Mercosur-EU agreement could begin in May, boosting Brazil’s trade

If everything goes as planned, the Mercosur-European Union agreement will begin to take effect in May, with about 5,000 products entering the European market with zero tariffs. The main challenge now is for the private sector to switch gears and take ownership of this potential, Foreign Trade Secretary Tatiana Prazeres told Valor. “The agreement contains a series of opportunities, but they must now be turned into business.”

On the 27th, Vice President Geraldo Alckmin, is expected to take part, alongside the president of the National Confederation of Industry (CNI), Ricardo Alban, in an event in São Paulo that will use workshops to show different sectors of the economy what changes for each of them.

In the opposite direction, the agreement will also enable goods from Europe to enter Mercosur with lower tariffs. However, the opening will be very gradual, Prazeres noted. Immediately, tariffs will be set at zero for 14.5% of products currently imported from Europe. Still, 96% of these are already subject to a zero-base tariff.

After twenty years of negotiations, an initial version of the agreement was finalized in 2019 but was reopened in 2023. One of the most sensitive issues was the potential of imposing export taxes on critical minerals. Another point highlighted by the secretary is a rebalancing clause within the agreement.

Talking about the war in the Middle East, Prazeres said that the main factor in its impact is how long the conflict lasts and what people focus on: oil prices.

Even with the end of the tariff hike imposed by the United States, technical dialogue with Washington continues, she said. One outstanding issue is the Section 301 investigation, which could impose restrictions on bilateral trade. Below are the main excerpts of the interview.

What does the Mercosur-European Union agreement change for Brazil?

Tatiana Prazeres: This is the most important trade agreement in Mercosur’s history and the most relevant for Brazil since the bloc’s creation in 1991. If we add Mercosur-Singapore, Mercosur-EFTA [Switzerland, Norway, Iceland, and Liechtenstein], and Mercosur-European Union, the share of Brazilian trade covered by trade agreements rises from 12% to 31%. It is an unprecedented expansion.

 What are the impacts on the Brazilian economy?

Prazeres: Our studies show GDP growth, export growth, import growth, wage growth, a drop in consumer prices, and an increase in investment. They also show that Brazil’s exports to other destinations increase as Brazilian industry gains access to more competitive inputs.

When will we start to see the agreement’s effects in practice?

Prazeres: It is crucial that Brazil completes its internal ratification procedures in March and informs the Europeans of this decision in the same month. From then on, if the European side also notifies Mercosur in March, the agreement will take effect as early as May.

And from that point forward, we begin exporting products with zero tariffs.

Prazeres: Yes. Of the approximately 10,000 goods negotiated, 5,000 will have zero tariffs on Brazilian exports once the agreement enters into force.

Some Brazilian sectors are concerned about competition and are asking for some form of protection. Does that make sense?

Prazeres: I believe it’s natural for concerns to emerge in some sectors, but the overall response from the private sector has been overwhelmingly positive. The timeline for removing import duties is long. When the agreement takes effect, the immediate tariff elimination will only cover 14.5% of Brazilian imports from the European Union, and 96% of those imports already have zero tariffs. The impact will be gradual and planned, allowing sectors to slowly adapt to the new trade environment.

The European Union has taken the agreement to court. Doesn’t that prevent it from entering into force?

Prazeres: The presidency of the European Commission has clearly signaled its willingness to put the agreement into provisional application. This is a prerogative of the Commission under the rules. Therefore, until the Court of Justice of the European Union rules on the agreement’s legal compatibility and the European Parliament pronounces itself on the merits, the agreement may be applied provisionally.

 And if the ruling is negative?

Prazeres: Our assessment is that there is no incompatibility, and we believe the court will reach the same conclusion. Other agreements currently in force with the European Union contain provisions that were the subject of this consultation.

How are critical minerals treated in the agreement?

Prazeres: The package we inherited in 2019 provided that we could not impose any restrictions on exports. That was one of the points the Brazilian government reopened, based on a new view of trade and industrial development. Now, if it wishes, Brazil may restrict exports of critical minerals to the European Union through an export tax.

Will that tax be imposed?

Prazeres: It does not mean we intend to use it, but we reserved policy space. At the same time, we established a preference for the European Union. None of this prevents Brazil and the European Union—and this is not a Mercosur-European Union matter—from discussing understandings regarding critical minerals, such as investment, research, and development.

How will the agreement’s rebalancing mechanism work?

Prazeres: We negotiated this agreement with the Europeans in a context in which the EUDR, the Deforestation Regulation, was advancing, in which the Europeans were working to implement a carbon border tax, and in which they were defining legislation in the areas of ESG and corporate social responsibility. Each of these measures may affect the trade concessions granted under the agreement. So it was necessary to establish a forum in which a third party could determine whether a concession had been undermined, by how much, and how compensation should be provided.

What is the next step in the formalization of the agreement?

Prazeres: There will be a formal session of the National Congress on the 17th to issue the legislative decree that marks the progress of the process. After that comes the presidential decree.

How will coordination with the private sector work?

Prazeres: As the internalization process of the agreement nears completion—and its entry into force—it is crucial for the private sector to take ownership of the agreement, see themselves in it, and identify the opportunities related to exports to the European Union, as well as imports of technology and inputs, forming partnerships, attracting investments, and participating in value chains. The agreement offers a range of opportunities, but they must now be translated into business.

What kind of support will be provided?

Prazeres: The government is organizing a series of initiatives to present the agreement and explain its provisions in technical terms, helping with this understanding—this shift, I would say, from negotiation to implementation. We should hold an event with the vice president and the president of the CNI in São Paulo on March 27, where we will conduct technical workshops on topics such as the tariff-reduction schedule and the rules of origin established in the agreement, so sectors can understand how each will change. Apex, which handles trade promotion, is working on this.

With the agreement, Brazil gains a new status in trade integration at a time when protectionism is strengthening. Did we arrive late to the party?

Prazeres: The international scenario is indeed complex. At the same time that a series of restrictive trade measures is proliferating, it is also a moment when countries seek stability and legal certainty. It is also a time when important international agreements are being signed, such as the one between India and the European Union, just to cite one example. Perhaps concerns about barriers encourage a parallel movement toward seeking reliable partners and diversifying markets.

After the U.S. Supreme Court struck down the tariff hike, does the meeting between President Lula and U.S. President Donald Trump still need to happen?

Prazeres: On that, I will leave the political figures to make the assessment. But from a trade perspective, there was already a significant drop in our exports to the United States in the first two months of the year. The tariff hike ended on March 1. Products that had been subject to a 50% tariff are now tariff-free, so sectors such as timber, furniture, and footwear are preparing for a recovery in sales.

Does the technical-level dialogue with the United States continue?

Prazeres: Yes. The Brazilian government remains interested in negotiating with the United States, and we are closely monitoring developments related to Section 301. The situation with the United States today is positive, but the landscape is very fluid, and our goal is to increase dialogue to encourage more trade and investment. Our exports to the United States are below 10%. It is not in our interest for our participation in the world’s largest economy to be so small.

How does the war in the Middle East impact us?

Prazeres: The situation remains very fluid. No one knows how long the conflict will last, and time is a key factor in assessing the impacts. Analysts say that 40 days is a crucial threshold because inventories could be depleted, and the effects of the conflict could intensify significantly. Regarding global impacts, the oil shock is the primary concern, but there is also a logistics crisis affecting freight, insurance, and maritime fuel. This has consequences for global inflation.

And the impact on Brazil?

Prazeres: Our focus is on the impact on fuel prices, followed by exchange rates. It is natural that in a crisis like this, the dollar appreciates, but the outcome for the Brazilian currency remains uncertain. There is also discussion about inflation and interest rates. Additionally, the fertilizer component is linked to our foreign trade. We have been examining chicken, corn, and sugar, given the importance of the Middle Eastern market.

As a net exporter of oil, could Brazil benefit from the conflict?

Prazeres: Oil was the main export item in both 2025 and 2024, so higher prices contribute, on the one hand, to export revenues. But they also make the petroleum products that Brazil imports more expensive. We export more crude oil than we import products, so that is another factor we need to observe. However, the overall balance of the situation is definitely not positive.

Source: Valor International

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