On December 6th, the European Union (EU) and four Mercosur countries (Argentina, Brazil, Paraguay, and Uruguay) reached a political agreement on an updated EU-Mercosur partnership agreement, after 25 years of negotiations. The latest agreement improves the deal concluded in 2019, in particular in the area of sustainable development. In addition, it contains new provisions on public procurement, export duties, and vehicles. This post examines the changes in the procurement commitments, including Brazil’s first-time coverage of subcentral entities and the removal of procurement in the health sector for three parties. It also considers how Brazil’s removal of its health sector from the EU agreement aligns with its withdrawal of its market access offer in negotiations to join the WTO Government Procurement Agreement.
In negotiations that began in 1999, the EU and the four South American countries reached a preliminary agreement on a trade agreement in 2019 and on the final elements of the pact in 2021, including government procurement commitments. The negotiations were largely dormant for two years until the two trade blocs re-engaged beginning in March 2023 with the aim of addressing EU concerns relating to sustainability, particularly in the Amazon region. In return, the South American countries sought concessions concerning public procurement in the health sector.
The recently released revised text of the agreement details the new commitments. Brazil excluded procurement related to its Unified Health System, a primary goal in the latest negotiations. It reflected one of the major concerns that had led President Lula’s administration to withdraw Brazil’s market access offer in its GPA negotiations in May 2023. That offer had been tabled by President Bolsonaro’s administration, following its 2020 application to accede to the GPA.
As compensation for the withdrawal of its health sector, Brazil agreed to open its subcentral government procurement. It offered coverage of 21 (of its 26) states and its federal district: Acra, Amapá, Amazonas, Ceará, Distrito Federal, Goiás, Maranhão, Mato Grosso, Minas Gerais, Pará, Paraiba, Paraná, Pernambuco, Rio De Janeiro, Rio Grande Do Norte, Rio Grande Do Sul, Rondônia, Roraima, Santa Catarina, São Paulo, and Tocantins. This coverage is in sharp contrast to its 2021 commitment to consult with its Federal District and state and municipal governments regarding potential coverage.
Brazil set its subcentral thresholds at 216,000 Special Drawing Rights (SDRs) for goods and services and 8,000,000 SDRs for construction services, which are higher than those the EU applies under the GPA and its free trade agreements: 200,000 SDRs and 5,000,000 SDRs, respectively. In addition, Brazil lowered the transitional thresholds for its central government entities but extended the transition period by three years.
Argentina apparently withdrew its coverage of the universities it had offered in 2019. It also excluded an extensive list of pharmaceuticals, medical devices, and health care-related products procured by its Ministry of Health and Social Development. In addition, it increased the level of offsets that it may impose to 50% of the value of the procurement (in contrast to 40% in the 2021 agreement) for the first 10 years of the agreement. The offset level will drop to 35% (versus 20% in the 2021 agreement) during the next five years. From the 16th year forward, the offsets can be no greater than 20%. Under the 2021 agreement, it had promised not to apply any offsets beginning in the 16th year.
For its part, the EU matched Brazil and Argentina with respect to the coverage of the health sector. In relation to Brazil, it excluded all health sector goods, and with respect to Argentina, it reciprocated with its own exclusions in the health sector. As for subcentral coverage, the EU states in its market access annex that “in the event of a satisfactory coverage of sub-central entities offered by, respectively, Argentina, Brazil or Uruguay,” it will offer a corresponding level of coverage to each country.
As for next steps, the ratification process is likely to be quite challenging, particularly on the European side. For the Mercosur countries, the agreement must be approved by their national parliaments. Even if all do not ratify it, the agreement can be implemented by those who do (providing, of course, that the EU ratifies it).
For more information on the government procurement provisions in the EU-Mercosur agreement, see earlier posts on the 2019 agreement and the 2021 final agreement.
In the EU, the agreement must be ratified by the European Council, where EU countries are represented by their trade ministers, and approved by the European Parliament. Currently, France, Austria, and Poland have stated their opposition to the agreement, and Italy’s support may be wavering.
Another potential complication for the EU is whether the trade liberalization elements of the agreement that fall within the exclusive competence of the European Commission and do not require ratification by national parliaments are separated from provisions such as investment protection that must be unanimously approved by national parliaments. Beginning with the EU-Singapore Free Trade Agreement, the European Commission has sought to separate out the trade elements so that they can be implemented more quickly.
At this point, there is no certainty as to when the EU-Mercosur agreement may be ratified and enter into force. At best, it would not likely be before late in 2025.
Jean Heilman Grier
December 12, 2024
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