HUP: What does the Mercosur agreement mean for the EU and Croatia?

After years of negotiations, the European Union has signed a free trade agreement with the Mercosur countries — a community consisting of Argentina, Brazil, Paraguay, Uruguay, and Bolivia. The agreement, which was confirmed by the European Commission this week, is still awaiting a two-thirds ratification in the European Council, facing opposition from France and Poland.

According to the weekly analysis by the Croatian Employers’ Association (HUP), the elimination of tariffs between the EU and Mercosur represents an opportunity to intensify trade relations between the two continents. However, the actual economic benefits depend on a number of factors, including resistance from protectionist-minded EU members and the structure of exports.

The combined GDP of the Mercosur countries is about $3 trillion, which corresponds to the size of the French economy. It is a market with over 300 million inhabitants, led by Brazil, and according to IMF data, it shows potential for an average annual growth of 2.5 percent over the next three years. The main growth sectors include agriculture, mining, energy, high technology, and logistics.

Significant savings

The current trade exchange between the two blocs amounts to about $60 billion annually in both directions, which accounts for only 0.3 percent of the EU’s GDP. While Mercosur countries dominate in the export of crude oil, soybeans, copper, and iron, the EU leads in the export of industrial equipment, pharmaceuticals, and automobiles. The free trade agreement is expected to reduce tariffs by up to 90 percent, bringing annual savings of about 4 billion euros to European and Latin American companies.

Impact on Croatia

HUP emphasizes that this agreement opens doors for Croatian companies to gain easier access to new markets. Companies in the equipment manufacturing, food industry, and pharmaceuticals sectors could particularly benefit. At the same time, Croatian exports of meat and agricultural products to Mercosur could become more competitive.

German economies, with a focus on the automotive industry, are leading as key beneficiaries of this agreement. Additionally, access to strategic resources such as lithium and copper further strengthens the EU’s position in the global supply chain, reducing dependence on the USA and China, HUP states.

Although the agreement signals a strengthening of free trade, opponents within the EU have raised concerns about the potential impact on the agricultural sector and the environment. For example, despite the agreement, beef and poultry prices will change little as they account for only 2 percent of total consumption in the EU, while tariffs on soybean imports are already low.

With this agreement, the EU aims to send a signal about reducing dependence on the USA and China as well as in the fight against protectionism, which has recently been on the rise. In addition to having easier access to copper and lithium, the German economy, particularly the automotive industry, will have the greatest potential for growth, HUP concludes in its weekly analyses.