EFTA-Mercosur: another low blow to climate, peoples’ rights and food sovereignty

A first ever bilateral trade deal between the European Free Trade Association (Switzerland, Liechtenstein, Norway and Iceland) and Mercosur (Argentina, Brazil, Paraguay and Uruguay) was signed in August 2019. While the agreement has not yet been published nor ratified, enough information has already been released by various governments to assess some of its potential impacts.¹

The EFTA pact with Mercosur was negotiated to keep pace with the European Union-Mercosur trade deal. One of the major controversies surrounding the EU agreement was, and still is, its impacts on climate change. Studies say it will lead to more greenhouse gas emissions, particularly through increased exports of meat, soybeans, maize and ethanol from Brazil and Argentina as a result of new quotas, much of this from large industrial farms often associated with deforestation and land grabbing.²

The EFTA deal with Mercosur, along with a similar deal with Indonesia that barely passed a recent referendum in Switzerland, is being showcased by the Europeans as a “new era” trade pact shaped by concerns about climate change, human rights and environmental issues. But it is not much different from the EU deal when it comes to emissions from food and agriculture.

For sure, the EFTA-Mercosur pact is a much smaller trade agreement. But if it is implemented and the quotas are filled, we calculate that it will increase greenhouse gas emissions from farm trade by at least 75,500 tonnes per year, looking at the ten most climate-impacting products. More than 70% of those new emissions will come from Mercosur exports to EFTA. But 15% will come from EFTA’s cheese exports alone.

This report presents those climate impacts, followed by several broader concerns.

The EFTA-Mercosur trade deal was drawn up in parallel to the EU deal, but it is hardly talked about. For the EFTA bloc, with just 13.6 million people, it is one of their biggest free trade agreements ever. They expect to benefit primarily from its liberalisation of services, including shipping. For the Mercosur bloc, with its 284 million people, it’s a small deal. They expect it to lead to an increase in investment from EFTA-based companies as well as the opening of the bloc’s well-protected agricultural markets. Agriculture currently accounts for 12% of Mercosur’s exports to the EFTA states.³

In terms of farm trade, the deal is expected to sustain or boost Mercosur exports of beef, poultry and animal feeds (soybeans, maize, wheat and rice). But the quantities traded are very small, so it’s possible that the main impact will be in poultry (exported to Switzerland), beef, pork and lamb (exported to Norway) for which new quotas have been offered. For EFTA, the deal is expected to boost their own exports of cheese (from Norway and Switzerland) and fish (from Norway and Iceland), with only cheese subject to a binding quota commitment.

The EFTA-Mercosur deal contains quotas for a range of agricultural products, of which 10 generate important greenhouse gas emissions. There are no quotas for fish and fertiliser trade, which also have an important climate footprint, so any trade increases caused by the deal for these items fall outside our calculations. A summary of the results are in Table 1. The methodology is explained in Annex 1, while the full calculations are available in Annex 2. The emissions figures are annual, as are the underlying quotas.

Our calculations show that after beef and maize exports from Latin America, cheese exports from Switzerland and Norway represent the next biggest jump in climate emissions from the farm sector. If you take all the farm quotas and assume they get filled, Mercosur’s emissions would go up by 13% and the EFTA states’ by 1400%.⁴ While the tonnage is not massive, these are predictable outcomes despite all eight governments’ commitments to the Paris climate agreement. It’s clear that one cannot increase trade and drive down emissions at the same time. Offsetting doesn’t count, as is increasingly being recognised.⁵

For fisheries, there are no quotas that we can measure, but tariff reductions will have an important impact. Currently, EFTA seafood producers have little market share in Mercosur: 1% in both Argentina and Uruguay, and 10% in Brazil.⁶ Norway, the world’s fourth largest seafood producer, will be able to export salmon duty-free as a result of the deal and possibly disrupt the Brazilian market. A full 60% of the fish that Brazilians consume is imported. Salmon represents 24% of those imports, with Chile being the primary supplier.⁷ Norwegian salmon is subject to 10% duties which will disappear if the agreement goes into force, potentially displacing Chilean competitors. This would be a key win for the Norwegian industry, especially Mowi, the world’s top salmon producer which commands 20% of the world market.⁸

Mowi is also the top generator of fish loss and other associated costs of salmon farming.⁹ Greenhouse gas emissions are part of those costs. According to one analysis, the climate footprint of Norwegian fisheries and aquaculture is estimated at 9.3 million tonnes of CO₂-equivalent per year.¹⁰ Three-quarters of that comes from the production of feed (fishmeal and oil), which itself is often linked to overfishing by groups like Mowi in waters of the global South.¹¹ Mowi has committed to reduce its emissions, mainly through feed substitutes, by 10%. This is clearly insufficient, especially given the current market growth of the salmon industry and the kind of acceleration expected from EFTA’s new trade deals.

The Mercosur deal is touted as the first EFTA trade agreement that has a specific provision on “trade and sustainable agriculture and food systems” in which “the Parties agree to promote sustainable agriculture and associated trade and conduct a dialogue to address related issues.” It also reportedly has a provision on trade and climate change committing the parties to “effectively implement the UNFCCC and the Paris Agreement”.¹² But there is no evidence that the agreement has tools for either provision to be enforced.

The EFTA-Mercosur trade deal carries a host of other risks connected to critical issues in our food systems.

The government of Norway argues that it has gone to important lengths to protect its farmers and its model of agriculture under the Mercosur agreement. It claims to have done this mainly by carving out exclusions for specific products it produces domestically, like grass-fed beef, to prevent any competitive imports of similar products from Mercosur. The same applies to fruits, for which it will allow imports only during certain parts of the year when domestic production is not available. Nonetheless, the Norwegian Agriculture Cooperatives union expects competition from agricultural imports from Mercosur should the trade deal come into effect.¹³

In the case of Switzerland, the constitution requires that the country’s trade relations contribute to “the sustainable development of agriculture in Switzerland and abroad”.¹⁴ However, sustainable development and sustainable agriculture are not synonymous. The Swiss federation of milk producers notes that this trade deal opens up Switzerland to imports of butter from Mercosur, with a quota of 100 tonnes per year. This is a first for Switzerland, and the farmers say it will translate into domestic market losses.¹⁵ It’s hard to understand why Switzerland committed to import not only butter but milk powder, potatoes, onions and honey from across the Atlantic when it produces all of these in abundance, and how that contributes to food sovereignty.

Regarding fertilisers, a significant source of greenhouse gas emissions, Mercosur is an important market for Norway, which is home to Yara, one of the world's top fertiliser companies.²¹ Brazil is currently the third largest importer of Norwegian fertilisers, while Argentina comes in 10th place.²² Together with Paraguay, the three Mercosur countries account for 10% of Norway’s fertiliser exports in value in 2019. These exports mainly fuel large-scale agribusiness operations in the Mercosur countries, a sector gravely implicated in land grabs, human rights abuses and deforestation, not to mention the climate costs. What is worrisome is that Norway currently represents just 2% of Mercosur’s fertiliser imports.²³ So the possibility that this trade deal will boost the bloc’s imports from Norway as a result of lower tariffs is real.²⁴ And Yara has a significant presence in Brazil to take advantage of this.²⁵ It is important to note that Yara, too, despite being one-third owned by the government of Norway, has a history of using corruption to gain market share. In the 2010s, its former CEO and three other senior executives were investigated for bribing the governments of India and Libya, with one of them being sentenced for the crime. The company has also admitted to paying bribes in Russia.²⁶

The Swiss civil society coalition Alliance Sud have laid out a methodology for conducting a human rights impact assessment of the EFTA-Mercosur agreement, especially as regards Indigenous peoples.²⁷ They argue that such assessments should be done both before and after the deal’s implementation, and that they should be grounded in direct consultations with affected communities. In the case of Mercosur, the concern is that with agriculture being a key export sector, trade liberalisation may lead to further deforestation and dispossession of Indigenous communities to expand industrial mega-farms. But the Swiss government has so far not been listening.²⁸

The agreement is said to contain no investor-state dispute settlement mechanism, but it does set rules on “investment facilitation” including institutional dialogue between states and the private sector of both parties. This is the first time Mercosur members agree to such rules in a trade agreement with partners outside the region. Their expectation is that it supposedly will incentivise foreign direct investment from EFTA-based companies, but historically there is no causal relation.²⁹

The EFTA states are moving to enact a range of new trade deals with high stakes involved. For corporations, these deals may be seen as important levers of growth in a time of an unprecedented global public health crisis. For the rest of us, the likely impacts in terms of climate, human rights and food sovereignty are clear and visible like never before. Many social movements hold that it is not enough to incorporate a few paragraphs pledging allegiance to the Paris climate accord or unenforceable concepts of sustainability to secure acceptance of this agreement. The real needs of ensuring food sovereignty, respect for human and Indigenous peoples’ rights and drastically reducing our emissions require a different approach. More global trade – no matter how green – is simply not compatible with these imperatives.

Just as importantly, the time of one-sidedly imposing sustainability criteria on the global South, as EFTA tries to do, is past. Economic corruption in the form of tax evasion, fraud, money laundering and bribery is an equally critical problem, especially within the large corporations aiming to benefit from these deals. And yet it goes unaddressed.

The climate impacts of the EFTA-Mercosur trade deal, if it goes ahead, will be significant, even judging by just a few industrially produced farm commodities. For this reason alone, the deal must be scrapped.

In 2020, a study was done for the Swiss government on the climate impacts of the EFTA-Mercosur agreement.³⁰ It estimates that for food and agriculture as a whole, the greenhouse gas emissions as a result of the deal will go up by 200,000 tonnes in the Mercosur area in the year 2040, while there will be almost no increase in Switzerland.³¹ Most of the change on Mercosur’s side, the study says, will be the result of increased livestock production, which will lead to increased deforestation (at a “muted” level) and increased land prices.³²

This study was based on computable general equilibrium modelling. While CGE is often used to assess the economic impacts of trade agreements, it is highly criticised for relying on unrealistic assumptions like perfect competition, balanced budgets and full employment. For agriculture, the study looks at the sector as a whole, and does not indicate how it calculates emissions for specific products like cheese. In fact, the authors themselves say that if they were able to look at specific farm products, the estimated changes in greenhouse gas emissions would be “more pronounced”.³³

We took a different route: we used the same methodology that was applied to assess the climate impacts of the EU-Mercosur trade agreement, which was subsequently picked up and used by numerous European government studies. We looked at the quotas agreed to under the deal. Quotas are commitments entered into by governments to allow a specific amount of something to be imported at a reduced or zero tariff rate. They may or may not be filled. But in and of themselves, they represent an intent and a legal responsibility. We measured the trade impact of the farm quotas in this deal compared to current trade volumes. We then assessed the climate impact of the change in trade using the highly reputed GLEAM model of the UN’s Food and Agriculture Organisation.

The figure of 75,500 tonnes of CO2-eq per year that we arrived at is less than the 200,000 tonnes estimated by the Swiss government study for the year 2040. How to explain the difference, apart from the fact that we measured different things with different time frames? We inquired but didn’t get clarity on how the Swiss came to their figure. We do know that the agricultural sector in Brazil is the largest source of greenhouse gas emissions in the Mercosur region, mostly in the form of methane from cows. And the Swiss study did find an increase in methane emissions, which they themselves attribute to an expansion of Brazil's livestock sector, as a result of the deal. Since the beef quotas will not lead to a significant increase in beef trade with EFTA – only Norway will double its imports if its quota is filled – it's possible that the Swiss model “predicts” that the agreement will lead to a few points of global GDP growth which results in increased income, and that this leads to higher demand for Brazilian beef and pork in general. But that's highly speculative.