Major foregone benefits due to delayed Mercosur agreement

The EU’s inability to finalise the trade agreement with Mercosur has resulted in substantial losses in export revenues and GDP gains, according to a new study. The losses are real, and will increase substantially with further delays, writes Björn Wedin, Trade Policy Advisor.

Negotiations for the trade agreement between the EU and the Mercosur countries (Argentina, Brazil, Paraguay, Uruguay) began over 25 years ago. After almost two decades, the parties reached an agreement in 2019 and, had everything gone according to plan, the agreement would have been implemented as early as 2021. Nearly five years later, the agreement is still not in place due to internal disagreements within the EU, which has cost the EU several years of lost export revenues and GDP gains that would have come from increased exports and improved, cheaper access to imports the agreement would have provided.

As the agreement now approaches a final vote of approval in the European Parliament, these figures need to be highlighted – especially to emphasise what the EU stands to lose if the agreement is delayed by another year. That is why the Confederation of Swedish Enterprise has commissioned the think tank European Centre for International Political Economy (ECIPE) to calculate the lost export revenues and GDP gains caused by the delay.

The calculations show that, so far, the EU has suffered export losses equivalent to €183 billion and GDP losses totalling €291 billion. These figures represent the net present value of economic activity that would have materialised if the agreement had been implemented as planned in 2021. Should the agreement be delayed by another year – which there is a risk of given the political resistance within parts of the EU – the cumulative cost would amount to €216 billion in lost export revenues and €344 billion in lost GDP gains. These are significant revenues that have been lost, and which would have made a real difference to the European economy.

To put these figures in context, €216 billion is more than the EU’s annual goods exports to Switzerland – the union’s fourth largest trading partner. The sectors and goods that would suffer most from further delays are transport, machinery, engineering products, and chemicals – where tariffs in the Mercosur countries are currently high. The agrifood sector is also missing out on major export opportunities, as is the services sector.

The study also examines how the delays affect different EU countries. Unsurprisingly, Germany and France account for the largest absolute losses, but when analysing the relative figures there are a large number of countries, including Sweden, that stand to lose export revenues equivalent to more than 1% of their national GDP.

In summary, the EU has already suffered major losses due to its inability to finalise and implement the trade agreement. However, the positive effects of getting the agreement in place still hold true. It is important for businesses, the economy, and the EU’s credibility as a reliable global trading partner. And the cost of further delays risks becoming even higher. It is therefore the right time now to approve and implement the agreement.

Read the ECIPE study here.