A major milestone has been achieved as the EU and Mercosur, which includes Argentina, Brazil, Paraguay, Uruguay, and since 2024, Bolivia, finalised a trade agreement just before Christmas. This pact could form one of the world's largest free trade zones, encompassing over 700 million people and accounting for 20% of global GDP. However, its ratification by EU member states remains uncertain, with resistance potentially stalling its progress.
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Negotiations between the EU and Mercosur started in 1999, with a provisional agreement reached in 2019. Yet, EU members withheld ratification due to various concerns. Recently, at the Mercosur Summit in Uruguay, EU Commission President Ursula von der Leyen signed the deal with the Mercosur states, moving it closer to fruition.
The agreement is set to remove over 90% of tariffs on traded goods, potentially saving EU businesses approximately €4 billion annually. Some tariffs will be phased out over time to give Mercosur producers room to adjust. The deal will also remove non-tariff barriers, address discriminatory tax practices, and support trade in services. Sustainability provisions aim to uphold environmental and labour standards.
If approved by both the European Parliament and all 27 EU member states, the deal could substantially boost trade between the regions. In 2023, EU-Mercosur goods trade totalled €109.4 billion, making the EU Mercosur's second-largest trade partner after China. The EU exported €28.2 billion in services to Mercosur in 2022, while imports were €12.3 billion. This agreement is expected to increase trade further.
However, opposition remains strong, particularly in the agricultural sector. Food and agri-products made up 42% of EU imports from Mercosur in 2023. While reduced tariffs and larger import quotas could foster trade growth, they also risk undercutting EU farmers, who face higher production costs.
A significant yet often overlooked part of the agreement is access to critical raw materials such as lithium, essential for the EU's electric vehicle and renewable energy goals. Mercosur countries possess substantial reserves, helping the EU reduce dependence on China and meet rising demand, which is expected to increase sharply by 2030.
For ratification, the EU requires the agreement to be approved by all member states and the European Parliament. This could be avoided by splitting the deal into separate trade and non-trade parts, simplifying the approval process to a qualified majority vote, similar to past trade agreements.
In an era marked by protectionist measures, including new US tariffs and China's export restrictions, this EU-Mercosur deal represents a potential step forward in global trade liberalisation. However, its success hinges on overcoming internal EU opposition and balancing economic interests with environmental priorities.
Source: think.ing.com