The Mercosur Free Trade Agreement was signed in 2010 between Egypt and the Mercosur countries, Brazil, Argentina, Uruguay, and Paraguay.
The agreement came into force of the Free Trade Agreement (FTA).
The Argentine parliament has ratified the free trade agreement between Egypt and Mercosur in May, which contributes to the bringing the agreement into implementation and improving trade between Egypt and Mercosur countries.
Egypt signed for the first time in 2004 two agreements, one framework agreement and the other preferential trade agreement for the Egyptian side as a step to establish a free trade zone between Egypt and the Mercosur countries.
In 2010, Egypt signed the accession to Mercosur Agreement. In December 2012, Cairo ratified the agreement. In 2015, parliaments Brazil, Uruguay and Paraguay ratified the agreement. Finally, in May, the Argentine parliament ratified Egypt’s accession to the agreement.
Under the terms of the agreement, Egypt will become a member of Mercosur 30 days after the date on which Argentina deposited its instruments of ratification of the agreement with the Mercosur secretariat.
The Mercosur is the fourth largest economic bloc in the world, after the European Union, North American Free Trade Agreement (NAFTA) and Association of South East Asian Nations (ASEAN).
The Mercosur includes 250 million people with a total domestic product of about $ 1.7tr.
The agreement aims to enhance the volume of trade exchange between Egypt and the countries of the grouping, which includes Brazil, Argentina, Uruguay, and Paraguay, covering 63% of their collective exports and enabling them to obtain exemption from import taxes.
Customs exemption is the engine of the agreement
Egypt and the mentioned four Latin American countries can exchange 2,535 commodities without being subject to any customs duties in the light of the activation of the Agreement.
A source at the Ministry of Trade and Industry noted that Egypt will benefit from Mercosur, making use of the customs exemptions and free trade area.
Egypt’s major exports to Mercosur bloc are agricultural crops, building materials, chemical industries.
Facts related to MERCOSUR
Mercosur countries occupies about 70% of the total area of South America. The population of the Mercosur countries is 307 million. The size of the Mercosur region is 12.8 million square kilometres, which is constitutes 3 times the area of the European Union.
Countries that are associate members of Mercosur include Chile, Peru, Colombia, Ecuador and Bolivia. In addition, there are two participating countries as observer members like New Zealand and Mexico.
Furthermore, the Mercosur bloc received 47.6% of the total investment flows destined for Latin America, Central America and Mexico, according to UNCTAD statistics.
The Mercosur Agreement doubled the intra-trade of its members more than 10 times, estimated at $ 5.1bn in 1991 and then $ 58.2bn in 2012.
The value of imports of Mercosur from the world amounted to about $ 235bn in 2016, and the value of exports amounted to $ 288bn.
Moreover, Automotive sector is one of the most advantageous sectors in Mercosur. Brazil and Argentina have become the third largest auto market in the world after China and the United States.
Making use of the agreement
Minister of Trade and Industry Tarek Kabil told Daily News Egypt that the ministry is adopting a number of awareness campaigns about the importance of the agreement and its impact on the trade movement with the Mercosur countries, the terms of the agreement, and the advantages and mechanisms of benefiting from it.
Furthermore, the ministry is seeking to organise a visit before the end of the year by a delegation of businessmen to visit the Mercosur countries to start work and to hold bilateral meetings with the members of the agreement.
Kabil added that the Export Development Authority’s plan is to establish logistic centres and maritime shipping lines to increase the access of Egyptian exported products to various foreign markets, especially the European market as Egypt’s first trading partner.
Furthermore, the plan is imperative in opening new communication channels to increase Egyptian exports to West African markets to make use of the Mercosur Free Trade Agreement, which was recently activated with a number of Latin American countries.
Further, by the end of September Export Development Authority has announced the establishment of a logistic centre in the Mercosur region, to support and increase trade between Egypt and the Mercosur countries.
The technical committee of the Authority met to follow up and evaluate the first Mercosur agreement to identify barriers to the flow of trade between Egypt and the countries of Mercosur and put resolutions to overcome the obstacles such as shipping, logistics, finance, etc.
in addition to, prepare specialized short training programs to raise the awareness of the concerned exporting companies about the Mercosur market.
An information office will be launched to serve exporters to the Mercosur countries in the Export Development Authority, in addition to, preparing a detailed studies on products and commodities imported and exported to these countries.
The agreement will reduce tariffs by more than 90% between Egypt and Mercosur countries and exempt industrial and agricultural goods from customs, in addition to, provide solutions to the rules of origin problems, and the solution of trade disputes, and agree on preferential guarantees issue. As well as, cooperate in the field of investment and services.
Egyptian Commercial Service (ECS) head Ahmed Antar told Daily News Egypt previously that the ECS is currently seeking to study how to create new and unconventional opportunities for Egyptian products in the markets that joined the Mercosur Agreement, especially after the ratification by the Argentinean state of this agreement. The agreement includes Brazil, Argentina, Paraguay, and Uruguay, and it is one of the most important economic blocs in the world and ranks fourth in economic importance after the European Union, NAFTA, and ASEAN,”
Exports and imports
The volume of trade exchange between Brazil and Egypt last year exceeded $1.8bn, where the proportion of products covered by the convention reached 78%, amid expectations of an increase in the trade exchange between Egypt and the Mercosur to 99% within the coming 10 years, as stipulated in the agreement.
According to Michel Halabi, the secretary-general of the Arab-Brazilian Chamber of Commerce, with the agreement coming into force, the trade between the two sides is expected to witness a strong boost and strengthen the partnership between Brazil and Egypt.
The trade exchange between Egypt and Mercosur countries amounted to $ 3bn during the last fiscal year 2016/2017. According to the data on the volume of trade between Egypt and Mercosur countries, showed that Egypt exported goods to these countries at only $ 110m, while imported $ 4.2bn.
Brazil’s Ambassador to Egypt Ruy Amaral said in previous press statement that Egypt’s accession to the free trade agreement with the Mercosur countries in South America will open new horizons for trade cooperation between Egypt and the countries of the bloc, led by Brazil.
Sherif El-Gabaly, President of the Chamber of Chemical Industries at the Federation of Egyptian Industries (FEI), said these countries are very important for Egypt as it considered a new market to make use of.
He noted that cancelling customs on some Egyptian exports will be a great opportunity to increase our exports.
He pointed out that Egypt’s fertilizer exports are exempted mainly from customs due to the high need of those countries for fertilizer products.
Egyptian exporters will make use of the agreement than importers
Argentina said that the agreement would cancel customs duties on 60% of Argentine exports immediately, and would gradually begin to reduce tariffs on other products within ten years.
While, Hamdy El-Naggar, a representative of the General Division of Importers at FEDCOC said that the agreement will benefit Egypt’s exports more than imports due to making use of the FTA and customs exemption and tariff reduction.
“Egypt’s imports of Mercosur countries are food commodities, which are exempted from customs, such as sugar, wheat and meat, therefore there is no additional advantage for imports” added El-Naggar. Furthermore, Egypt has a competitive advantage to increase exports to Mercosur countries due to the devaluation of the pound value against the dollar, especially after the liberalisation of the pound exchange rate”.
Notes on the agreement
The agreement creates great controversy amongst manufacturers of cars and feed-in industries in Egypt.
Samir Allam, the deputy head of the Transportation Division at the Federation of Egyptian Industries (FEI), said that with the signing of the Mercosur agreement and its implementation, as well as removing the custom barriers between Egypt and the Mercosur countries, will negatively affect the manufacturing of cars in Egypt, especially that Brazil is one of the giant companies globally in terms of car manufacturing, where it produces about three million cars annually, besides the volume of the feed-in industries.
“The agreements are losing their effect if there is a real industry in Egypt,” Hussien Mustafa, executive director of the Egyptian Automobile Manufacturers Association (EAMA), said. “The agreement can be used for our benefit, as our production in Egypt reaches the numbers that qualify us for export, with the availability of quality, price, and international specifications. We could benefit from those agreements that remove any customs barriers to and from Egypt.”
Amr Nassar, the executive director of MCV Group, said that the implementation of the free trade agreement between Egypt and Mercosur countries will violently impact the vehicles industry in Egypt, especially buses and trucks manufacturing in Egypt.
He considered buses manufacturing to be the last hope for vehicles manufacturing in Egypt. “With the liberalization of our foreign trade and the absence of the government vision to develop vehicles manufacturing, the hopes of developing this industry will fade,” he said.
Brazil is the main beneficiary of the agreement
Brazil expected 95% of its exports to Egypt to benefit from customs reductions mentioned in the Mercosur Agreement over a 10-year period, with 95% of Egypt’s exports also benefiting there, according to a statement issued by the Brazilian Embassy in Cairo.
The statement noted that Free Trade Agreement between Mercosur countries creates new market for Brazilan exports of products such as chicken, instant coffee, paper, cars, etc.,
The value of Brazilian exports to Egypt was more than $1.35bn between the first quarter to the third quarter of 2017, up by 13% from the same period in 2016.
According to data from the Ministry of Trade and Industry, the value of goods exported by Brazil has reached $119.3m in the same period of 2017, up by 138.5% from the period in 2016.
Mercosur has no economic feasibility
Professor of macroeconomics at the Faculty of Economics and Political Science at Cairo University, Ahmed Ghoneim said that the reason for Egypt’s accession to the Mercosur agreement is “vague” because “there is no economic benefit to Egypt.”
Ghoneim said in press statements that free trade agreements are signed for two reasons, either economic or political, and ruled out that the economy is a part of this agreement.
“The geographical dimension of the Mercosur countries makes the transport cost higher. In other meaning, the cost of transportation alone is commensurate with the cost of customs,” Ghoneim continued. “The Mercosur countries are known for their high production and export capacity, which will be very challenging to Egypt to increase Egypt’s exports to these countries”.