网络研讨会总结：放弃工业化？ The EU-MERCOSUR Agreement

By Natalia Marino

On Thursday, June 10, the Boston University Global Development Policy Center hosted a webinar to discuss a new working paper analyzing the proposed EU-MERCOSUR free trade agreement (FTA), which has yet to take effect, but would represent the largest trade deal for both blocs in terms of number of citizens involved.

Moderated by GDP Center Director, Kevin P. Gallagher, the discussion included working paper co-authors Jeronim Capaldo and Özlem Ömer, as well as regional experts from Argentina, Brazil and Italy to offer reactions and commentary. The panelists included Nelson Barbosa, former Minister of Finance and Planning for Brazil and current Professor of Economics at the Getulio Vargas Foundation in São Paulo; Ramiro L. Bertoni, Professor and Researcher at the National University of Quilmes in Argentina and former President of the Argentine Foreign Trade Commission; and Nadia Garbellini, principal investigator of the Institute of New Economic Thinking at the University of Pavia, Italy.

To begin, Jeronim Capaldo provided an overview of the EU-MERCOSUR agreement, underscoring its stated main goals of increasing trade and investment, implementing stronger trade rules and promoting sustainable development. He also noted that the expected impacts of the agreement are very small, almost negligible – a one-time gain of less than 1 percent of GDP after 15 years – and this projection assumes full employment and fixed productivity.

To this point, Capaldo stressed how previous projections have overlooked critical factors in their analyses including the severe polarization in participating countries’ economies and adverse tends in employment, wage inequality and productivity growth. By incorporating these considerations into their analysis, Capaldo and Omer found that the agreement is likely to lead to an increase in stagnant, low-wage sectors, growing inequality, and deindustrialization that would accelerate a “race to the bottom” for cheaper products and lower wages in both blocs.

Capaldo also argued the agreement will push most countries away from sustainable growth and development and that while “trade can be used and complemented with policies that allow trade to work for development, the EU-MERCOSUR agreement, in its current form, does not do that.”

He also underscored that without commitments to macroeconomic and industrial policies to sustain domestic demand and distribution, “it would be foolish to expect different outcomes from this agreement than from other trade liberalization agreements in the past.” He concluded that the “so-called evidence” cited by proponents of the trade agreement is in reality “no evidence at all.”

Following Capaldo, Özlem Ömer presented on the structural differences between the two regions that are critical to projecting the potential outcomes of the agreement. She noted there are negative trends regarding both GDP per capita growth and productivity growth in all countries surveyed. In Argentina and Brazil, the FTA will likely accelerate the expansion of stagnant sectors, such as agri-food and mining, which are also the sectors with some of the heaviest climate and environmental impacts. Additionally, the agreement would likely lead to the relative contraction of the countries’ most dynamic sectors, including vehicle, transport machinery and electronic equipment. Furthermore, the agreement doesn’t provide the tools or processes to counter these concerning trends.

Similarly, for the EU, Omer highlighted the lack of supporting macroeconomic policies that would substantially benefit EU economies. Though EU economies are likely to gain competitiveness in advanced sectors as compared to Argentina and Brazil, they may still face a decline standard in terms of workers’ rights and wages.  “Free trade agreements will always have winners and losers,” Ömer commented. The ‘losing’ countries need to have policies in place to account for those losses.

Following this, Nelson Barbosa commented that these findings contradict previous assertations that the agreement would lead to a greater growth in GDP over time. The actual projected 1 percent gain in GDP could be more easily attained, Barbosa suggested, by reducing unemployment or inequality in Brazil.

Barbosa also noted that FTAs can work to support development if designed properly and consider the structural differences and the potential impacts on inequality and unemployment. The EU-MERCOSUR agreement, however, has critical shortcomings. He also commented that is was surprising how much the financial sector is projected to benefit from the agreement, noting that “it is effectively deindustrialization to benefit financialization.”

Next, Ramiro Bertoni highlighted the unique scope of this study and that while the agreement may be thought of as good business at least for EU exporters, the agreement could quickly turn into a lose-lose scenario if MERCOSUR’s economies stagnate so much that imports and exports fall. Additionally, Bertoni commented that the agreement was negotiated before the COVID-19 pandemic unleashed immense human and economic suffering, with skyrocketing rates of poverty and unemployment around the world, and that the immensely different economic landscape is likely to also impact outcomes.

Finally, Nadia Garbellini began by asking to what extent the agreement will change the structure of global value chains. She stressed the possible effects of this agreement not only on the EU, but also on countries within the EU’s geographic periphery. She also elaborated that there has been “an institutional evolution” on higher regulations for environmental sustainability that might induce some European producers to shift polluting activities elsewhere, either in the geographic periphery of the EU or beyond.

On potential benefits, Garbellini commented that the agreement may lead to a relocation of electric vehicle production from the EU to Latin America. However, she concluded by stressing that in the last two decades in Europe, global value chains have been restructured into concentric circles, with a series of core countries at the very center and others located in external circles and increased competition within these circles might accelerate the “race to the bottom” in terms of working conditions and workers’ wages.

Overall, the panelists pointed to the clear need for balancing macroeconomic policies and projections that fully incorporate the contexts of the economies involved in assessing whether or not to adopt major free trade agreements. There was a consensus that while these risks may or may not materialize, they are assumed away in existing assessments of the agreement, which renders them un-solid ground for making policy choices that will affect the lives of millions of people.