EFTA-MERCOSUR vs EU-MERCOSUR: comparative analysis for Swiss and EFTA companies

EFTA-MERCOSUR vs EU-MERCOSUR: A Comparison of the Two Agreements\n\n### Introduction: Two Agreements, One Goal, Different Approaches\n\nMERCOSUR has conducted almost simultaneous negotiations for two major free trade agreements with European partners: one with the European Union (EU), politically concluded in June 2019, and the other with the European Free Trade Association (EFTA - Switzerland, Norway, Iceland, Liechtenstein), signed in August 2019. While the agreement with the EU has captured most of the media and political attention, the agreement with EFTA is no less strategic. For businesses, understanding the differences and similarities between these two texts is crucial for optimizing their trade and investment strategies. This comparative analysis looks at the key points: tariff schedules, rules of origin, services, public procurement, and investment protection. Which of these agreements is more advantageous, and for which sectors?\n\n### Tariff Dismantling Schedules: Similar Ambitions\n\nBoth agreements share a common ambition: to eliminate almost all customs duties on industrial goods.\n\n- **EU-MERCOSUR Agreement**: It provides for the elimination of over 91% of customs duties on EU exports to MERCOSUR over a transition period of up to 15 years. For automobiles, for example, the 35% duty will be eliminated in 15 years, with intermediate steps.\n\n- **EFTA-MERCOSUR Agreement**: It is slightly more ambitious on this point, with the immediate elimination of customs duties on a wide range of industrial products upon entry into force, and shorter transition periods for the remaining products. Over 95% of EFTA's industrial exports will eventually benefit from duty-free access.\n\nOn **agricultural products**, both agreements are more cautious, using a system of partial dismantling and tariff-rate quotas (TRQs) for the most sensitive products (beef, sugar, poultry for access to Europe; dairy products for access to MERCOSUR).\n\n**Verdict**: The EFTA agreement is marginally faster on industrial dismantling, but both agreements lead to a very similar long-term result.\n\n### Rules of Origin: Subtle but Important Differences\n\nBoth agreements adopt the European model of rules of origin, but with nuances that can have a significant impact on certain industries.\n\n- **Cumulation**: Both agreements provide for bilateral cumulation (EU materials can be considered as originating in MERCOSUR and vice versa; the same for EFTA). However, there is **no diagonal cumulation** provided for between the two agreements. This means that a product manufactured in Switzerland (EFTA) with German components (EU) cannot be considered as originating in EFTA to be exported to Brazil under the EFTA-MERCOSUR agreement. This absence of a \"bridge\" between the two agreements is a missed opportunity to more deeply integrate pan-European value chains.\n\n- **Product-Specific Rules (PSRs)**: Although largely similar, there are differences. For example, in the chemical sector, the EFTA-MERCOSUR agreement could offer slightly more flexible rules on the value of non-originating inputs allowed. Companies must imperatively compare the technical annexes of the two agreements for the HS code of their product.\n\n**Verdict**: The absence of diagonal cumulation is a weakness of both agreements. Companies with integrated supply chains between the EU and EFTA will need to be particularly vigilant.\n\n### Services and Public Procurement: The Advantage to the EU\n\nIt is in the areas of services and access to public procurement that the EU-MERCOSUR agreement appears to be more in-depth.\n\n- **Services**: The EU-MERCOSUR agreement guarantees market access for EU service companies (telecommunications, financial services, maritime transport) that is, in some cases, better than what MERCOSUR grants under the WTO. The agreement with EFTA is also ambitious, but the EU's economic and regulatory weight has allowed it to obtain more detailed commitments, particularly on the mutual recognition of professional qualifications.\n\n- **Public Procurement**: The EU-MERCOSUR agreement opens up MERCOSUR's public procurement markets to competition from European companies for the first time, and at the federal level. This is a major step forward. The EFTA-MERCOSUR agreement also contains a chapter on public procurement, but its scope is generally considered to be less extensive than that of the agreement with the EU.\n\n**Verdict**: The EU, as a larger integrated bloc with a single market for services, has obtained a more comprehensive agreement on these chapters. This is a clear advantage for European service companies and large construction groups.\n\n### Investment and Sustainable Development: Two Philosophies\n\n- **Investment Protection**: The EU-MERCOSUR agreement has separated the trade and investment components. Investment protection and investor-state dispute settlement (ISDS) are the subject of a separate agreement, still under negotiation. EFTA, on the other hand, has included a chapter on investment directly in the free trade agreement, but without an ISDS mechanism, relying on existing bilateral investment treaties.\n\n- **Sustainable Development**: Both agreements contain a chapter on trade and sustainable development, with commitments on ILO labor standards and multilateral environmental agreements, including the Paris Agreement. However, political and citizen pressure in Europe has made the chapter of the EU-MERCOSUR agreement much more politically sensitive. The provisions, although similar on paper, are examined with much greater acuity in the case of the agreement with the EU.\n\n**Verdict**: Two different approaches that reflect the political cultures of the two European blocs. The EU's caution on ISDS contrasts with EFTA's more traditional approach.\n\n### Which Agreement is Better, and for Whom?\n\nThere is no single answer. The attractiveness of each agreement depends on the sector and the company's strategy.\n\n| Sector | EFTA-MERCOSUR Advantage | EU-MERCOSUR Advantage | Comment |\n| :--- | :--- | :--- | :--- |\n| **Pharmaceuticals** | **X** | | Switzerland and Norway are world leaders. The agreement gives them a major competitive advantage. |\n| **Precision Machinery** | **X** | | The Swiss machine tool industry will benefit greatly from rapid, duty-free access. |\n| **Fish and Seafood** | **X** | | Norway and Iceland, major fishing nations, get better access for their products. |\n| **Automotive** | | **X** | The European automotive industry, especially German, is the big winner of the agreement with the EU. |\n| **Services (Finance, Telecoms)** | | **X** | The EU's single market for services has made it possible to obtain deeper commitments. |\n| **Wines and Spirits** | | **X** | The agreement with the EU offers significant protection for geographical indications (more than 350 GIs protected). |\n| **Dairy Products** | (similar) | (similar) | Both agreements are very protective and only open the MERCOSUR market via limited quotas. |\n\n### Conclusion: Complementary Rather Than Competing\n\nRather than seeing the two agreements as competitors, it is more accurate to consider them as complementary. They both anchor MERCOSUR in a strategic partnership with Europe. For MERCOSUR companies, they open up access to almost the entire European market. For European companies, they create a set of opportunities, but require a fine-grained analysis to determine the best entry point. A company might, for example, find it more advantageous to serve the MERCOSUR market from a subsidiary in Switzerland for a specific chemical product, but from Germany for a car. The ratification and entry into force of the two agreements would create a complex but opportunity-rich transatlantic economic space, provided one knows how to decipher its subtleties.