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The heads of the European Union and South America’s Mercosur bloc have signed a long-awaited blockbuster trade deal after more than a quarter of a century of negotiations, although hurdles remain before the sweeping commercial accord’s application.
The presidents of the European Commission, European Council and Argentina, Uruguay and Paraguay, as well as Brazil’s foreign minister, attended a ceremony in Asuncion on Saturday to sign the agreement, which will gradually eliminate more than 90 percent of tariffs between the two regions.
Once ratified by the bloc’s member states, the agreement will create one of the world’s largest free trade areas with a population of more than 700 million people. Total goods exchanged between EU and Mercosur €111bn in 2024.
European Commission President Ursula von der Leyen said, “Our signal to the rest of the world is clear: the EU and Mercosur are choosing cooperation rather than competition and partnership rather than polarization.”
Once dubbed a “cows for cars” deal, reflecting South America’s strong agricultural production and European industrial strength, the agreement has been the subject of stop-start negotiations beginning in 2000.
Supporters argue that the agreement is urgently needed for both regions as they face aggressive US trade and foreign policy and growing Chinese economic influence under President Donald Trump.
Uruguayan Foreign Minister Mario Lubetkin said diversification was “central” to the deal. “If this period of tremendous upheaval has served any purpose, it is to show that we all have to find mechanisms to protect ourselves,” he said. “No one should be completely dependent on anyone else.”
Oliver Stuenkel, senior fellow at the Carnegie Endowment for International Peace, said the agreement provides a “geopolitical hedge” and has symbolic importance.
“(It shows) that both Europeans and South Americans are committed to the rules-based order and multilateralism,” he said. “Neither the Europeans nor Mercosur want to be pushed around by Beijing or Washington.”
It was expected to be signed in December, but was postponed after resistance from some countries, led by France, where farmers protested over fears of cuts due to cheaper produce from Mercosur.
Brussels won over recalcitrant countries, including Italy, with additional subsidies and possible restrictions on some agricultural imports. The EU also agreed to safeguard measures to temporarily suspend tariff exemptions for some agricultural products if imports rise or prices fall. The transition period for tariff removal lasts for 30 years.
Paraguay’s Foreign Minister Rubén Ramírez Lezcano said it was a “balanced agreement”.
“Obviously we are not 100 percent satisfied, and neither is the EU. We wanted to achieve more, but here we are,” he said.
Barriers to implementation remain. The European Parliament will vote on Wednesday on a motion on whether to refer the deal to the European Court of Justice, which would delay approval by about 18 months.
Four MEPs and EU officials told the FT they expected the motion to be rejected. MPs will then vote on the deal, possibly by May. Groups including the Greens and far-right Patriots will say no. “It’s on a knife’s edge,” said Barry Andrews of the Liberal Renew group.
Mercosur’s national parliaments must also ratify the agreement. BMJ Associados consultant Velber Barral said its passage in Brasília was likely to be delayed until at least 2027 due to elections.
“In general, there is a lot of support from the congresses and governments of Mercosur,” he said.
According to the Commission, the deal will contribute only 0.1 percent to EU GDP in 2031. But Thijs Geiger, an economist at ING Bank, said it would help boost €50bn of annual exports to struggling sectors including car and chemical makers, offsetting some of the lost demand from the US and China.
The Commission said EU companies would save €4 billion annually on tariffs, which range from 35 percent on car parts and 28 percent on dairy.
European high-value products such as wine, cheese and clothing are likely to benefit, as are South American farmers – even if they still find access to the EU market limited under the agreement.
A 2024 study by Brazilian government think-tank IPA estimated that the agreement would increase the country’s GDP by 0.46 percent by 2040. This was higher than the estimated gain of 0.06 percent for the EU and 0.2 percent for other Mercosur states.
“The agreement tackles areas that continue to hinder productivity growth within the Mercosur region, which remains low compared to peers,” said William Jackson of Capital Economics.
