The tariff reduction process is structured through Staging Categories, which determine the number of annual stages until free trade is achieved.

Although the agreement establishes a common framework for the bloc, tariff de-escalation is individualized for each member country according to its initial prime rate, although they all follow the same temporal rhythm defined by tariff reduction category. This variation by country is so explicit that the agreement includes detailed tables for Argentina, Brazil, Paraguay and Uruguay, each with its own reduction process.

The reduction schedule for the applicable general categories is detailed below. At the end we will ground it in a concrete example:

_
General Tariff Elimination Schedule

• Category 0: Tariffs are eliminated immediately from the date of entry into force of the agreement. Includes Stone, Gypsum, Cement and Ceramics; Wood, Cork and Articles thereof; Metals and Articles thereof (Casting and Piping Products, Metal Structures, Hand Tools).

• Category 4: Elimination is carried out in 5 equal annual stages. The product will be duty free on January 1 of “year 4”.
• Category 7: Reduced in 8 equal annual stages.
• Category 8: The relief occurs in 9 stages.
• Category 10: This is one of the most common categories for sensitive products; it is eliminated in 11 annual stages.
• Category 15: Products in this category are reduced in 16 equal annual stages.
• Category E: These products are excluded from tariff preferences and will maintain the current base tariff. This category includes meats, dairy products, cereals, etc.

_
Additional rules and conditions

• Basis of calculation: The reduction is applied on a prime rate of duty specified for each product in Appendix 2-A-2 of Mercosur.
• Classification: To identify which category corresponds to each product, Mercosur uses its Common Nomenclature (NCM 2012).
• Definition of “Years”: “Year 0″ is from the effective date to December 31 of the same calendar year. Year 1” begins on the following January 1, date on which the second reduction will be applied.
• Standstill clause: Upon entry into force, Mercosur countries are prohibited from creating new tariffs or increasing existing tariffs above the prime rates set in the agreement.

• Relative preference margin: If a Mercosur country decides to reduce its general tariff (Most Favored Nation) below the prime rate, the tariff applied to the European Union must be recalculated to always maintain the competitive advantage originally established.

• Goods re-imported after repair: Mercosur countries will not apply tariffs to goods returning to their territory after having been temporarily exported to Europe for repair, regardless of the initial origin of the good.

_
Tariffs for complex industrial products

For most complex industrial products, such as electrical equipment (Chapter 85) and machinery (Chapter 84), Mercosur applies extended relief periods within its transition period.

According to the established framework, the majority of these goods fall into the following categories:

• Category 10: This is the predominant category for a large part of industrial machinery and electrical equipment.
• Category 15: Applies to those industrial goods that Mercosur considers to be of greater sensitivity.
• Category 0: Only a minor part of these sectors, generally machinery that does not have local production in Mercosur countries or specific technologies.

_
Example of application

To understand what tariff de-escalation will look like, let’s look at a specific example such as 84223010 (machinery for bottling, capping or labeling bottles, cans or similar containers).

We must apply the general rules of relief that Mercosur has established in the agreement for its industrial goods, indicated in Appendix 2-A-2 of Annex 2A.

1. Base Rates by country

The agreement establishes that the reductions are applied on a specific prime rate for each Mercosur signatory.

• Argentina and Brazil (14%): These countries consider the product as “sensitive” and apply their current common external tariff as a starting point for the cuts.
• Paraguay and Uruguay (0%): By having a prime rate of zero, this means that for these two countries the product will enter duty-free from the first day the agreement is in force for European exports, regardless of the duty relief category.

_
2. Category of relief

Along with the prime rates, the appendix indicates that this product has Category 15, i.e. tariffs for this product will be eliminated in 16 equal annual stages. The goal is for the product to be totally duty-free on January 1, Year 15.

_
3. Reduction schedule

For Argentina and Brazil, the 14% tariff will be de-escalated according to the progress rates of the tariff elimination schedule:

• Year 0 (Entry into force): A 6.3% reduction on the prime rate is applied. The tariff to be paid will be approximately 13.1%.
• Year 1 (Next January 1): Cumulative reduction reaches 12.5%. Tariff drops to 12.25%.
• Year 7 (Midpoint): A 50% reduction is achieved. The tariff in Argentina and Brazil will be 7%.
• Year 15: 100% of the reduction is completed and the tariff reaches 0%.