Edwin J. Higinio[1] , OBELA[2]
The trade agreement between the Southern Common Market (MERCOSUR) and the European Union (EU) has been in the works for over two decades. It seeks to create one of the largest free trade zones, not only limited to tariff reductions but also to add investment regulations and an environmental commitment. This article will analyse the potential positive effects of the treaty, assess who it favours with its approval and estimate whether the European Union will approve it. Argentina, Brazil, Paraguay, and Uruguay signed the Treaty of Asunción in 1991, establishing MERCOSUR. Venezuela became a member in 2006 but lost its status in 2017. Bolivia became a full member in 2024.
The EU- MERCOSUR negotiations, which began in 2000, have had many challenges. In the first round, MERCOSUR pushed for the EU to reduce its agricultural subsidies and open its market to products such as beef and soybeans. The Europeans refused, and the EU argued for concessions in the industrial and services sectors. Both parties paused the negotiations, and internal political changes, such as the impeachment of Dilma Rousseff in Brazil (2016) and the election of protectionist governments such as Alberto Fernández in Argentina (2019), further complicated the process. The Brexit (2016-2020) and the COVID-19 pandemic (2020-2022) in Europe added to the complexity.
In June 2019, both parties returned to the negotiating table, and this time MERCOSUR proposed tariff-free quotas for agricultural exports in exchange for liberalising the European automobile and machinery markets. Ratification stalled due to the protection of products with European designation of origin and the resistance of countries such as France, which blocked the pact in 2023 with the argument of deforestation in the Amazon.
In 2024, negotiations progressed but without unanimity. France, the primary opponent, reiterated the issue of deforestation, although its main interest is to protect its agricultural sector. Italy joined together. The concerns triggered a wave of protests from farmers and environmentalists in those countries. Germany, Spain and Portugal are in favour of the agreement. The former seeks to boost its automotive and machinery industry. Spain is targeting products such as olive oil, wine and Iberian ham. Portugal hopes to increase its exports of textiles, footwear and machinery. Thus, two blocs were formed within the EU, one against led by the Gallic country, followed by Italy, and the other in favour, led by Germany.
Brazil, the leader of the South American bloc, protected its automotive sector by establishing extended deadlines for eliminating tariffs in sectors aligned with the energy transition. It also included a safeguard mechanism that allows it to suspend or restore 35 per cent tariffs (which it imposed in 2024) if EU imports affect its local industry.
To ratify the basic agreement (elimination of tariffs on industrial goods), the EU requires approval by 15 countries containing at least 65% of its population. A comprehensive treaty (investment, services and intellectual property) needs the approval of 27 member countries. The bloc in favour has only 40 per cent of the EU's population, making the signature unlikely.
| Table 1. Origin and destination of MERCOSUR exports 2022 |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Destino Origen |
China |
U.S.A |
Argentina |
Brazil |
The Netherlands |
Chile |
Spain |
India |
South Korea |
Germany |
Singa-pore |
Other |
Total |
| Total Mercosur |
22.1% |
9.8% |
4.4% |
4.4% |
3.5% |
3.4% |
2.6% |
2.9% |
2.0% |
1.9% |
1.8% |
41.1% |
100% |
| Argentina |
9.2% |
8.0% |
0.0% |
14.5% |
4.0% |
5.9% |
2.0% |
5.0% |
2.2% |
1.0% |
0.1% |
48.0% |
100% |
| Brazil |
26.7% |
10.8% |
4.6% |
0.0% |
3.5% |
2.7% |
2.9% |
1.9% |
1.9% |
2.2% |
2.5% |
40.4% |
100% |
| Paraguay |
0.3% |
2.6% |
18.9% |
36.3% |
0.9% |
11.5% |
0.3% |
1.6% |
0.9% |
0.5% |
0.7% |
25.3% |
100% |
| Uruguay |
24.6% |
7.0% |
8.5% |
14.3% |
5.0% |
1.7% |
1.3% |
0.9% |
2.3% |
2.5% |
0.0% |
32.0% |
100% |
| Bolivia |
4.6% |
3.3% |
14.6% |
13.0% |
1.7% |
1.7% |
1.4% |
16.6% |
4.0% |
0.8% |
0.0% |
38.3% |
100% |
| Source: OBELA with data from Observatorio de Complejidad Económica. |
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Although the European Commission promotes trade agreements as a driver of new economic relations, the agreement would facilitate existing trade without generating new flows. The German and Spanish press highlighted the benefits of liberalisation, creating trade and strengthening their position vis-à-vis China and the US. However, the data (see Table 1) show that only a tiny fraction of exports come from MERCOSUR. In contrast, without a free trade agreement, South America's leading partner is China (22.6% of the bloc's exports).
In sum, the agreement does not represent an engine of equitable development but a political one in the face of competition with China and the US, as MERCOSUR's trade is not with Europe. Brazil and Argentina's trade diversification towards China, South Korea, Vietnam, Indonesia and Malaysia reflects their growing links with Asia. After more than two decades, the agreement seems to continue to fail to materialise.