MERCOSUR footwear: expectations by agreement with EUROPEAN UNION
Since its launch in Brussels, at the end of June 2019, the trade agreement between MERCOSUR and the EUROPEAN UNION had the widespread support of authorities and entities of both regions, betting on the increase of bilateral trade and the growth of commercial opportunities for producers of goods and services of both parties. The purpose is a gradual opening of markets aimed at establishing tariffs zero for the placement of products and services to an area of 782 million consumers.
In this sense, as MERCOSUR foreign ministers reported, the agreement, before its full validity estimated for 2021, prior parliamentary approval, contemplates a transition time where it will be implemented gradually. In this way, a process of adequacy the economies to international competition will be guaranteed. For the MERCOSUR countries, the tariff reduction periods will be extended, on average, in periods of 10 and up to 15 years, while the EU accepted the deduction periods with the MERCOSUR immediately.
According to technicians participating in the elaboration of the agreement, many of the products and services for entering the markets may have quota systems or preferences, in addition to protection in the case of sensitive industries.
Next, we present updated general indicators on the composition and characteristics of the parts, volumes of commercial exchange and types of merchandise sold.
The commercial exchange in 2018 between MERCOSUR and the EUROPEAN UNION, according to EUROSTAT data, was US $ 99.6 billion. While the EUROPEAN UNION exported US $ 51.2 billion, MERCOSUR exported to Europeans for US $ 48.4 billion. The figures marked a surplus of US $ 2.8 billion for the European Union.
In general terms, over total volumes, 68% of the imports of European origin made by MERCOSUR are concentrated in manufactured products of high added value such as vehicles, auto parts, machinery and equipment, pharmaceutical and chemical products. While 63% of MERCOSUR exports to the EU are agricultural products and food products.
The Argentine Federation of Footwear Industry -FAICA- reported that it continues to maintain dialogue with authorities of the Argentine Foreign Ministry and the Ministry of Production regarding the scope of the MERCOSUR - EUROPEAN UNION Agreement in relation to the sector.
In this regard, the release issued, details that “the national authorities informed us that 24% of MERCOSUR footwear positions were excluded from the negotiation, that is, they will not have an import duty relief. The rest of the tariff positions were included in the longest linear relief baskets, at 15 years”.
“They said that, given the strong interest of the EUROPEAN UNION to access the MERCOSUR market without tariffs and the position of concern of the Argentine industry, they discussed until the last moment the negotiation of the tariff positions of leather-uppers footwear, without being able to maintain them excluded from negotiation. In these products they managed to negotiate the inclusion in the longest 15-year relief basket. This basket was reserved for the most sensitive sectors.”
"On issues of origin, they revealed that a specific rule will be applied for footwear that has a value greater than 35 euros and another rule for those that are below this value.""The EUROPEAN UNION, for its part, concluded by granting the relief of most footwear positions in 7 years."
“Finally, they confirmed that the Agreement will be available shortly, thus allowing access to texts, rules of origin and detail by tariff position. With this material it will be possible to definitively analyze the scope of the Agreement", the FAICA statement concluded.
According to the leaders participating in the meetings with the government, within the negotiations, it has been primarily aimed at preventing the entry of low-cost European footwear, produced with Asian supplies.
According to the main media of the country, the trade agreement between MERCOSUR and the EUROPEAN UNION is considered an advance for the increase of Brazilian exports from various economic sectors, especially for agroindustry. On the other hand, manufactured goods sectors, such as the footwear industry, still await more details of the treaty to celebrate.
Heitor Klein, executive president of the Brazilian Association of Footwear Industries -ABICALÇADOS- pointed out that, in principle, the agreement is positive for the sector, but it is necessary to have more details on the proof of origin mechanisms of the EUROPEAN UNION imported product. “We have a claim before the Government that for shoes to be considered effectively European, they must have a minimum of 60% of their locally produced components. The fear of the footwear sector is that some European countries can be used as an export platform by manufacturers from other countries, especially Asian countries, to ship their products with the benefit of a reduced or even zero tax rate", said the executive. "Today the rate of import of footwear is 35%".
According to Klein, “on the other hand, Brazilian footwear exports to Europe should benefit, as the agreement provides for a reduction in the average import tariff for this Mercosur product from 17% to 0%. Last year, Brazilian footwear exported 17.7 million pairs to the countries of the block, 14% less than in 2017. European footwear imports last year totaled 332,800 pairs, 3.6% less than in 2017.”
After consulting industrial sources in both countries, there are still no definitions in this regard, and the joint analysis between the sector and governments is awaited to evaluate the incidents that such an agreement may generate in the manufacturing industry. According to leaders of the footwear industry of Paraguay, for now the export of their products is not relevant, especially to the European market, where sales could be developed for very specific niches. "First we must await the approval of Parliament and then wait two years for its entry into force", they said.
With regard to Uruguay, in general exports of 2018, it is the only MERCOSUR country that had a surplus in trade with the EUROPEAN UNION. The main products sold were cellulose, meat, wood, wool, fabrics and leathers.
From the footwear sector, they reported that the agreement is being discussed with the relevant authorities in order to assess the impact it will have on this segment.
From the highest entity that brings together the entire European footwear sector, a statement was spread stating that “it is very satisfied to have achieved the best possible result for European footwear and thanks the negotiators of the European Commission for their continued support. A fair and complete agreement will favor the economic integration of both regions and will create many opportunities for EU companies by giving them more favorable access to a promising export market”.
Later it adds that “European footwear is one of the products that currently has the highest customs tariffs (reaching up to 35%) when entering MERCOSUR countries. The next total tariff liberalization will provide free access to a market currently comprised of 260 million consumers. In 2018 and according to data from the World Footwear Yearbook, countries like Argentina and Uruguay respectively imported 520 and 482 million euros of EU footwear despite high import tariffs”.
For the European statistics office -EUROSTAT-, “the elimination of tariffs for leather footwear opens a wide range of opportunities for European footwear companies. In 2018, despite the current high import tariffs, Uruguay and Brazil respectively imported 81,000 and 134,000 pairs of leather shoes made in the EU. To benefit from this preferential agreement, and for those leather shoes with a customs value of more than 35 euros, companies must only demonstrate that their footwear has not been manufactured with components or parts originating in non-EU countries, such as uppers, soles, etc.”.
The president of the entity said at the end of the negotiations: “We respect the agreement reached. Both parties had to grant concessions in favor of market opportunities for its entry into force. It was difficult to negotiate leather shoes within the agreement, and we are happy about it despite the 15-year liberalization period. In addition, the majority of the EU leather shoes exported to MERCOSUR exceed the threshold of 40 euros, which means that the agreed rules of origin respond to the manufacturing practices of our industry”.
The largest institution that brings together Italian footwear manufacturers, ASSOCALZATURIFICI, announced its approval for the agreement obtained, through a document distributed to the national and international press.
It expresses that “for the Italian footwear sector, the trade agreement reached on June 28 between the European Union and the Mercosur countries (Brazil, Argentina, Uruguay and Paraguay) is a significant result, which finally concludes with twenty years of negotiations ”.
"Although the immediate elimination of customs tariffs on footwear is not expected, in coming years it will bring great benefits to Italian companies."
As background, it cites that “in the last year 2018, exports to the four MERCOSUR countries amounted to 303,000 pairs, worth more than 15.5 million euros. In the last 10 years (2008-2018), this market has grown by 58% in volume and 85% in value (Source: Confindustria Moda Research Center), but there is still huge growth potential”.
"The commercial agreement with MERCOSUR is an extremely positive result for the Italian footwear sector and has been one of its priorities in Brussels for many years", said the entity's new president, Siro Badon. In turn, he thanked the efforts of the CEC and all his predecessors who fought to achieve this agreement.
