The European Parliament has approved some measures designed to protect the Union’s agriculture from possible negative effects due to the liberalization of trade with Mercosur. The new regulation creates a “bilateral safeguard clause”, a parachute that will allow the Union to temporarily suspend the tariff advantages granted to Mercosur countries on imports of certain agricultural products such as beef, pork and poultry but also corn, rice and sugars.
In practice, if after the entry into force of the agreement the subsidized imports increase too much and damage European producers, the EU will be able to intervene and remit (in whole or in part) the duties, or block further reductions in the tariffs provided for by the agreement.
These clauses “will ensure that the agreement is accompanied by a balanced and credible protection mechanism for our agricultural sector. They strengthen market monitoring, introduce clear and objective criteria to identify any disruptions and allow faster action for sensitive products in the presence of signs of damage. They will offer stability and predictability to farmers, while preserving the overall balance of the agreement”, claimed the rapporteur for the Chamber, the Spanish popular Gabriel Mato.
Frozen treaty
At the moment the free trade agreement with Mercosur is frozen, because the European Parliament has asked the Court of Justice of the European Union for an opinion on its compatibility with the treaties. But when (and if) it comes into force it could create one of the largest free trade zones in the world between the EU, Brazil, Argentina, Paraguay and Uruguay, or more than 700 million consumers. The pact should allow the EU to export more cars, machinery, wines and spirits to Latin America, while making it easier for South American beef, poultry, sugar, rice, honey and soya to enter Europe.
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The entry of these products on subsidized conditions worries European farmers and the EU is trying to reassure them with safeguard clauses. “I sincerely hope that the vote” on the safeguard clauses “will allow a more serene and fact-based discussion regarding Mercosur. Contrary to what some claim, this agreement does not sacrifice European agriculture”, argued the shadow rapporteur for the socialists, the Portuguese Francisco Assis, according to whom the safeguards guarantee “solid protections for our farmers and the agricultural sector if the agreement is applied”.
How the safeguard is activated
The safeguard is not automatic and is not activated by simple market fluctuations. The basic rule for it to come into operation is threefold: the product must enter the EU in “such high” quantities (absolutely or compared to EU production), under such conditions as to cause or threaten “serious harm” to European producers of similar or directly competing products, and the increase must be linked to the commitments of the agreement (i.e. the reduction or elimination of duties).
“Serious injury” means significant overall damage to the position of EU industry, while the “threat” must be clearly imminent and based on facts, not assumptions.
How to define a threat
For some agricultural products considered sensitive, the regulation establishes quantitative indicators that trigger a priority assessment. For these products, in the absence of indications to the contrary, the Commission may open an investigation if imports on preferential terms from an interested country generally grow by more than 5% compared to the three-year average and, at the same time, the average import price is at least 5% lower than the average price charged in the domestic market for similar or competing products in the same period.
Alternatively, the alarm is triggered if the average import price of a product generally decreases by more than 5% compared to the three-year average and at the same time remains at least 5% below the average domestic price. This is also treated as a wake-up call. However, an investigation could also be opened independently by the Commission if it sees other signs.
Sensitive products
The regulation establishes a group of “sensitive products”, i.e. agricultural goods for which the EU has provided for a higher level of attention and a faster procedure, because they are sectors considered exposed to negative effects of an increase in imports facilitated by Mercosur.
The list includes, among others, different categories of beef (fresh, high quality and frozen, including for processing), pork, poultry (boned and boneless, including preparations), powdered milk, cheese and infant formula, cereals such as corn, sorghum and rice, sugars (refined and other), eggs and egg albumin, honey, rum and other sugar cane spirits, starches and derivatives, ethanol, garlic and biodiesel, as well as a series of tariff lines for citrus fruits (oranges, lemons and mandarins).
Continuous monitoring
The regulation does not wait for the crisis to explode. The Commission will be called upon to constantly and proactively monitor the EU market for sensitive products, especially imports, exports, production and prices, with the support of EU market observers and with regular data exchanges with Member States, Parliament and industry.
Every six months it must send a monitoring report to Parliament and the Council with its assessment of the impact of subsidized imports, including data on volumes and prices, both at EU level and, if necessary, on individual Member States. This serves to intercept risks early and to already have a technical basis when deciding whether to open an investigation.
Who can request intervention and how the investigation starts
An investigation can also be started at the request of a Member State, or of a person acting on behalf of the EU industry (including through associations). The request must contain concrete elements: description of the product and tariff item, data on imports and prices, market share, and indicators of the economic situation of EU producers (sales, production, inventories, profits and losses, employment, etc.) over a period of at least 36 months when possible.
If the Commission deems there is sufficient evidence, it will formally open the investigation.
What the EU can do
If the investigation shows that imports from Mercosur are indeed creating problems for European farmers, the EU will be able to intervene in two ways.
The first is the simplest: it can stop the tariff reduction path envisaged by the agreement. In practice, if for that product the tariffs were to gradually decrease over the years, Brussels can block further cuts and leave the duties at the level they are at at that moment.
The second is more incisive: the EU can raise duties on imports of the product that is causing the damage. This increase, however, has a precise limit and cannot be arbitrary: duties can only rise up to a certain maximum level, which corresponds to the lowest between the “normal” duty applied by the EU to third countries and the starting one provided for in the agreement with Mercosur.
Duration of safeguard
The escape clause is not a permanent measure. When activated, it is valid for a maximum of two years. It can be extended only once, for another two years, but only if it still serves to protect European producers and if the sector is actually trying to adapt to the new situation. In any case, adding everything up, the safeguard cannot last more than four years.
Then there is another important limit: this tool can only be used during the transition phase of the agreement with Mercosur. This phase typically lasts 12 years from the entry into force of the agreement, or up to 18 years for products for which the tariff reduction is particularly long. Once this phase is over, the clause can no longer be used.
The exception for Paraguay
The regulation also introduces some practical rules to make measures more targeted. When a safeguard is applied to Mercosur as a whole, Paraguay is automatically excluded, because it has much smaller export flows to the EU and is unlikely to be the cause of market imbalances, unless the investigation proves the opposite.
Specific measures are then envisaged for the outermost regions of the EU, which can be protected with interventions limited to their territory in the event of serious economic difficulties. Finally, the Commission can intervene against any attempts to circumvent the safeguards through changes in trade routes or false origins of goods, strengthening customs controls.
