Mercosur, EU Announce Free Trade Agreement After 25-Year Wait

The free trade agreement between Mercosur and the European Union was officially announced on Friday (6), following the Mercosur summit in Montevideo, Uruguay.

The agreement will only be signed after the texts undergo legal review and are translated into the official languages of the involved countries. Therefore, the announcement represents the end of negotiations between the two blocs.

Negotiations began in 1999 but were halted after an initial deal was reached in 2019. Talks resumed in recent months at the request of the European Commission, which oversees trade policy for the entire EU.

Despite the 2019 agreement, progress had stalled for five years due to European concerns, particularly from countries like France. French authorities have opposed opening their markets to Mercosur competitors, fearing it would harm local industries (more information below).

European Commission President Ursula von der Leyen called the deal a “win for Europe” in a press conference.

“This is a win-win pact that will bring significant benefits to consumers and businesses on both sides. We are focused on fairness and mutual benefit. We have listened to the concerns of our farmers and acted accordingly. This agreement includes robust safeguards to protect their means of subsistence,” von der Leyen stated.

She emphasized that the EU’s health and food standards would remain “untouched” and that Mercosur exporters would have to comply with these standards “rigorously.”

“This agreement will save European companies €4 billion annually in export duties,” von der Leyen added.

What Does the Mercosur-EU Agreement Entail?

The trade agreement aims to reduce or eliminate import and export tariffs between the two blocs. It also encompasses provisions on:

• Political cooperation;
• Environmental cooperation;
• Free trade;
• Harmonization of sanitary and phytosanitary standards;
• Protection of intellectual property rights; and
• Access to government procurement opportunities.

Negotiations began in 1999, and a preliminary agreement was signed in 2019. Since then, the text has undergone reviews and sought to address additional demands, particularly from the EU, due to pressure from member-state farmers.

While the agreement is not limited to agricultural products, agriculture has been a focal point of disputes. European producers, particularly in France, fear the deal will make South American food products cheaper in the EU, reducing the competitiveness of European goods.

Even with the announcement, the agreement still needs approval from the legislatures of Mercosur countries, the European Council (comprising 27 heads of state or government), and the European Parliament (720 members).

Why Did It Take So Long?

Many contentious points were resolved in 2019 when the two blocs reached a preliminary agreement. However, the text required validation through parliamentary ratifications in all participating countries, which stalled progress.

European farmers, particularly the French, have opposed the deal. France, one of the EU’s largest agricultural producers, stands to face significant challenges due to South America’s robust grain and food production capabilities.

Farmers argue that the agreement would create unfair competition, claiming that Mercosur’s agricultural practices do not adhere to the same environmental, social, and sanitary standards as those in Europe.

Agriculture holds significant political weight in France, influencing the positions of its leaders. Paulo Feldmann, an economics professor at the University of São Paulo (USP), recently explained to g1 that this influence has been instrumental in shaping France’s opposition.

The agreement has also sparked debate on the South American side. While it could benefit Mercosur nations, experts warn that competition from Europe in sectors like industry, chemicals, and automotive manufacturing could pose challenges.

The governments of Spain and Germany support the agreement, but French President Emmanuel Macron opposes it and has expressed concerns about its current form.

“We will tirelessly defend our agricultural sovereignty,” the French presidency recently stated on X.

In December 2023, during COP28 discussions, Macron called the proposal outdated and “poorly patched together,” adding that it contradicted Brazil’s environmental policies and ambitions.

“This is why I oppose the Mercosur-EU agreement—it’s completely contradictory to what [President Lula] is doing in Brazil and what we are doing,” Macron said. “It fails to account for biodiversity and climate considerations. It’s an outdated commercial deal dismantling tariffs.”

French Trade Minister Sophie Primas reiterated France’s opposition, asserting that the deal binds only the European Commission, not member states. She pledged to resist further steps, citing “environmental and agricultural concerns.”

What Are the Benefits for Brazil?

Brazil stands to gain the most from the Mercosur-EU free trade agreement, according to research by Ipea (Institute of Applied Economic Research). Between 2024 and 2040, the deal could boost Brazil’s GDP by 0.46%, compared to 0.06% for the EU and 0.2% for other Mercosur nations.

Ipea also estimates that foreign investment in Brazil could rise by 1.49% compared to a scenario without the partnership.

In trade terms, Brazil would see a gain of $302.6 million, while other Mercosur countries would gain $169.2 million. The EU, however, could face a loss of $3.44 billion due to tariff reductions and export quota concessions.

Brazilian exports alone could grow steadily over the period, culminating in a cumulative gain of $11.6 billion.

👍 Positive Impacts:  Trade facilitation and gradual tariff elimination, increasing Brazil’s access to the European market.

According to Welber Barral, former Secretary of Foreign Trade and co-founder of BMJ Consultores Associados, the agreement is highly beneficial for both Europe and Mercosur countries, including Brazil.

“Mercosur countries will gain greater access to a bloc that is a major food importer. On top of that, Europe is a ‘premium market,’ known for its high-quality standards and willingness to pay top prices, especially for agricultural imports,” Barral explained.

In practical terms, this could expand Brazil’s export opportunities to Europe and attract significant foreign investment into the country, yielding direct economic benefits.

Ipea (Institute of Applied Economic Research) attributes improved export performance to three key factors:

• The reduction of import tariffs in the EU;
• Increased export volumes in specific sectors due to quotas granted by the EU and
• Lower domestic costs for inputs and capital goods resulting from tariff cuts, making Brazilian products cheaper and more competitive internationally.

Other provisions in the agreement could benefit Brazil, such as facilitating Brazilian companies’ access to European services and enabling small and medium-sized enterprises to take advantage of the agreement’s opportunities.

The chart below shows which products were the most exported in containers from Brazil to European ports in 2024. The data is derived from DataLiner, a Datamar product.

Top Most Exported Goods to Europe | 2024 | TEUs

Source: DataLiner (click here to request a demo)

👎 Negative Impacts:  Despite its potential benefits, the agreement poses risks for specific sectors of Brazil’s economy, particularly manufacturing.

While Brazil exports mainly commodities and raw materials to Europe, it imports predominantly manufactured goods, which could pressure domestic industries.

“The Brazilian industry will need to evaluate both opportunities and risks,” Barral noted. He emphasized Brazil’s high logistics costs as a concern and pointed out that specific sectors may need to increase efficiency, digitalization, and scale to compete with European products.

Source: G1

Original reporting available at: https://g1.globo.com/economia/noticia/2024/12/06/acordo-uniao-europeia-mercosul.ghtml

Sharing is caring!