Companies are not taking advantage of the Mercosur-Israel FTA

* Cynthia Kramer

In December 2007 Israel signed a Free Trade Agreement (FTA) with the Mercosur countries (Argentina, Brazil, Paraguay and Uruguay). It was the first agreement of this type signed by Mercosur. This FTA entered into force in April 2010 and, among other rights and obligations,
established a list of products which import duties would be reduced to zero immediately or within 4,8 or 10 years. This means that, by the end of 2020, all the products listed in the respective schedule of concessions will be exported from Mercosur to Israel, or from Israel to Mercosur, free of charges.
In order to benefit from this tax advantage, the product shall be originated in Mercosur or in Israel, and the company shall request to its government the issuance of a Certificate of Origin which shall accompany the product for purposes of tariff preference upon clearance before the importing
country customs authorities.

 

Moreover, the FTA determines the equality in conditions for products produced internally andproducts imported from the territory of the signatory party (Israel or Mercosur). This is called the national treatment principle, which was first agreed on the General Agreement on Tariffs and Trade
(GATT) back in 1947. The practical effect of this obligation is the possibility of requiring equal treatment/competition for imported products from Mercosur or Israel. The FTA brings other provisions on safeguards, trade remedies, sanitary and phytosanitary measures, but in general, they all refer to the obligations set by the World Trade Organization (WTO) covered agreements.

 

Despite the efforts of the governments to have this FTA concluded, Mercosur statistics 1 show that the FTA did not substantially contribute to the increase in trade flow between Mercosur and Israel, meaning that the companies are not taking advantage of the tariff preferences and other
preferential treatment provided thereat.

 

In 2008, when the FTA was not yet in force, trade was as big as after 2010 when the FTA was in force. The table below illustrates how the trade flow progressed since 2007 (first year when official statistics are available):

 

It is important to note that, from 2007 to 2015, Israel used to export more to

Mercosur than Mercosur used to export to Israel (superavit of US$ 190,757,574 Free on Board – FOB in 2007).
However, when analyzing the data for 2016, we note that the situation changed: in 2016 Mercosur exported more to Israel than Israel exported to Mercosur (deficit of US$ 71,849,414), as per the table below:


Some may point out to the effects of currency on the 2016 numbers, but it is time for the Israeli companies to look more closely to the market that Mercosur represents to its products, and try to take advantage of the preferences granted by the FTA in order to increase the trade flow between
Israel and Mercosur. The Mercosur companies, as well, should not disregard the opportunities that Israel represents to their businesses, and should also use the FTA to increment trade, and increase profits.

* Cynthia Kramer is a Brazilian lawyer and trade consultant with more than 15 years of experience, PHd in International Trade by University of São Paulo. She worked for the Brazilian government at the World Trade Organization in Geneva, Coordination of Litigation at the Ministry of Foreign Affairsin Brasilia, and Embassy in Washington DC/USA.

E-mail Address: ckramer@matchcomex.com.br

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