After 25 years of negotiations, the European Union and the Southern Common Market, commonly known as Mercosur and comprising Brazil, Argentina, Uruguay, and Paraguay, signed a free trade and cooperation agreement. If ratified, it will create a market of nearly 800 million citizens, reduce consumer prices, and boost investment. This landmark deal also signals that two like-minded continents can still champion rules-based trade liberalization amid rising protectionism, de-globalization, and geopolitical fragmentation.
Q1: What has been agreed?
A1: Negotiations between the European Union and Mercosur—two of the world’s largest trade blocs—began in 1999. In 2019, the European Commission reached a preliminary agreement with Mercosur countries. At its core, the deal reduced tariffs on manufactured goods in Mercosur countries while liberalizing agricultural trade in the European Union—a sector long protected by European policies.
However, the agreement stalled for years due to opposition from France and other EU countries, who demanded environmental guarantees from Brazil and expressed concerns over the potential losses to European farmers. Simultaneously, the protectionist governments of Brazil and Argentina did not prioritize ratification.
On December 6, 2024, a new agreement was signed in Montevideo. This landmark deal is the largest ever concluded by the EU and the only one Mercosur has with a major trading bloc—which means that European products will enter its market under much better conditions than U.S. or Japanese products. It eliminates tariffs on over 90 percent of bilateral trade, saving European exporters EUR 4 billion annually while granting South American products preferential access to European markets, particularly for agricultural goods where Mercosur holds a strong comparative advantage.
Until now, trade relations between the two regions have underperformed relative to their potential, especially in merchandise trade (and less so in investment). The agreement is set to change this dynamic, opening Mercosur’s highly protected market to European industrial goods. For instance, previous tariffs on automobiles, textiles, and machinery ranged from 14 percent to 35 percent. The agreement also ensures the protection of 357 European geographical indicators, boosting exports of specialty agricultural products like wines and cheeses.
Additionally, European companies will gain better access to Mercosur’s public procurement markets, high-value service sectors, and critical raw materials like lithium. In return, the European Union will reduce tariffs on agricultural products and other goods and contribute EUR 1.8 billion through the Global Gateway initiative to support Mercosur’s green and digital transition.
Beyond the economic aspects, the deal includes commitments to high labor standards and reinforces adherence to the Paris Climate Agreement. Measures to prevent deforestation—a key demand of the European Union—are also part of the agreement.
Overall, the deal seeks to increase trade and investment by creating a predictable economic environment, reducing tariff and non-tariff barriers, and fostering growth and prosperity, particularly for small and medium-sized enterprises.
Q2: Why was the agreement possible?
A2: After 25 years of stalled negotiations, many doubted the prospects of an EU–Mercosur partnership. Resistance from European farmers, especially in France, Poland, and Ireland, played a major role. These groups feared fierce competition from more competitive Latin American agricultural producers. Proponents, including Spain, Portugal, Germany, and some Nordic countries, struggled to counter this opposition.
However, three elements have made the agreement possible. First, the rise of protectionism, exemplified by Donald Trump’s reelection, pushed the European Union and Mercosur to act. Both blocs, as advocates of an open, rules-based economic order, saw the agreement as a way to reaffirm their commitment to rules-based free trade. Second, both Brazil’s President Lula da Silva and Argentina’s President Javier Milei have strongly supported the agreement, while Uruguay has always been in favor of a small export-oriented economy. And third, there were important strategic considerations on the EU side, whose leaders were concerned about the rapid expansion of Chinese trade and investment in Latin America. Moreover, the new European Commission, which took office on December 1, wanted to start its mandate by delivering quick results.
Q3: What are the next steps?
A3: The ratification process poses significant challenges, particularly on the European side. In Mercosur, the agreement must be approved by the national parliaments, but even if some countries fail to ratify it, the deal will still apply to others that do.
In the European Union, however, the process is more complex. After the agreement is translated into all EU member state languages, it will go to the European Council for ratification, where EU countries are represented by their trade ministers. A minimum of four states representing at least 35 percent of the EU population could block the agreement. France, Austria, and Poland have stated that they oppose the agreement, but they would need another large country to reject the agreement at the European Council. Italy could join them, but it is also possible that in the next months, the guarantees that the European Commission is offering European farmers would be enough to convince the more skeptical countries.
If the agreement is not blocked, it then must be ratified by the European Parliament. This approval only applies to the ratification of those provisions that fall within the exclusive competence of the European Parliament, mainly those related to trade liberalization, and do not require ratification by national parliaments. The rest, those provisions involving aspects of jurisdiction and sovereignty, such as dispute settlement mechanisms or investment protection, must be unanimously approved by national parliaments to enter into force. The provisions of the agreement related to political dialogue and cooperation also require unanimous approval by national parliaments.
Therefore, even if the European ratification process runs smoothly, the tariff reductions will take some months to be applied, and the rest of the elements could take more than a year.
But in any case, the signing of this partnership agreement demonstrates the strong interest in trade liberalization among countries that favor maintaining an open economic order based on stable and predictable rules in the context of threats to cooperation and potential trade wars.
Federico Steinberg is visiting fellow with the Europe, Russia, and Eurasia Program at the Center for Strategic and International Studies in Washington, D.C.
