The EU-Mercosur FTA

Written with Vanessa Ribeiro Teixeira Borges

On 6 December 2024, the European Union (“EU”) and Mercosur concluded their free trade agreement (the “FTA”) negotiations, 25 years after they commenced.

The FTA establishes one of the world’s largest free trade zones, encompassing over 700 million people and nearly 25% of global GDP.

The EU is Mercosur’s second-largest trading partner. In 2023, the EU’s exports to Mercosur reached €56 billion in goods and as of 2021, the EU’s investments in Mercosur countries amounted to €340 billion

Key Provisions of the FTA

1. Tariff Reductions

The FTA eliminates tariffs on over 90% of goods traded between the EU and Mercosur. Specifically:

• the EU will phase out tariffs on all Mercosur industrial products within ten years;
• Mercosur will remove duties on most EU industrial exports during a transitional period;
• export monopolies and excessive pricing practices regarding critical raw materials are addressed and export taxes are largely removed (with exceptions for some Brazilian products); and
• non-automatic import licencing requirements are abolished.

Additionally, EU firms gain non-discriminatory rights to invest in Mercosur industries, fostering local value-added production and supporting critical raw materials industries.

2. Agricultural Trade

The FTA will free up 82% of agricultural imports from Mercosur, while maintaining quotas to protect EU farmers. In 2023, the EU’s agricultural and food exports to Mercosur reached €3.2 billion. The deal significantly reduces tariffs on key exports, including:

• olive oil (currently at 10%);
• wine and other beverages (currently up to 35%);
• malt (currently at 14%); and
• chocolate (currently at 20%).

Dairy products such as cheese and milk powder (currently subject to a 28% tarifff) and infant formula (18% tariff) will also benefit from gradual tariff reductions within quota limits.

These changes are designed to expand opportunities for EU exporters while balancing the need to safeguard the interests of European farmers.

3. Environmental Commitments

Environmental protection is a cornerstone of the FTA, being aligned with objectives of the Paris Agreement. The FTA:

• incorporates mechanisms to enforce sustainability, including deforestation prevention by 2030;
• can be suspended in case of breaches or withdrawal from the Paris Agreement;
• provides for climate neutrality in the EU and Mercosur by 2050; and
• contains an undertaking for the EU to reduce emissions by at least 55% by 2030 and a pledge by Brazil to halt illegal deforestation.

4. Services and Procurement

The FTA eliminates barriers in the services sector and enhances access to government procurement opportunities.

• the EU’s service companies will gain greater access to Mercosur’s service markets; and
• EU firms will be allowed to compete for public contracts in Mercosur countries, promoting transparency and equal treatment.

Next Steps

On the EU’s side, the FTA still needs to be ratified by the EU member states and the European Parliament. Concerns from countries such as France and Poland over agricultural competition and environmental safeguards may complicate the process.

On the Mercosur’s side, legislative approval is required in Argentina, Brazil, Paraguay and Uruguay. Domestic political dynamics, economic priorities and environmental commitments will influence the ratification process.

Final Remarks

When it comes into force, the EU-Mercosur Free Trade Agreement will strengthen economic ties between Europe and South America. The deal is likely to increase trade, investment and cooperation in areas such as sustainability, industrial development and technology.

Those EU businesses that start exploring opportunities in Mercosur countries ahead of the FTA coming into force will have a first-mover advantage. In our experience in Brazil, being a first mover is a key factor in achieving success.

Do you have any questions?

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Last modified: 7 December 2024