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The Eu-Mercosur Trade Agreement: the Beginning of a New Era for the Eu-Mercosur Relations?

Luca Pantaleo and Francesco Seatzu

Il presente lavoro si pone l’obiettivo di fornire un esame complessivo degli aspetti principali di quello che, a tutt’oggi, il più grande accordo di libero scambio concluso dal­l’Unione europea in termini di impatto economico dallo stesso generato, vale a dire l’Accordo UE-MERCOSUR e relativi allegati e protocolli, nella versione testuale resa nota dalla Commissione nel 2019. Il contributo prende le mosse da una breve disamina del clima politico che ha caratterizzato la genesi del trattato in questione, per poi concentrarsi sulle potenziali novità apportate dallo stesso rispetto, ad esempio, all’Accordo di cooperazione UE-MERCOSUR precedentemente siglato. Il presente lavoro, infine, si conclude con un’analisi critica relativa all’impatto che tali innovazioni sono potenzialmente in grado di produrre sugli sviluppi futuri dei rapporti UE-MERCOSUR e, più in generale, della politica estera di cooperazione dell’Unione europea.

This work explores and reviews the main thrust of the EU-MERCOSUR trade agreement (namely the EU’s largest trade agreement) and of its related annex chapters and protocols as concluded and publicized by the EU Commission in 2019. After having succinctly described the political climate within which this trade agreement and its annexes came about, this work analyses the potential novelties and changes in the MERCOSUR-EU trade cooperation regime as compared to the EU-MERCOSUR Framework Cooperation Agreement. The implications of these novelties and changes for the future of the MERCOSUR-EU trade relations and for the profile of EU external trade cooperation will also be considered and critically discussed.

Keywords

FTAs – EU-MERCOSUR Trade Agreement – Sustainable Development – Food Security – Annex Chapters – Protocols – EU Association Agreements – Mixed Agreements – EU External Trade Cooperation – Political Climate

Sommario:

I. Intoductory Remarks - II. The political Climate surrounding the EU-Mercosur Trade Negotiations - III. General Aspects and main Objectives of the EU-Mercosur Trade Agreement - IV. The sustainable Development Dimension of the EU-Mercosur Economic Cooperation - V. Food Safety - VI. Transparency - VII. Bilateral Safeguard Measures - VIII. Technical Barriers to trade - IX. Civil Society Engagements - X. Animal Welfare - XI. Public procurement - XII. Intellectual Property - XIII. Small and medium-sized enterprises - XIV. The settlement of disputes - A. The general DSS - B. Settling disputes concerning TSD issues - XV. Final Remarks - NOTE


I. Intoductory Remarks

Since April 2000, and especially since October 2010, relations between the European Union (EU) and the four member countries of the MERCOSUR trade bloc have been in a process of tremendous evolution and change. [1] Accordingly, the international normative framework for these relations, embodied initially in the EU-MERCOSUR Interregional Framework Cooperation Agreement [2] and lastly brought back in a reformulated version in the recent EU-MERCOSUR trade agreement (the so-called ‘Agreement in Principle’) and related annex chapters and protocols, is undergoing several significant modifications and modification proposals too. [3] This work, the second of a set of four peer-reviewed article, critically considers the main thrust of the Agreement in Principle and of its related annexes concluded and publicised by the EU Commission, in 2019, as the first step of a longer process towards a comprehensive bi-regional association agreement of the EU with the MERCOSUR trade bloc. [4] After having illustrated and discussed the political climate within which the Agreement in Principle and its related annex chapters and protocols came about, this work analyses the main changes and innovations in the EU-MERCOSUR economic and development cooperation regime as compared to its earlier versions. The implications of these evolutions and changes for the future of EU-MERCOSUR trade relations and for the profile of EU economic and development cooperation will also be considered and discussed below.

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II. The political Climate surrounding the EU-Mercosur Trade Negotiations

The final steps of the negotiations on the EU-MERCOSUR trade agreement came about after a long period of ‘stops and starts’ and of heavy criticism of the arrangements (and absence of) achievements of nearly 25 years of EU-MERCOSUR economic and development cooperation under the EU-MERCOSUR Interregional Framework Cooperation Agreement (the ‘EU-MERCOSUR Framework Agreement’) and under a series of a bilateral agreements with the EU. [5] In fact, only a few MERCOSUR countries have managed to improve their development level and their economic cooperation and relations with the EU through using the EU-MERCOSUR Framework Agreement’. [6] And yet this is notwithstanding that the main objective of the Framework Agreement, at least according to its Article 2, was explicitly to strenghten: ‘the existing relations between the Parties and to prepare the conditions enabling an interregional association to be created’. As a result of the absence of proof of success, recognition grew more and more widely that the EU MERCOSUR Framework Agreement (a child of its time, like any international legal instrument of this scope and character) was perhaps not the most effective tool for supporting MERCOSUR development efforts in a rapidly evolving world. [7] Hope originated from the World Trade Organization (WTO)’s Agenda for the New Millennium (the ‘Agenda for the New Millenium’), [8] with its stronger emphasis on trade liberalisation and on the need to allow for an effective participation of NGOs in development (cooperation) processes, [9] and the challenges posed by the Millennium Development Goals (MDGs) [10] and subsequently by the Sustainable Development Goals (SDGs) [11] which radically transformed the environment within which MERCOSUR-EU cooperation found itself. Again, there was the impact of the articles on development cooperation as revised and strengthened by the Treaty of Lisbon. Article 208 (1) of the TFEU, the main stipulation on EU development cooperation, emphasises that EU development policy shall have as its primary objective the reduction and, in the long term, the eradication of poverty. [12] The EU Treaty also contains several development-related provisions, such as for instance, Art. 21(2d) TEU. [13] Initially MERCOSUR States, and in particular Uruguay (namely, the country in MERCOSUR with highest GDP per capita and lowest poverty rates), [14] [continua ..]

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III. General Aspects and main Objectives of the EU-Mercosur Trade Agreement

The EU MERCOSUR trade agreement in various ways breaks with the past under the Framework Agreement. The wish, shared by both sides of the negotiating parties, to adopt more flexible arrangements and a future option to change parts of the package without having to go through the burdensome and lengthy process of renegotiating the agreement as a whole, led to the drafting and adoption of a series of separate thematic instruments rather than a single comprehensive instrument. [20] Unlike before, there is a EU-MERCOSUR trade agreement (the ‘Agreement in Principle’) proper, with several annex chapters and two additional protocols. Nevertheless, rather than setting out all the details of the EU-MERCOSUR trade cooperation, the Agreement in Principle only sets the overall framework for it. The general purposes and objectives to be served by EU-MERCOSUR trade relations were sharpened in the Agreement in Principle. The obvious aim of boosting the inter-regional trade relations between the EU and MERCOSUR countries was joined by the desire to promote sustainable development in the MERCOSUR nations. The most noteworthy change is the clear-cut emphasis that was put on the dismantlement of barriers (including technical and non-trade barriers) to inter-trade, consistent with the target purposes of sustainable development. Environmental and labour conditions have been clearly, though merely implicitly, presented as cross-cutting issues and are supposed to be taken into account systematically in all areas and phases of the EU-MERCOSUR economic and development cooperation. [21] These new, or at least more visible and pressing, priorities [22] will demand careful study and attention and, if taken seriously, are likely to give rise to the adoption of new policy enforcement efforts both within the EU and the MERCOSUR. This will be indispensable, in particular, in the sphere of measuring and monitoring the sustainable development impact of all the inter-regional trade liberalisation measures and strategies.

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IV. The sustainable Development Dimension of the EU-Mercosur Economic Cooperation

The EU-MERCOSUR free trade agreement continues the trend of increased focus and attention on sustainable development issues, as set in the string of other recent FTAs such as those concluded by the EU with Japan [23] and Mexico. [24] Building on the growing sustainable development legacy of the EU, [25] the Agreement in Principle contains a prominent provision (paragraph 14, titled ‘Trade and Sustainable Development’) which indicates the wide range of sustainable development issues to be respected in any future trade partnership agreement concluded between the EU and MERCOSUR countries. As in the EU-MEXICO free trade agreement and the EU-JAPAN free trade agreement, respect of international environmental agreements and the promotion of corporate social responsibility (CSR) stand as the two most important series of commitments concerning sustainable development in the EU-MERCOSUR trade agreement. This implies that, in case of violation of any of these commitments or of any other sustainable development commitment indicated in the above-mentioned para. 14 and in the TSD chapter, a dispute settlement procedure may be invoked by either party. [26] In principle this may only be done after exhaustion of compulsory consultation proceedings, as outlined in paragraph 14 and in the TDS chapter. These consultation proceedings have the dual aim of allowing governments to participate in the dispute resolution process and of avoiding, if possible, the recourse to an outside panel of experts for the resolution of disputes. These proceedings (though this is specified neither in paragraph 14 nor in the TDS chapter) should focus on measures taken or to be taken by the party concerned to remedy the situation. In a number of ways, the Agreement in Principle strengthens previous provisions on the sustainable development dimension of MERCOSUR-EU relations, as revealed by a comparison of the EU-MERCOSUR Framework Cooperation Agreement with the EU-MERCOSUR FTA. For instance, the Agreement in Principle improves legal certainty by clarifying, in the Agreement text proper, that “the parties should not lower labour standards as contained in the ILO fundamental Conventions in order to attract trade and investment”, “ … should not use the trade agreement to constrain their right to regulate on labour matters, including in situations where scientific information is not conclusive’, and also that: “… they [continua ..]

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V. Food Safety

A first noteworthy outstanding issue concerns food safety - understood broadly as also encompassing animal and plant health. The Sanitary and Phytosanitary Measures (SPS) chapter to the EU-MERCOSUR agreement provides that products exported from a Party shall meet the applicable SPS requirements of the importing Party (Article 6, para. 1). This general rule is integrated and complemented by the following additional requirements and provisions: “The Parties shall ensure that their SPS measures are applied in a proportionate manner and do not arbitrarily or unjustifiably discriminate between Members of the EU or MERCOSUR Member States where identical or similar conditions prevail including between its own territory and that of the other Party” (Art. 6, para. 2), the requirements and provisions according to which: “The Parties shall ensure that any fees imposed for the procedures on imported products are equitable in relation to any fees charged on like domestic products or products originating in any other WTO Member and shall not be higher than the actual cost of the service” (Art. 6, para. 4), and by the provision stating that: “The implementation of the provisions of the SPS Chapter shall not jeopardise the SPS trade related conditions between the Parties existing at the entry into force of this Agreement” (Art. 6, para. 6). Regrettably, however, neither the Sanitary and Phytosanitary Measures (SPS) chapter nor the Agreement in Principle deal with the prevention-focused precautionary principle, even though this legal principle is deeply rooted in the EU normative order [30]. The only reference, in fact, to this principle (that the CJEU considers, in a well consolidated case-law, as having the status of “general principle” of EU law) [31] is in the TDS chapter, that nevertheless excludes from its scope human, animal and plant health issues that are covered by the SPS chapter. [32] The justifying arguments for this approach to the precautionary principle, among others, evolve around the fact that the SPS chapter of the EU-MERCOSUR agreement relies on the WTO’s SPS Agreement and gives a great deal of regulatory power to the committees in alignment with the WTO and the UN’s Codex Alimentarius [33] equivalence guidelines and standards. [34] Some doubts, however, can be advanced on the tenability of these arguments. And yet, this is because such a drastic shift away from the [continua ..]

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VI. Transparency

A second outstanding issue concerns public transparency. Like other FTAs to which the EU is a party, the EU-MERCOSUR trade agreement contains public transparency provisions. These provisions are embodied mainly in a dedicated chapter of the agreement (the so-called ‘Transparency Chapter’). However, transparency provisions are also encompassed in other parts and annex chapters of the EU-MERCOSUR agreement. Transparency provisions are found, for instance, in the Customs and Trade Facilitation Chapter, where it is stated that: “In order to improve working methods, as well as to ensure non-discrimination, transparency, efficiency, integrity and accountability of operations, the Parties shall: (a) simplify and review requirements and formalities wherever possible with a view to the rapid release and clearance of goods; (b) work towards the further simplification and standardisation of data and documentation required by customs and other agencies; (c) ensure that the highest standards of integrity be maintained, through the application of measures reflecting the principles of the relevant international conventions and instruments in this field” (Art. 3, para. 2), and where it is also indicated that: “The Parties … recognize that their customs and other trade related procedures should be no more administratively burdensome or trade restrictive than necessary to achieve legitimate objectives and that they should be applied in a manner that is predictable, consistent and transparent”. Further transparency provisions are also in the Technical Barriers to Trade (TBT) Chapter, which includes an entire article (Art. 8) on transparency duties and obligations, as well as in the Sanitary and Phytosanitary Measures (SPS) Chapter, the Trade Remedies Chapter, the Trade and Sustainable Development Chapter, the Intellectual Property Rights Chapter and the Government Procurement Chapter (amongst others). Like in other EU FTAs the transparency provisions of the EU-MERCOSUR agreement apply horizontally to all policy areas. This conclusion is supported, in particular, by Article 3 of the Transparency Chapter, that refers to the duty of each party to ensure that: “ … a measure of general application with respect to any matter covered by Party trade: (a) is promptly published via an officially designated medium and where feasible, electronic means, or otherwise made available, in such a manner as to enable any person to [continua ..]

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VII. Bilateral Safeguard Measures

A third noteworthy issue concerns bilateral safeguard measures. The EU-MERCOSUR trade agreement, like most FTAs concluded by the EU with third countries, allows the introduction of bilateral safeguard measures (Article 1 of the Bilateral Safeguard Measures Chapter). These measures permit temporary withdrawal or suspension of tariff preferences to defend a particular domestic industry from an increase in imports of any product [39] which is causing (or which is likely causing) serious injury to that industry. [40] However, unlike, for instance the EU-COLOMBIA trade agreement, the EU-MERCOSUR does not contain a provision such as Article 45 (Non-simultaneous Application of Safeguard Measures) of the EU-COLOMBIA agreement. Art. 45 reads as follow: “No Party may apply simultaneously, with respect to the same product: (a) a bilateral safeguard measure in accordance with Section 3 (Bilateral Safeguard Clause) of this Chapter; and (b) a measure under Article XIX of GATT 1994 and the Safeguards Agreement”. Besides being surprising, this omission is potentially troubling. In fact, it raises the issue of whether it was intentional or not. Far from being merely academic, this issue may have noteworthy consequences in practice. And this is because its answer determines whether such a prohibition of simultaneous application of trade safeguards may also be enforced in the normative framework of the EU-MERCOSUR trade agreement. Since the approval of the long-awaited EU Horizontal Safeguard Regulation 2019/287 (“HSR”), in March 2019, [41] the EU has adopted separate EU regulations to enforce the safeguard mechanisms for each individual FTA. With the adoption of the HSR, the EU streamlines the introduction of safeguard measures and other mechanisms for the temporary withdrawal of tariff preferences or other preferential treatment so that they will be applied consistently and effectively. Regrettably, however, the HSR does not (at this stage) apply to the EU-MERCOSUR agreement but only to the FTAs concluded by the EU with Japan, [42] Singapore [43] and Vietnam. [44]

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VIII. Technical Barriers to trade

The EU-MERCOSUR trade agreement refers to technical barriers to trade in an ad hoc annex (e.g. the so-called ‘TBT chapter’). As declared in Article 1 of the TBT chapter: “The objective of the chapter is to facilitate trade in goods between the Parties by identifying, preventing and eliminating unnecessary technical barriers to trade and to enhance cooperation between the Parties in matters covered by this Chapter”. Like in other EU FTAs, this objective is mainly pursued through reference to the WTO TBT Agreement (as indicated in particular by Article 2 of the TBT chapter [45] and emphasized by the subsequent Article 6, in particular by Section 2 thereof). [46] The TBT chapter suggests that both parties shall cooperate via the development of common views on good regulatory practices, [47] information exchange, experience and data exchange as well as through technical cooperation. [48] Even though this is not stated specifically in any of the TBT articles (including, curiously enough, Art. 6 which deals with the joint cooperation on trade facilitating initiatives), the TBT chapter also suggests that both parties shall work for the establishment of mutual recognition agreements (MRAs), namely agreements specifically aimed at reducing technical barriers to trade. [49] The reason supporting this (non-textual) interpretation of the TBT chapter is clear and easy to follow: no technical harmonisation and standards can be achieved in EU FTAs without the establishment of MRAs. [50]

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IX. Civil Society Engagements

A further issue worthy of consideration is the role of civil society engagements in the promotion and realisation of the sustainability dimensions of the EU-MERCOSUR trade agreement. In continuing a tradition that began with the EU-CARIFORUM in 2008 [51] and that prolonged with the EU-South Korea FTA in 2011 [52] and with the EU-Canada Comprehensive Economic and Trade Agreement (CETA) in 2017, the EU-MERCOSUR FTA envisages a civil society mechanism for monitoring the sustainable development commitments that the EU and MERCOSUR countries shall respect in their future trade relations (Art. 17, para. 11 of the TDS chapter). Although there is little evidence in literature and policy documents of the possible outcomes and results of these civil society participation mechanisms, [53] the EU MERCOSUR agreement expands the remit of its civil society advisory tool beyond the TSD chapter to include the entire FTA (namely the sustainability implications arising from the entire agreement). [54] The only possible explanation for this otherwise surprising decision is the contribution that such a more capable and powerful mechanism could give to the individuation of the key challenges and opportunities facing each partner country in the context of the EU-MERCOSUR trade agreement’s implementation. Nevertheless, it remains difficult to understand why the EU-MERCOSUR trade agreement did not follow the example of the Comprehensive Economic and Trade Agreement (CETA), in the sense that it did not create separate domestic civil society advisory groups for thematic issues such as labour, social and environmental issues. [55] Although, of course, this solution would not have not been a panacea, it would have guaranteed sufficient attention to each of the ‘pillars’ of sustainable development in the implementation phase. Moreover, and equally important, it would also have helped the EU and MERCOSUR countries in avoiding diluition of discussions and/or the overshadowing of some sensitive issues by less controversial issues.

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X. Animal Welfare

In a chapter ambitiously titled ‘Dialogues’, the drafters of the EU-MERCOSUR agreement argue that: “the Parties …. agree to establish dialogues and exchange information to improve their common understanding on a series of issues, including animal welfare matters, issues related to the application of agricultural biotechnology and scientific matters related to food safety, and animal and plant health” (Article 1). Even a quick comparison of this article with the corresponding article of the EU-MEXICO trade agreement reveals a substantial similarity between them. The only appreciable difference lies in fact not in their content, but in their systematic framework. While the EU-MERCOSUR agreement deals with animal welfare in a chapter that also deals with other related issues, the EU-MEXICO agreement dedicates an entire chapter (Chapter X) on cooperation in animal welfare and anti-microbial resistance. This difference, nevertheless, is not as significant as it may appear, in the sense that it does not lead to potentially divergent interpretations and applications of the two above-mentioned provisions. Indirectly this is confirmed by Art. 3 (Animal welfare) of the EU-MERCOSUR agreement, [56] which largely reproduces the wording of Art. XX of the EU-MEXICO agreement. [57] All that said, one perhaps might have expected to find more protective provisions on animal welfare in the text of the EU-MERCOSUR agreement, or at least something different in terms of protection from Art. 7, para 3 which provides that: “Fully respecting the Parties’ right to regulate, nothing in this Chapter X shall be construed as to oblige a party to: a) deviate from domestic procedures for preparing and adopting regulatory measures, or b) take actions that would undermine or impede the timely adoption of regulatory measures to achieve its public policy objectives, or c) adopt any particular regulatory outcome”. And this is considering the fact that trade and production in animal-based food was envisaged as one of the main foci of the new EU-MERCOSUR trade agreement since the beginning of its negotiations. Hence the conclusion reached by a prominent NGO like the Eurogroup for Animals on the potential long-range detrimental implications and effects of these and other non-protective provisions on animal welfare. [58]

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XI. Public procurement

Traditionally, the EU has been a strong proponent of liberalisation in the field of public procurement. It is a member of the only existing plurilateral international agreement on the matter, namely the Government Procurement Agreement (GPA) concluded within the WTO in 1994 and updated in 2012. There are currently 48 Members of the GPA 2012, including the EU27. Conversely, no MERCOSUR country is a party to it. Argentina and Paraguay have observer status. Brazil is also an observer but it is currently negotiating accession. [59] Uruguay is neither a party nor an observer. The GPA includes non-discrimination clauses such as national treatment and most-favoured nation treatment. [60] However, these obligations are heavily qualified by the Members’ schedules of commitment, both in terms of threshold values as well as goods and services covered. On top of the structural deficiencies of the GPA 2012 in terms of its content, the membership to it reveals that it is in essence an agreement between advanced economies. Most parties are developed countries. Developing countries are for the most part opposed to it. For this and other reasons, the Union has pursued a policy of including public procurement in its bilateral trade agreements for quite some time, especially after the launch of the Global Europe strategy in 2006. [61] All FTAs concluded by the EU after that date include a chapter on government procurement, [62] mostly committing the parties to GPA-plus obligations. [63] The FTA concluded with Peru-Colombia in 2013 is the first agreement concluded with developing countries to include a chapter on public procurement. [64] This agreement, including its procurement component, was later acceded by Ecuador. [65] Against this backdrop, and because of MERCOSUR countries’ traditional hostility towards the idea of opening up their public procurement markets, [66] the negotiations with the South American regional bloc were no small test for the successfulness of the Union’s strategy in this area. The inclusion of a public procurement chapter in the EU-MERCOSUR FTA (hereinafter: PP Chapter) can therefore certainly be considered a success. Similarly to other recently concluded FTAs, the PP Chapter resembles quite closely the GPA 2012, making it the first legally binding instrument signed up by MERCOSUR countries in the relevant field. [67] This is in and of itself a considerable achievement. In terms of [continua ..]

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XII. Intellectual Property

Unsurprisingly, the EU is a strong supporter of the protection of intellectual property rights (IPRs) in all their forms, namely patents, copyright, designs, trademarks, trade secrets and geographical indications (GIs). The Union, as well as MERCOSUR countries, is a signatory of all the main international agreements in the field, including TRIPS. Moreover, in recent years the EU has also pursued a policy of including intellectual property standards in its bilateral trade agreements, especially after the standstill reached within the WTO with the failure of the Doha Round. Along with the US and Japan, the Union has concluded several bilateral deals that include so-called TRIPS-plus provisions - that is, treaties that reinforce the commitments taken at multilateral level, or that lay down additional commitments extending the coverage of those agreed multilaterally. [74] The EU-MERCOSUR FTA features an IP Chapter that can be considered significantly TRIPS-plus in the sense indicated above. Without going into too much detail, suffice it to say that the EU-MERCOSUR IP Chapter: a) makes provision for an extended duration of copyright and related rights to 70 years after the author’s death; [75] b) introduces a right to be remunerated to the benefit of performers and producers of sound recordings; [76] c) extends the protection for designs to at least 15 years; [77] d) establishes enhanced procedures for the enforcement of IPRs. [78] Moreover, the rules concerning the protection of traditional knowledge and those relating to the protection of GIs also contain important additions compared to TRIPS. As for the former, Article 6 of the IP Chapter is devoted to the protection of biodiversity and traditional knowledge, innovations and practices of indigenous and local communities, with such communities being broadly defined as also including “descendants of enslaved Africans and small-scale farmers”. [79] As for the latter, the rules concerning the protection of GIs are such a special case that they deserve special attention. The EU has been labelled “the world’s staunchest supporter of GIs”. [80] As is well-known, TRIPS offers a protection for wines and spirits that is by and large equivalent to the system that the Union has adopted internally, but TRIPS standards concerning other types of GIs are lower than the Union’s. [81] Consequently, in its bilateral FTAs the Union has [continua ..]

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XIII. Small and medium-sized enterprises

Small and medium-sized enterprises (SMEs) constitute the backbone of both the Union and MERCOSUR’s economies. Even though the two regional blocs have slightly different definitions of what constitutes an SME, [98] on both sides of the Atlantic SMEs represent 99% of all businesses and contribute to a large share of the blocs’ respective GDPs. [99] In contrast to the considerably important role that SMEs play at domestic level, they are underrepresented in international trade. In the EU, less than 10% of all European SMEs have traded their goods or services outside the Union, with such percentage going down as low as 3% if one considers only Latin America and the Caribbean (in which the MERCOSUR is included). [100] Therefore, it should come as no surprise that at least for the EU increasing the benefits that SMEs can obtain from FTAs has become a pivotal policy objective, to the point that all FTAs concluded by the Union in the second decade of the 21st century include provisions specifically devoted to SMEs. [101] In the EU practice, such provisions are usually scattered in different chapters of the FTA (this is the case, for example, of CETA). In some cases, on top of single provisions disseminated in the agreement, there is also a separate chapter specifically devoted to SMEs. The EU-Japan FTA is the textbook illustration of this second group, but the EU-MERCOSUR FTA also belongs to it. [102] The SMEs Chapter of the EU-MERCOSUR FTA is a rather succinct text consisting of 4 Articles covering only 4 pages in total. In light of its brevity, it is possible to provide an article-by-article overview even in the limited space that we are given here. Art. 1 lays down two general principles. Para. 1 is merely declaratory in that it proclaims the objective to enhance SMEs’ ability to participate in and benefit from the opportunities created by the FTA. This first general principle stands out because of its explicit reference to micro enterprises, which is absent in other similar agreements. [103] Para. 2 states that the second general objective is that of reducing non-tariff barriers “which place a disproportionate burden on SMEs”. Effectively, there is research showing that customs formalities and other administrative matters often constitute an unsurmountable obstacle for SMEs wanting to do business abroad given that they lack the internal capacity to carry out the required research. [104] As a [continua ..]

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XIV. The settlement of disputes

The EU-MERCOSUR FTA features a dispute settlement system (hereinafter: DSS) of general application that is largely in line with other State-to-State dispute settlement mechanisms established under similar recently concluded FTAs. The DSS is governed by the rules included in the DS Chapter of the agreement, which is specifically devoted to it. The EU-MERCOSUR FTA also makes provision for a separate DSS with a far more limited scope of application: namely, a DSS that covers only disputes concerning trade and sustainable development (TSD) matters. The rules governing the functioning of this separate DSS are laid down in the TSD Chapter. This is also in line with the EU practice. Since the two mechanisms differ from each other in some significant respects, the analysis that follows will first focus on the general DSS (Section A) and will then move to the special TSD DSS (Section B). [105]

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A. The general DSS

The general DSS. – The DSS of general application is a most typical State-to-State mechanism with a two-tiered structure: the first tier consists of a non-confrontational dispute avoidance mechanism whose primary purpose is to settle disputes in an amicable manner. If the Parties have failed to reach a mutually agreed solution in the first tier, a traditional trade-related DSS proper can be triggered (second tier). The first tier is further articulated into two stages that are entirely unrelated to each other, namely (mandatory) consultations and (non-mandatory) mediation. [106] After a Party has requested consultations, the elapse of a 30-days period during which no other action can be taken must be allowed – unless, of course, both Parties agree to continue consultations. [107] The DS Chapter of the EU-MERCOSUR FTA also makes provision for a detailed non-mandatory mediation procedure. According to the Annex III to the DS Chapter, the procedure requires the submission of a written request by one Party to be delivered to the other Party. [108] However, “the mediation procedure may only be initiated by mutual agreement of the Parties”. [109] In order for the request to be legally valid and effective, it must be “sufficiently detailed to present the concerns of the requesting Party clearly”. [110] Moreover, the request shall also “(a) identify the specific measure at issue; (b) provide a statement of the alleged adverse effects that the requesting Party believes the measure has, or will have, on trade between the Parties; and (c) explain how the requesting Party considers that those effects are linked to the measure”. [111] The mediator, who can be a national of a third country pursuant to Art. 4(2) of Annex III, may propose a solution for the consideration of the Parties who are always free to reject it. [112] In order to reach a determination, the mediator is entitled to seek advice and help from non-governmental organisations (NGOs) or persons. [113] In summary, mediation is conceived as a possible alternative dispute resolution method, yet the mediator has a limited authority in reviewing the trade and trade-related measures at stake, in line with other FTAs recently concluded by the Union. [114] The second tier of the DSS is laid down in Art. 6 of the DS Chapter, which provides for a traditional dispute settlement mechanism of an arbitral nature. [continua ..]

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B. Settling disputes concerning TSD issues

Settling disputes concerning TSD issues. – In line with all other FTAs concluded by the EU, [129] under the EU-MERCOSUR FTA disputes arising out of the TSD Chapter (hereinafter: TSD disputes) are excluded from the scope of application of the general DSS. [130] This effectively means that TSD disputes are subject to a dedicated mechanism, which differs from the general one in some significant respects. This Section will provide an overview of this separate DSS included in the agreement. The TSD Chapter of the EU-MERCOSUR FTA makes provision for a three-staged DSS. The first and second stage are set out in Art. 16, according to which the Parties shall at first trigger consultations by delivering a written request to the other Party clearly highlighting the legal issue at stake. Like under the general DSS, the purpose of these governmental consultations is to reach a mutually satisfactory resolution with the possible support of relevant third parties if need be. [131] Should a Party consider that the matter needs further discussion, [132] the second stage may be initiated by making a request in writing to the TSD Sub-Committee, [133] which also must endeavor to reach a mutually satisfactory resolution of the matter. Contrary to the governmental consultations, which are mandatory, the Sub-Committee stage is optional. As set out in Art. 17(1), the first and second stage are meant to be exhausted within 120 days of the first written request. When this time has elapsed, the Parties can request the establishment of a Panel of Experts. The Panel of Experts is effectively the dispute settlement body of the TSD Chapter. Its composition follows by and large the rules used for the general DSS as explained above. The Panel of Experts is to issue an interim report within 90 days and a final report within an additional 60 days. The report will “set out the findings of facts, the applicability of the relevant provisions and the basic rationale behind any findings and recommendations”. [134] It is established that the report is to be made publicly available and that the Parties discuss appropriate measures in order to implement the recommendations made by the Panel. Contrary to disputes litigated under the general DSS, for which a rather sophisticated post-award machinery has been foreseen, TSD disputes effectively end with the issuing of a non-binding report containing mere recommendations to the Parties. After the [continua ..]

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XV. Final Remarks

It clearly follows from the above that in the course of the last decades, the climate for MERCOSUR-EU trade relations has changed drastically. This explains to a large extent why the normative regime established by the EU-MERCOSUR FTA in a number of ways breaks with the past. Involvement of NGO actors, IPR protection and enforcement, food security, environmental and forest protection, settlement of disputes (including TDS disputes), animal welfare and public transparency are now supposed to be the new ‘programme of the day’. In line with developments under the FTAs concluded by the EU, the EU-MERCOSUR agreement introduces the sustainable development dimension of EU-MERCOSUR trade relations. Controversial new elements of that dimension are the issues of environmental protection, food security, animal welfare and social and workers’ protection. On all these subjects the EU pushed for its priorities to be incorporated into the EU-MERCOSUR FTA, to the disagreement and disappointment of some MERCOSUR countries. Textbook illustrations are the rules on public procurement (an absolute novelty for MERCOSUR countries) as well as rules concerning other Union flagship issues such as food safety, GIs, and animal walfare. This state of affairs, however, has not enhanced MERCOSUR confidence and trust in the new trade partnership with the EU. Still, trade is the area on which MERCOSUR member countries put their highest expectations of success. Further details will only become clear after the entry into force of the EU-MERCOSUR trade agreement and might be significantly influenced by the currently much uncertain future of the WTO system (in particular of its dispute-settlement mechanism) and of its role in global economic relations. [139] Besides, operationalisation of the new ideas about civil society involvement, food safety, environment/forest protection and sustanable development [140] poses a challenging task for all the actors involved. Clearly, the EU-MERCOSUR agreement signals a major overhaul of some fundamentals in MERCOSUR-EU relations. It builds upon and elaborates on the EU commitment to promote sustainable development. [141] As such, it also carries on the role of the EU-MERCOSUR Framework Agreement as recorder of the dominant ideology on development. EU-MERCOSUR sends out contradictory signals in terms of the prospects for MERCOSUR-EU relations in the future. On the one hand, it entails a temporary-indefinite engagement, [continua ..]

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NOTE

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