EU–Mercosur agreement moves forward and reshapes trade between the blocs  

The EU–Mercosur trade agreement is set to reshape economic relations between Europe and South America by creating the world’s largest free trade area. After decades of negotiations, the deal affects tariffs, agribusiness, industrial production, sustainability requirements, and global supply chains. This article explains how the agreement works, why it matters now, and what companies should expect as ratification moves forward.

What is the European Union–Mercosur agreement and why is it emerging now?

Mercosur is a South American trade bloc made up of Brazil, Argentina, Paraguay, and Uruguay, created to promote economic integration and free trade among its member states. The discussions related to the EU-Mensocur agreement began in the 1990s, when global economies were still reorganising after the fall of the Berlin Wall.

It took nearly 25 years of negotiations for Mercosur and the European Union to finally reach an agreement that creates the world’s largest free trade area, involving more than 720 million people. Together, the two blocs account for about 25% of all wealth produced globally.

The agreement arrives at a particularly sensitive moment for international trade. Customs tariffs and restrictions have been increasing, especially on the part of the United States, a relevant trading partner for both blocs. In this context, the understanding between the European Union and Mercosur stands as a clear signal in favor of cooperation and multilateralism.

For Europe, the goal is to broaden partnerships and reduce dependencies in an increasingly unstable trade environment. For Mercosur, the agreement opens the doors to one of the world’s largest consumer markets. If consolidated, it becomes even more relevant in a landscape marked by geopolitical tensions, fragmentation of global supply chains, and disputes among major powers.

Key points of the EU–Mercosur agreement

The EU–Mercosur trade agreement is structured around a set of core provisions that define how market access will expand, how sensitive sectors will be protected and how sustainability and regulatory standards will be enforced.

1. Gradual elimination of import and export tariffs

The main pillar of the agreement between Mercosur and the European Union is the gradual elimination of customs tariffs. Within up to 15 years, Mercosur is expected to eliminate tariffs on 91% of European goods. On the other side, the European Union will remove 95% of tariffs on Mercosur products within a period of up to 12 years. This change represents significant gains for several sectors in both blocs.

2. Market access for industrial and agricultural goods

There are immediate impacts for industry. From the start of the agreement, various industrial products will face zero tariffs. These include machinery and equipment, automobiles and auto parts, chemical products, aircraft and transportation equipment. Improved market access strengthens industrial integration and encourages cross-border investment, particularly in higher value-added manufacturing.

In the agricultural sector, especially on the European side, safeguards have been provided for. The European Union may temporarily reintroduce tariffs if imports exceed predefined volumes or cause significant price drops in chains considered sensitive. This balance aims to increase trade flows without destabilising domestic markets.

3. Binding environmental and deforestation-related rules

Environmental commitments are a central and non-negotiable element of the EU–Mercosur agreement. Products benefiting from preferential access cannot be linked to illegal deforestation, and environmental clauses are legally binding. Compliance with these rules requires greater transparency and traceability across supply chains, creating both regulatory challenges and competitive advantages for producers that meet sustainability standards.

Environmental commitment is one of the non-negotiable points of the EU–Mercosur agreement. Benefited products cannot be associated with illegal deforestation, and the environmental clauses are binding. This creates challenges but also opens opportunities. Supply chains will need to invest in traceability and transparency, increasing visibility for both Mercosur producers and European companies.

4. Strict sanitary and phytosanitary standards

Sustainability, in fact, runs throughout the entire agreement. Sanitary and phytosanitary rules remain strict, reinforcing the importance of traceability. There is deeper integration of production chains. In Brazil, where around 90% of the energy matrix is clean, the economy will need to meet even stricter quality standards, especially in animal and plant sanitary controls, to access the European market.

5. Integration of EU–Mercosur production and supply chains

Beyond tariff reductions, the agreement promotes deeper integration of production chains between Europe and Mercosur. By harmonizing rules and improving market access, it encourages the development of cross-border value chains in industry, agribusiness, energy and manufacturing. This integration supports greater efficiency, resilience and alignment with sustainability and digital transition goals.

Economic impacts of the UE-Mercosur deal

The European Union is the second-largest destination for Brazil’s industrialised and higher value-added products. As the largest economy in Latin America, Brazil stands to see increased investment in its industrial base. With the need for working capital to support investments in infrastructure and productive expansion, efficient inventory management becomes even more strategic.

Brazil can expand exports, particularly in the agribusiness and industrial sectors. Products such as coffee, orange juice, corn, cotton, pulp, iron ore, ethanol and biodiesel gain ground. On the distribution side, there will be greater access to European products.

Europe, in turn, is expected to export automobiles, alcoholic beverages, chocolates, olive oils and cheeses to Mercosur. For Brazil, the agreement also opens opportunities to advance in the production of higher value-added goods.

As part of a long-term effort toward greater sustainability, especially in the transition to cleaner mobility, the agreement allows Europe to access a large consumer market and expand its presence in global value chains. The automotive sector, in both production and distribution, benefits from access to critical raw materials such as lithium, graphite and manganese, which are essential for manufacturing electric vehicle batteries.

The European chemical industry also benefits, particularly in downstream segments of the chain such as machinery, automotive and cosmetics, while gaining access to raw materials that are currently scarce or non-existent within the bloc.

Overall, the European Union strengthens its position in global supply chains and increases its resilience against future disruptions. Companies gain more predictable and stable access to inputs essential for the green and digital transitions.

EU-Mercosur trade agreement challenges and discussions

The EU–Mercosur agreement also brings challenges. Some sectors, especially European agriculture, question potential impacts on domestic production. In Mercosur, there is concern that the bloc may become more of a technology importer than a developer, although the agreement includes safeguards and protection mechanisms.

There is even a specific chapter focused on small and medium-sized European enterprises, with measures to facilitate their adaptation. In Brazil, part of the debate centers on the risk of discouraging national industry, a point that is likely to remain at the heart of discussions during the ratification process.

Status of the agreement: signing, ratification, and next steps

The formal signing of the EU–Mercosur agreement is scheduled for Saturday, January 17, in Paraguay. The text will then be submitted for approval by the European Parliament and for ratification by the congresses of Brazil, Argentina, Paraguay and Uruguay. The agreement will only enter into force after all these steps are completed. Chapters that go beyond trade policy require specific approval by national parliaments.

While ratification is underway, businesses can prepare by monitoring political developments, reviewing tariff schedules, assessing ESG and traceability requirements and identifying strategic opportunities created by the EU–Mercosur trade agreement.

Why the UE-Mercosur agreement is strategic for global trade

More than a trade agreement, the EU–Mercosur agreement represents a bet on multilateralism at a time when the international environment has become more hostile to this type of understanding, especially since the beginning of the Trump administration. By creating common instruments, generating mutual benefits and strengthening predictability and traceability, the agreement tends to make supply chains more resilient on both sides of the Atlantic.

The EU–Mercosur agreement represents a structural shift in global trade toward sustainability-driven growth, diversified partnerships, and resilient supply chains. For companies operating between Europe and South America, understanding the agreement now is essential to remaining competitive as global trade rules evolve.