European member states are facing benefits and drawbacks as the sealing of the strategically important deal is drawing closer.
After 25 years of talks, the EU-Mercosur free trade agreement (FTA) still lacks unanimous support from member states, as fears of the agricultural sector’s future clash with the strategic needs of the bloc.
A political agreement was reached on 28 June 2019 to open up trade between the 27 member states of the EU and the four founding members of the South American bloc, Argentina, Brazil, Paraguay and Uruguay. (Bolivia joined the Southern Common Market, commonly known by its Spanish abbreviation as Mercosur in 2024 so it did not take part in previous negotiations).
The deal is seeking to establish one of the world’s biggest free trade zones, encompassing 750 million people and about one-fifth of the global economy.
Even so, for Europe, it is not the economic gains that make the agreement the most attractive, but rather its strategic significance in an era when the bloc is facing trade disputes with its two biggest trade partners, the US and China.
“I think one of the main concerns is that a lot of the South American countries are developing closer ties with China and, furthering the trade relations with China at a time when the EU wants to diversify away from China,” said Frances Li Europe analyst at the Economist Intelligence Unit to Euronews Business.
“So it comes at this kind of critical moment. And with potential US tariffs coming into play potentially as early as next year, I think there is increased pressure for the EU to try and get a deal signed.”
Trade is not highly significant between the two blocks.
According to the European Commission’s data, in 2023, the EU’s exports to the four Mercosur countries amounted to €55.7bn (the export to the US in the same year was nine times this amount at €502bn), while Mercosur’s exports to the EU totalled €53.7bn.
What are the most crucial goods imported to the EU from the Mercosur?
The biggest part of the Mercosur exports to the EU were food and live animals (32.4% of total exports) and mineral products (29.6%) in 2023.
Opening up trade routes with the Mercosur countries gives the EU the possibility to diversify its sources of key critical minerals needed for building batteries and solar panels and harvesting wind energy and green hydrogen – to accelerate the green transition, in short.
The Mercosur is sitting on significant critical mineral resources such as lithium (essential for rechargeable batteries), graphite, nickel, manganese, and rare earth elements.
Currently, the bloc needs to source a big part of these minerals from China, but trade disputes such as the one over the tariffs hitting Chinese import EVs, could overshadow such trade relations too.
Meanwhile, Mercosur nations emerge as crucial players in securing food supply to Europe. The region contributes approximately one-fourth of the world’s exports in agricultural and fisheries products.
On the other hand, South American food products, especially beef and poultry are a particular concern to the European agricultural sector, fearing unfair competition and citing environmental concerns, with the French farmers being the loudest of all, backed by their government.
What countries could benefit the most from the trade deal?
The free trade agreement is widely seen as beneficial for the sectors such as the car industry and machinery, but unfavourable for the agricultural sector, thus dividing countries according to their main interests.
The FTA aims to remove tariffs on 100% of all industrial goods imported by the EU from the South American bloc. Meanwhile, Mercosur would remove tariffs on 90% of industrial goods imported from the EU, including cars, machinery, IT equipment, textiles, chocolate, spirits and wine.
“The tariffs on cars and car parts to Mercosur are currently 35%, which is very high. Machinery around 14%-20%, chemicals around 18%,” said Li. “So that’s why then countries like Germany will be very happy to see some of those tariffs go down.”
As the country is battling one of its worst crises, German Chancellor Olaf Scholz has repeatedly called for closing the deal saying that: “The Mercosur agreement is groundbreaking for diversifying and strengthening the resilience of our economy.”
It most certainly would strengthen the ailing German automotive industry, including struggling Volkswagen, BMW and Mercedes-Benz, as well as the German chemicals industry with companies like Bayer.
According to the European Commission’s data, the German exports to the Mercosur are worth €15.4bn a year, coming from 12,000 German companies and securing 244,000 jobs in Europe’s biggest economy.
Spain, the fourth largest economy in the bloc also appears to be one of the winners, with strong exports in the country’s manufacturing sector as well as the chemical and pharmaceutical industries.
According to a study commissioned by the country’s State Secretariat for Trade, exports from Spain to Mercosur will grow by 37%, when the agreement has deployed its effects, boosting the GDP by 0.23% and creating more than 22,000 jobs.
Supporters of the FTA say that the deal goes far beyond cutting tariffs, it gives access for European businesses to public procurement contracts in these South American countries, supports investments, and opens the door to European service providers.
Which countries oppose the trade deal?
France is strictly opposed to the trade deal, which would allow Mercosur countries to export an extra 99,000 tonnes of beef to the EU with a 7.5% duty on top of the currently imported 200,000 tonnes.
“To put this quantity into context, after five years of phasing-in it would represent 1.2% of the overall EU beef consumption of 8 million tonnes per year,” read the European Commission’s report called the ‘The trade pillar of the EU-Mercosur Association Agreement’.
An additional 180,000 tonnes of poultry would be duty-free under the agreement, as well as up to 45,000 tonnes of honey, 60,000 tonnes of rice and even 180,000 tonnes of sugar.
European farmers are highly concerned about imports of beef, poultry and sugar which, they say, create unfair competition, as farmers in the bloc shoulder higher costs due to the need to respect strict European food safety, animal welfare, and environmental standards and pay higher wages compared to that of the Southern American farmers.
The EU is also accused of turning a blind eye to the environmental degradation in Brazil, where beef production has become a major driver of tropical deforestation due to efforts to gain pastureland.
French Agriculture Minister Annie Genevard has publicly opposed the EU-Mercosur trade agreement, citing deforestation risks and health concerns linked to hormone-treated meat.
The European farmers’ association, Copa Cogeca, has also raised similar concerns, given the lack of traceability of cattle and the use of hormones, growth promoters and pesticides in these countries, which are illegal in the EU.
French President Emmanuel Macron has called for changes in the agreement to protect European farmers, that would ensure imported agricultural products meet the same standards as those produced within the EU.
The Commission says that all agreements should be in line with EU social and environmental standards and that the EU-Mercosur deal renews the parties’ commitments to the Paris Agreement, with a monitoring mechanism.
Even so, Macron was firm at the current G20 in Argentina, saying of the draft agreement with Mercosur that France “will not sign as it is”.
Italy voices its reservations
Italy is also emerging on the side of the opposition, even though its strong automotive and engineering industry, fashion industry and regional foods, including Parmesan cheese, could position the country well to benefit from the FTA.
“The EU-Mercosur treaty in its current form is not acceptable,” the Italian Agriculture Minister said in a press release cited by the Brussels Times. On Monday, Francesco Lollobrigida demanded that Mercosur farmers be subject to the same “obligations” as their EU peers.
Ireland, the fifth largest beef exporter in the world, also has serious concerns about the deal, fearing that the competition would halve the prices in the main European markets, such as France. Belgian farmers have also protested against the trade deal.
Poland, a country with a modest half-a-billion euro export to the Mercosur, has also shown signs of displeasure with the planned FTA.
“The Ministry of Agriculture has serious reservations about the outcome of the European Commission’s negotiations with the Mercosur countries,” the country’s ministry statement said.
Examining the Cumulative economic impact of 10 upcoming trade agreements on EU agriculture, the European Commission did not deny the vulnerability of the beef, sheep meat, poultry meat, sugar and rice sectors, but also highlighted that FTAs have the potential to benefit the EU agri-food sector, especially the dairy, pig meat, processed food and beverages sectors.
What if Europe cannot find a way to agree on a deal?
Countries such as France may not have the power of veto if a qualified majority of at least 15 member states approve the agreement. In that case, the agreement would require ratification by the EP.
There is also increased pressure on the European Commission to conclude the negotiations because of mounting concerns that Mercosur partners may be more and more in favour of abandoning the EU deal and focusing instead on other trade agreements with Asian countries, particularly China.
The South American trade bloc signed a crucial trade agreement last year with Singapore and is actively pursuing agreements with South Korea and Japan, to enhance food exports to Asia.
Experts say that Europe’s main interest at the moment is in diversifying its trade relations and reducing dependence on both China and the US.
