Playing shop

Aug 01, 2019
The Mercosur agreement pushes buttons in terms of market and political sensitivity way beyond its substance.

By Brian Keegan

The French call it 'jouer á la marchand'; our children might call it ‘playing shop’.

No matter where they’re from, kids learn the principles of exchange and barter, and the benefits of gang membership through play. Those principles and benefits take on a life of their own in the adult world when it comes to international trade deals. These days, between the trade tensions compounded by President Trump, and the “will they, won’t they” nature of Brexit, trade deals have become headline news. Now, the forthcoming EU agreement with Mercosur has been added to the mix.

I suspect most of the population had never heard of Mercosur until the Irish beef industry splashed the details of its proposed trade deal with the EU onto the front pages of the broadsheets. Mercosur covers the greater part of the South American continent comprising Argentina, Brazil, Paraguay, Uruguay and, in better days, Venezuela. Those countries effectively blocked many imports from the EU by applying high tariffs on a range of goods, ranging from cars to chemicals to textiles along with foodstuffs including wine and biscuits. Mercosur reserved, for some reason, a particular animus towards European canned peaches, levying a tariff of 55%.

The South Americans will remove tariffs on all such items and, in exchange, the EU will open its markets and allow more quantities of Mercosur products, including beef. This new trade arrangement, if ratified, would permit more South American beef to enter EU markets at lower tariff rates. But “more” is relative. If Mercosur avails of the new quota in full, it would supply just over 1% of the total European beef market in five years. Looking at the raw figures alone, it would seem that EU poultry and honey producers would have much more cause for concern than beef producers. Maybe their lobby isn’t as active.

A protectionist era

The significance of the current Mercosur debate is that the substance of the agreement itself (which overall is fairly positive for EU business) is not as important as the buttons it pushes in terms of market and political sensitivity. Remember too how the UK commentariat got up- in-arms earlier this year following President Donald Trump’s throwaway remark that under a future trade agreement between the UK and the US, American firms might be able to tender for the UK National Health Service. As it turned out, the remark wasn’t quite correct, because the published US policy on future trade agreements with the UK specifically rules out that possibility.

This point perhaps has even greater significance than the capacity of a detail to overwhelm the main message. In an increasingly protectionist era, we all need to be better informed about multilateral trade and where the ambitions of individual countries and trading blocs lie. Our commercial decisions will increasingly be determined not just by what the market dictates, but by which future trading arrangements will prevail between countries. The era of ever-liberalising trade agreements, which has prevailed since the 1960s, is drawing to a close. In this respect, the EU Mercosur agreement is an outlier, running contrary to the protectionist tendencies being shown by the likes of the US and the UK in recent years.

Muted response

Some EU officials have expressed frustration at the muted response of beneficiaries of the EU Mercosur agreement, as compared to the fury of the beef sector. That frustration is misplaced; they have not communicated their work well. The early lessons we learned playing shop are still valid; know the worth of what you have, and stay in your gang.

Dr Brian Keegan is Director of Advocacy & Voice at Chartered Accountants Ireland.