import duties on meat, sugar and other products, because it has a highly protectionist import duty structure, in terms of added value. The more added value the product has to export, the more import duties Europe charges. Therefore, what is called tariff escalation, based on this tariff reduction line, is eliminated and we will have the possibility of accessing that market without tariffs. For example: in seven years, once the agreement comes into force, all import duties for packaged refined oils are eliminated. Today, Europe charges 15 percent. If one does not refine it and sends it in bulk, it is 9 percent. If you send it raw, it is 6 percent. All those tariffs are eliminated. Therefore, Argentina, as the world's leading exporter of vegetable oils, can access the European market, which is a major importer for approximately 1.500 billion dollars per year.
The second major area, which I believe is more important than the first, includes sanitary and phytosanitary measures and technical regulations, that is, the chapter on standards. This is very important because if I want to export sugar to Europe I will have a quota, but that quota will have a series of health and quality requirements that must be met. Today, Europe is characterized by being the most demanding market in terms of quality and health regulations for products.
By having the alternative of creating a specific bi-regional and bilateral group, because Europe is going to negotiate with Argentina, Brazil, Uruguay and Paraguay individually as well, we have a dual treatment. So, a problem arises when wanting to export corn, because there is a maximum residual limit of agrochemicals. We will have the possibility of finding a solution within a period that should not exceed 120 days; this is established in the agreement. In addition, in our region, we have areas free of certain diseases or pests, Europe must recognize them as such. And laboratory tests must have an equivalent validity, to certify the quality of the products, both in Europe and in Mercosur, Europe must recognize this aspect. This is very important for Argentina because a large part of the market access measures are non-tariff. These non-tariff measures, for the Argentine export profile, represent more than 70 percent of the specific problems to be resolved.
The benefits of the agreement will not be immediate. The legislative debate process must take two to three years. Therefore, a priori, I believe that the agreement will begin to come into force on 1 January 2023. From then on, it will take an average of 7 years for the total elimination of import duties for any agro-industrial sector. In other words, the development of business with the European Union must be foreseen from 2030 onwards.
Q: What are the international requirements for business development?
A: Non-tariff measures are moving into new areas. On the one hand, they started with sanitary and phytosanitary measures ranging from foot-and-mouth disease to citrus canker or codling moth. This has mutated into safety issues. Issues of residue limits, natural contaminants such as mycotoxins, are now part of the requirements. Environmental and social sustainability criteria have also emerged.
With regard to environmental sustainability, Europe is increasingly demanding requirements linked to carbon footprints, with the necessary guarantee that the batch of soybeans or corn does not come from a deforested area. These requirements are new, but they are beginning to be established as measures at the level of public and private standards.
What are the social requirements? There must be a guarantee that there is no slavery in the value chain in terms of working hours, a guarantee that there is no child labour and freedom of association is respected. All of this is part of the new requirements, and there is a special chapter in the Mercosur-EU agreement to encourage compliance.
Q: How do you view Mercosur in light of these requirements that would facilitate trade?
A: Mercosur, in general, has a low level of preparation in these matters. At the moment, there are no public management mechanisms, but rather business management. Each company tries to position itself better with private certifications and product labeling. What was a niche market is becoming a generalized condition. Therefore, regional management mechanisms are needed. CIARA, as a cereal industry, launched an initiative in 2018 with an international NGO, Natural Conservances, which has the “Agroideal” project in Argentina and Brazil, where the entire Chaco (Paraguay, Argentina, Bolivia and Brazil) was mapped. Particularly in Brazil and Argentina, each provincial department was mapped to see which areas are eligible for the purchase of corn and soybeans. We are in the implementation stage. The system was finished designing together with Human Development of each provincial department, with labor legislation to know if each lot complied with it. If the area is identified as red, the product will not be purchased. This was done together with the Brazilian industry. We are slowly building that path. The good thing about the Mercosur-EU agreement is that for the first time it begins to establish rules for us on how to act and produce. This has its advantages because if you want to sell them oil in 2030, you have to work from now. We have ten years to adapt.
Q: What benefits can Argentina and the region gain from a protectionist environment?
A: We are in a world where free trade has ceased to exist and will not return for many decades. Therefore, unilateral openings are suicidal. No country opens its borders in exchange for nothing. We are facing a new paradigm, but protectionism is bad for Argentina, whose economic and social development depends on its ability to export to the world. We need more dollars and we cannot continue to ask for loans. The only genuine way to get them is to achieve a greater volume of foreign trade, so that the dollars we need are generated by ourselves. In this, export is the only tool there is and agricultural exports are quick to respond. Other sectors will follow, such as petrochemicals, gas, etc.
Therefore, in the face of global protectionism, the only way out is the administration of trade agreements. In the face of the elimination of free trade, the world has chosen who to do business with and has signed four hundred and seventy trade agreements in the last fifteen years, but they have not included Mercosur, until now. This means that 90% of global food and beverage trade is under managed trade agreements. Mercosur was outside of this. Today, we have the possibility of trade growth of 30% because we add Europe, but if we add Canada and EFTA by the end of the year, South Korea and Singapore for next year, Mexico for the following year and so on, we will add a significant percentage of growth. This means that Argentina, based on the agreements, will open up a number of trade opportunities so that all productive sectors have the possibility of selling to the world. Our market would go from 40 million to hundreds of millions of consumers. This is the great opportunity offered by the Mercosur-EU agreement.
Q: What are the positive aspects and those that need to be improved in this regard, in President Macri's administration?
A: We must recognize that Mercosur had a weakness, which is the lack of political will to move forward. The bloc was born strong with Alfonsín and Sarney as an export platform and for democratic strengthening. It achieved democratic consolidation but never export consolidation, because the necessary agreements were not made. In 2016, Macri assumed the political will to prioritize a change in Mercosur. He negotiated with each of the presidents of the bloc to steer a negotiation that reached this conclusion.
I can criticize two things: on the one hand, the confidentiality of the negotiation was not a good tactic, because society was unaware of what it consisted of. I understand the sensitivity of the issue, but I think there were margins for negotiation that could be shared publicly. On the other hand, we need to have an export culture in Argentina and in the region. We must understand that the internal market is projected with more production and in order to have more production and quality, we must sell to the world. My aspiration is that the current government or the one that comes after commits to generating an export culture.
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mini bio
*Gustavo Idigoras (49 years old)
*Political scientist
*Father of three children
*Hobby: playing tennis and teaching at the university
*Phrase: “Achievements are achieved through persistence in achieving objectives and professionalism in negotiation.”
By: Maria Elsa Colonel
Aduana News is the first Argentine customs newspaper to launch its digital version. With 20 years of experience, its publications and initiatives aim to provide the most relevant knowledge on customs issues in order to contribute to safe trade in the region.
