Tariffs hurt a much larger group of people than the small number of people they claim to help. In the short run, tariffs protect local producers and might be perceived as job savers. In the long run, they hurt consumers and the overall productivity of the economy.
Historically, Latin American policies failed to recognise the importance of stimulating intense competition to promote economic development and productivity. Their higher-than-average tariffs and import taxes due to economic isolation took a toll on development.
The good news is that after nearly 20 years of negotiations, the European Union (EU) and Mercosur announced a historic free-trade agreement during G20’s Summit on June 28th, 2019 in Brussels. This agreement strives to eliminate tariffs for 90% of traded products.
This agreement will create a trade bloc of almost 780 million people, accounting for 25% of the global economy. Tariff reductions will increase competition for Latin America in the years ahead, benefiting consumers immediately while also improving productivity levels over time.
The potential gains for both the EU and Mercosur are enormous. The matured markets of the EU will gain access to fast-growing markets in Latin America. Mercosur countries will acquire highly competitive, global markets allowing companies to match productivity levels at the economic frontier.
As a result of the free trade agreement, Euromonitor’s market size research reveals enormous opportunities. By 2023, EU countries and Mercosur will increase the beauty and personal care market by USD35.9 billion. The packaged food industry will increase by USD145 billion. Combined, the EU and Mercosur will represent the world’s largest markets across various consumer product industries.
This trade agreement opens a window of opportunity. With more freedom, Latin American can leave behind its historical isolation and get on the path of economic integration with the rest of the world.
To Learn more, download the white paper: “EU-Mercosur Trade Agreement: Opportunities for Latin America”.