Image Source: REUTERS/Yves Herman/File Photo.
After a quarter of a century of negotiations marked by numerous challenges, stalls, and setbacks, the European Union and the South American trade bloc Mercosur have finally signed their long-awaited trade agreement. The deal aims to integrate trade between both regions, creating a combined market of 700 million consumers. While uncertainty over its ratification still looms large, there is growing momentum on both sides of the Atlantic, sparking cautious optimism about its future.
Amid growing global protectionism and political tensions, the agreement promises to unlock significant opportunities for both regions, whose economic growth has been sluggish for years. On one side of the agreement, Brazil and Argentina, Mercosur’s economic heavyweights, have yet to fully recover from the boom-to-bust cycle triggered by the commodities-driven growth of the late 2000s. Additionally, the Covid-19 pandemic had a profound impact on the region, creating long-lasting challenges that hinder efforts to reduce poverty and inequality. On the other side of the Atlantic, the European Union’s persistently low growth rates since the turn of the century continue to confound policymakers. A recent report, commissioned by the EU and led by celebrated economist and former Italian prime minister Mario Draghi, highlights that productivity remains one of the bloc’s most pressing challenges — since 2000, the EU’s per capita real disposable income has grown at half the rate of the U.S. The analysis stresses the need for the EU to pursue inclusive economic growth, with a focus on sustainable competitiveness, economic security, open strategic autonomy, and fair competition.
In this context, the agreement, whose main terms were agreed in 2019 but later revised due to political pressure from the EU’s agricultural sector and environmental activists, presents an opportunity for strategic economic sectors in both Mercosur and the EU. Indeed, the agreement positions Mercosur’s agricultural sector and EU’s industrial sector to significantly increase their productivity. With its approval, Mercosur will eliminate tariffs on 72 percent of imports within 10 years or less, while the EU will do so for 92 percent of imports over the same period. Among the expected beneficiaries of the EU are: agri-food products; machinery; pharmaceuticals; cars; textiles and clothing, as well as business, financial, and logistics services. Mercosur’s expected beneficiaries are: food and beverage manufacturing; textiles, apparel, and leather products; and forestry and fishing.
In addition to its economic potential, the agreement also has a political dimension, with strengthening EU-Mercosur ties remaining a key priority. In the context of an increasingly complex geopolitical landscape, as the U.S. and China sink further into a zero-sum great power politics struggle, the EU-Mercosur deal underscores a renewed commitment to the international liberal rules-based order, where free trade, democracy, sustainable development, and human rights serve as guiding principles.
While Mercosur remains a dysfunctional trade bloc, with differing views on its structure—whether it should operate as a free trade area allowing individual trade deals or function as a unified trade union—there is consensus that this deal represents an opportunity. Indeed, it is expected that it will be easily approved in each of the bloc’s member states countries (Argentina, Brazil, Paraguay, and Uruguay).
From the European perspective, this agreement emerges during a period of strategic reflection on the organization’s international role amidst internal fragmentation. With France and Germany, traditionally the driving forces behind European development, grappling with significant political and economic crises, the deal comes at a pivotal moment for the European Union to define its course in addressing global challenges. The ongoing economic slowdown and political instability cast doubt on the EU’s ability to present a cohesive strategy in its dealings with Mercosur, potentially affecting not only the ratification process but also Europe’s reputation as a reliable and unified global actor.
Thus, through this landmark trade agreement, the EU has sought to introduce its distinct mark within the framework of one of the three pillars of the negotiation: cooperation. Key initiatives, such as the Global Gateway, through which the EU has committed to investing approximately 1.8 billion euros in the initial years of the agreement, highlight the organization’s determination to position itself as a global leader in the green transition and its accompanying policies.
To advance the agreement, it is crucial to reinforce the most influential elements required for its implementation. Importantly, the intricate workings of the European Union have effectively divided the treaty into two components: a more broadly supported component addressing economic and trade matters, and a more divisive component on political dialogue and cooperation frameworks. This division stems from the EU’s competences’ structure, necessitating separate ratification processes, and thus enabling a smooth implementation of the economic heart of the treaty regardless of the lengthier implementation process for its political frameworks.
The economic and trade portion requires approval from both the European Council and the European Parliament. In the Council, member states are represented by their respective Trade Ministers and opposition from France, Poland, and Austria — driven by domestic political and commercial concerns — may pose a challenge. Blocking the agreement would require the support of at least four member states representing 35 percent of the EU’s population — a threshold unlikely to be met without securing backing from a major member like Italy. Once the Council approves the agreement, it will move to the European Parliament, where the European People’s Party’s leading coalition is expected to facilitate its passage without significant obstacles.
Following ratification, the trade agreement would take effect, with gradual implementation expected to begin within approximately a year. Meanwhile, the political and cooperation components will follow separate ratification paths through national parliaments, potentially delaying the full implementation of the treaty for several years. If successfully enacted, the EU would establish trade agreements covering 94 percent of Latin America’s GDP, significantly outpacing the United States (44 percent) and China (14 percent). This would represent a substantial boost to the EU’s efforts to retain its global influence in an increasingly competitive geopolitical landscape.
Alejandro Trenchi is a Political Science PhD candidate at the University of Florida. Formerly, he was Director of Research and Programs at Global Americans.
Miguel Ángel Melián is a Public Affairs Consultant with expertise in international politics and diplomacy. Formerly, he contributed to Global Americans in research and program development.
