A new AK study on the economic impact of the EU MERCOSUR Trade Agreement reveals serious flaws: the deal might have a negative impact on employment both in the EU and Austria; and with a forecasted GDP growth of plus 0.1 percent until 2032, the Agreement also has economically little to offer. Apart from that, methodical weaknesses in the EU impact assessment cast doubt on the scientific nature and correctness of the results.
Even if the media’s reporting on finalising the EU MERCOSUR Trade Agreement involving Argentina, Brazil, Paraguay and Uruguay has slightly abated, the resistance of some Member States, trade unions and civil society has become stronger since the political agreement in summer 2019. The reasons are the serious violations against labour rights in several Mercosur countries and the potentially disastrous effects of the deforestation of the rainforest, to which the Agreement has nothing to offer in reply. The AK study now shows that the deal has also little to offer from an economic perspective.
New AK Study: Trade Agreement makes little economic sense
On behalf of AK, Werner Raza and Bernhard Tröster, researchers from the Austrian Research Foundation for International Development (ÖFSE), took a critical look at existing economic impact assessments, among them the Sustainability Impact Assessment (SIA), which was commissioned by the EU Commission. The five most important facts of the official impact assessment of the EU MERCOSUR Trade Agreement are as follows:
- Hardly any GDP growth in the EU: forecasted GDP growth of plus 0.1 percent until 2032 which corresponds to € 2.50 per capita per annum
- EU Agri-food industry might shrink
- Possible decline in employment of ca. 120,000 employees in the EU and 1,200 in Austria
- Questionable assessment of environmental impacts: dangers to the Amazon are neglected; CO2 emissions from transport and land-use change are not taken into account
- Official Impact assessment (SIA) by the Commission is generally problematic: comprehensible documentation of the data and model simulation is missing.
Widespread rejection of Trade Agreement
The Agreement does not only have little to offer from an economic perspective, it also poses a risk to employees and climate. Environmental NGOs warn that this might even accelerate the deforestation of the Amazon Rainforest, as the land needed for growing and breeding agricultural exports such as soja and meat is made available in Brazil by deforestation. The situation might also worsen for employees. For years, Brazil has been vehemently criticised for slave-like working conditions in poultry farms, abattoirs or on coffee and orange plantations. This involves up to 17 working hours per day, wages far below the minimum subsistence level and the massive use of pesticides, which causes long-term damage to the health of farm workers. Many of these pesticides have not been approved by the EU. The so-called Mercosur Agreement’s Sustainability Chapter, which tries to change this, remains toothless, as violations against human and labour rights as well as environmental standards can still not be sanctioned.
There is also resistance at Member States level. In Austria, both National Council and Federal Council have rejected the Agreement and obliged the Government to cast a “No” vote, in case a vote in the EU Council takes place. France too takes an extremely critical view of the deal, as Brazil does not respect the Paris Climate Agreement.
Trade policy needs a U-turn
It is obvious: the Agreement poses more risks than it brings benefits. Deforestation, violation of labour laws and imminent job losses are out of proportion compared to the marginal economic growth, that is limited to individual sectors. The AK has already clearly opposed the Trade Agreement in the past. From AK’s point of view, instead of trying to improve the Agreement in a poor and insufficient way, the EU-Commission should concentrate on re-aligning EU trade policy. Trade agreements have to serve people and the environment and must not be to their disadvantage.