Twenty years after the start of negotiations, the European Union concluded on June 28 a trade agreement with Mercosur. While indicating that it may take two years for the deal to be formalized, the European Commission noted that the EU is the first major partner to strike a trade pact with Mercosur, a free-market zone comprising Argentina, Brazil, Paraguay and Uruguay.
Venezuela is a member of Mercosur but was suspended in December 2016, while Bolivia is scheduled to join the bloc. All other countries in South America are associate members of Mercosur, except French Guiana, which as a French territory is part of the European Union.
Mercosur's trade flow with the EU is more or less balanced between imports and exports across all product categories. On the other hand, the Commission pointed out that the agreement will save European companies over €4 billion in duties a year, four times the amount saved in the trade agreement previously signed with Japan. The commission expects the trade pact to boost exports to South America of European products that have been facing “high and sometimes prohibitive tariffs,” including clothing and leather shoes, which are subject to import duties of up to 35 percent.
The Italian shoe industry association, Assocalzaturifici, welcomed the agreement with Mercosur noting that “although the elimination of customs duties on footwear is not expected to come into force for a few years, it can bring major benefits to Italian footwear companies.” Siro Badon, the new chairman of Assocalzaturifici, said it was “an extremely positive result for the Italian footwear sector.”
Last year, Italian shoe exports to the four Mercosur countries amounted to 303,000 pairs, for a value of more than €15.5 million. In the 10 years from 2008 to 2018, the Mercosur market has grown by 58 percent in volume and 85 percent in value but still has huge growth potential, according to Assocalzaturifici. It noted that the high import duties applied by Mercosur countries for several years “have prevented Italian companies from accessing the market, despite the strong appeal of Italian products in South America.”
Because of the relatively small size of their local footwear industries, Argentina and Uruguay have been more open than Brazil to shoe imports from the EU. In 2018, the two countries imported €520 million and €420 million worth of footwear from all over the EU, respectively, according to the World Footwear Yearbook.
The huge Brazilian shoe industry, which continues to apply heavy anti-dumping duties on shoe imports from China, exports a lot more to the EU than it imports from the area, especially in terms of volume, considering the large quantities of rubber shoes made in the country. In 2018, Brazil exported 17.7 million pairs to the EU, down 14 percent from the previous year.
The EU currently applies a 17 percent import duty on footwear made in Mercosur, and Abicalçados, the Brazilian footwear manufacturers' association, expects the tariff to be erased. However, Heitor Klein, the association's president, gave a cautious endorsement to the deal, defining it as a positive development. Brazilian shoemakers are concerned that Europe will become a platform for re-export of footwear originating elsewhere, especially from Asia.
Abicalçados has presented a petition to the Brazilian government asking for clarification on the criteria for the made in the EU label. It wants the label to apply only to products with a minimum of 60 percent of local components.
In any case, the free trade agreement will simplify border checks, cut red tape and limit the use of export taxes by Mercosur countries. Smaller companies on both sides will also benefit from a new online platform providing easy access to all relevant information. Both the EU and Mercosur still have to undertake a legal revision of the text and come up with a final version. The commission will then translate the document into all official EU languages and submit it for approval to member states and the European Parliament.
Negotiations between the EU and Mercosur started on June 28, 1999, but were suspended and resumed in 2010. They have been stalled in particular by fears voiced by European cattle farmers and environmentalist pressure groups. Under its outgoing president, Jean-Claude Junker, the European Commission had already signed free trade agreements with Canada and Japan, leading to annual tariff savings for EU companies of €0.6 billion and €1.0 billion respectively. It has just signed an FTA with Vietnam (see the related story in this issue), which will favor more European shoe importers.