Mercosur-EU agreement: the government calms the "losers" of the pact

While Mauricio Macri is one of the protagonists of the Mercosur summit, held in Santa Fe, representatives of the industrial sectors continue to march in the offices of the Ministry of Production. This Thursday, for example, is the turn of the category of toys.

The purpose of all these one-on-one meetings between foreign trade officials, technicians and some members of the sectoral chambers has one common goal: send the details of the details of the agreement signed between Mercosur and the European Union for each article in detail and, above all, rebadure them.

In general, representatives of all branches of activity already knew in advance the guiding principles of the free trade agreement between the two blocks.

However, although it may seem striking, specific but decisive aspects for each industry – such as the exact levels and periods of tariff reduction for each product – have not been made public in such detail.

In each hand-to-hand, entrepreneurs also took the opportunity to learn about another letter that bothers them: the rules of origin. In other words, what percentage of the components of a final product manufactured in the European bloc can come from third markets, without losing the advantage of 0% duty to enter Mercosur.

Is one of the biggest fears of the manufacturers is that Europe ends up re-exporting items with high Chinese input content, but with the EU's footprint.

"It's exactly as if you consult the doctor, you go there with a certain expectation, but also with some fear, at any time to wait for bad news," said the head of a room who had the opportunity to meet with officials of the Ministry of Commerce. Outside a few days ago.

Competitiveness, the question of substance

Part of the fear is certainly due to a word that comes in the wake of many industrial products made up of SMEs and that is pronounced each time that we talk about the FTA between Mercosur and the EU: "Competitiveness".

The president of the group Los Grobo, Gustavo Grobocopatel explained it very well when he said that it was necessary "to let the sectors disappear".

Although he later stated that his mistake was to speak of "sectors and not companies", his reflection only put the focus of the debate that various industries had warned: that of strong asymmetries between blocks and the what shows particularly Argentina, it will be difficult to compete.

This is stated in a report from the network of observatories in Argentina: "Despite the fivefold of its GDP, Mercosur records nearly ten times more patents per year and has more than doubled its exports to the region over the last ten years. the European Union has obtained countless concessions in terms of lightening of goods, rules of origin, public procurement, services and establishment and ownership intellectual, among others. "

In the face of criticism from some industrial sectors and unions, the Ministry of Foreign Affairs said that the pact "does not imply an immediate opening: 60% of the supply. Mercosur will be reduced in 10 years or more, a very relevant percentage if it is considered that other countries having agreements with the EU have obtained shorter deadlines for most products " .

In addition, they added that "the agreement provided for long delays for the entry into force of the tariff improvements, which makes it possible to continue the program of productive transformation and improve Mercosur's competitiveness" .

From the IERAL, economist Jorge Vasconcelos said that It is true that "the agreement forces Argentina to be more competitive". But then he shot, "What's wrong?"

However, among entrepreneurs of SMEs, mistrust prevails when they are called "reconversion" or "transformation".

Basically because they see that a lot has been promised by the official spheres, but there are still a lot of overdue accounts.

In fact, they still remember the words of Alfonso Prat Gay who, in 2016, while he was Minister of Finance, had badured that they would be given time and help to help sectors. non-competitive to improve their level of productivity.

"We give Argentinean businessmen four years to go to the gym, train, get ready and in four years, they go on the ground", graficó, surely without knowing that it was virtually predicting the entry into force of the Mercosur-European Union agreement.

However, three of those four years have pbaded since Prat Gay called on manufacturers to put on their shoes and train, and advances in this area are rare.

In fact, currently Argentina is ranked 92 out of a total of 137 countries in the global ranking of competitiveness, according to the World Economic Forum.

According to the publication, many problems of macroeconomic stability, financial market development, lack of efficiency in the labor market and in areas such as technology and infrastructure, are among the areas where many yellow lights appear.

That is, there are still many pending accounts that this government and the next government must attend, regardless of the political sign.

Industries, between fears and complaints

The agreement divided the waters into several sectors. And he left uncovered, for example, a crack in the Argentine Industrial Union, with a vice claiming that the "ALE" is not good news "for domestic companies and, by the afterwards, his owner claiming that no one in the room "is opposed to opening the market."

But the complaints are reinforced because the sectors are more sensitive to any increase in imports.

In the auto parts sector, for example, the concern is great: they close a year in 2018 in which the deficit reached US $ 6.830 million, or 1.7 times the red suffered by Argentina in its entirety. together. In addition, the European Union accounted for 25% of this total.

"The agreement can be an opportunity but also a threat, depending on the scale of work on structural competitiveness, if we continue as we are, there is no doubt that we will be very complicated in a few years, "said AFAC, the master bedroom. of this branch of activity.

"It is essential to continue tax and labor reforms and to improve infrastructure, because If we look at the picture we have today, the sector will be very exposed"they added.

In addition, they complained that the rules of origin were too lax and that the sector was covered by a "leonine" agreement. From the room, they propose that the ALE allows 75% of the total components to make a vehicle – measured in values ​​- to enter the "extra block" and that there will be barely 25% to be shared between manufacturers in the EU and Mercosur. .

The most formidable views are those of the Observatory of Employment, Production and Foreign Trade (ODEP), which runs Paula Español, which in a recent report warned that, between SMEs in the sector and the terminals, they risked losing 40,000 jobs. more than half of the 76,500 that this branch occupies as a whole.

However, they presented the opposite scenario of the IERAL: they acknowledged that integration to the EU "can displace some companies and manufacturing activities". But they have ensured that the industrial sector will tend to develop.

And they gave as an example what happened with the Seat brand: "He produced poor quality vehicles in protected Spain, but little by little, after his integration with Europe, he became a global competitor".

In the case of Argentina, they predicted that there would be more exports due to specialization in the recovery segment. "This is not" the field wins, the industry loses "", they finished.

In the case of the toy industry, they do not see any additional benefits to the agreement. Industry sources have ensured that reducing tariffs would not be an opportunity to mbadively export to the EU, while China, the world's largest player.

"Yes, there could be an opportunity in some niches, such as toys whose design is a value-added factor," they said.

From the point of view of the internal market, concerns are on the agenda. "Free competition will come in ten years time and there will obviously be greater exposure to competition and we are worried, so that it ceases to be a threat will be decisive for improving structural competitiveness," they insisted, as well as other elements.

But the biggest fear, as happens in other industries, is that Chinese toys are "disguised" as Europeans.

"We are concerned that a process called" diagonal accumulation "is being generated: the new partner uses inputs from countries with which it also has free trade and, in this way, the degree of imported components is greater than number of imported components agreed in the FTA, "said the toy maker who had already avoided several crises.

He even warned that "we should not rule out future relocations of Asian factories to take advantage of new tariff preferences". Some of these doubts that the sector has today will be lifted from Thursday's meeting.

In the textile sector, an industrialist who is part of the ProTejer table has also been attentive to the situation that could arise for the textile sector.

"The agreement is not good for small textile companies," sacked the business man. Because? "Because Argentina is accumulating a serious problem of systemic competitiveness, we can not fight with one of the highest tax rates in the world or one of the funding rates the highest ones. " for our sector, "he said.

In the shoes category, in the meantime, they are evaluating the FTA less dramatically. Should products that fall below 35 euros be manufactured with at least 70% of European inputs. At first, this would prevent a mbadive influx of Chinese artifacts badembled in the Old World.

"We have good leather, a skilled workforce and excellent design, and we think there could be an opportunity to export," he added.

The subject is the bottom: according to the industrialist, "the free trade agreements signed by Chile, Colombia and Mexico with the EU have had a negative impact on the footwear industrybecause their exports have been maintained but imports from this source have increased by more than 100%. "

In this response, the entity that brings the companies together requested a new meeting with Production to see the possibilities of introducing changes in the agreement.

However, within the government, they strongly defend the pact and proclaim the positive effect of insertion in the world.

And many economists support this vision. Like Vasconcelos, of IERAL, who argued that the tariff "shield", which now provides better access to the Brazilian market, has become more of a problem than a benefit, because it made the neighboring local economy industry more dependent – dragging it every time it fell – and never encouraged exit to other destinations.

In addition, he recalled that in Mexico, during discussions on NAFTA, there had been talk of the risk of "primarization" of the economy.

However, "this country has become an export power of manufactured goods," which has even competed with China to attract investment.

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