EU and Mercosur agree to create the world’s largest free trade zone after 25 years of negotiations

The European Union and Mercosur signed an agreement on Friday which, if the complicated ratification process does not put the brakes on it, will give rise to the largest free trade zone in the world. A quarter of a century of negotiations were finally concluded in Montevideo, Uruguay, during the summit of Mercosur presidents. The president of the European Commission, Ursula von del Leyen, confirmed the end of the negotiations at a press conference at the headquarters of the South American bloc. It was the definitive point. Much of the impetus given to the agreement by Spain and Germany, on the European side, and Brazil, on the Mercosur side, was behind it. The two blocs stand as bastions of free trade in an era marked by the protectionist policies of the United States and China. The pact, which now embarks on a long and difficult road to ratification, will allow Europe to access a market of 268 million consumers while Mercosur will be able to offer its products, especially agricultural goods, to 450 million people with preferential tariffs.

The agreement, which is actually a complement to the grand pact reached five years ago, is the end of a journey that has taken almost 25 years. In 2019, both blocs celebrated the signing of the pact in Brussels, but no progress was made on its ratification. France, Ireland, Austria, and the Netherlands cited doubts about the sustainability and environmental commitments of the South American region to delay it and demanded additional commitments from the Mercosur countries (Argentina, Uruguay, Paraguay, Brazil, and Bolivia). The rise to power in Brazil of Jair Bolsonaro, a climate change denier, fueled the demands. At that time, more than 340 social organisations, some 70 MEPs, and the main agricultural entities asked the European Commission to stop the agreement.

These are the additional commitments that have been under negotiation for some time now. The agreement, according to sources in Brussels, had been almost ready for a while. But the moment had not yet arrived to close what was left pending. In the end, Von der Leyen boarded a plane to Montevideo on Thursday, just one day after France — the EU country most opposed to the trade agreement — was left without a government. Paris is embroiled in a monumental political mess, with a recently dismissed government and President Emmanuel Macron looking for a new prime minister, but the Élysée found time to express its rejection: “The project between the EU and Mercosur is unacceptable as it is.” On the other side are Spain and Germany, an eminently export-based economy in crisis that needs new markets in the face of the strength of China.

From Brussels, the agreement with Mercosur is seen as a way to counteract the growing influence of Beijing in the world. It is also expected to reduce dependence, precisely on China again, in the supply of critical raw materials needed in the energy transition. And, in addition, it opens the doors to a market — at this point for both parties, Mercosur and the EU — that would minimize the impact of the announced increase in tariffs that U.S. president-elect Donald Trump wants to impose.

This week, negotiators drew a line under four of the six pending points to be resolved. The only issues left to be addressed were European investments in the automotive sector, which Mercosur feared would be affected by the treaty, and details on the distribution of export quotas for agricultural products. On the Mercosur side, the most reticent partner was always Paraguay, which, according to its president, Santiago Peña, had not been listened to as it had hoped. The conviction that it was “now or never” has unblocked the final stretch of the negotiations.

The role of Brazil

In order to unblock the negotiation of the annex announced on December 6, it was necessary for Bolsonaro to finish his term in December 2022. Brazil then proposed some changes in the chapter on government purchases and the EU countries ratified their claims regarding the environmental obligations that Mercosur agricultural products must comply with. The agreement was close to being closed in December of last year, but it collided with the reluctance of the government of Peronist Alberto Fernández in Argentina. Javier Milei was already president-elect and the Peronists hesitated to delegate the application of the treaty to a far-right politician.

The situation was finally resolved in the middle of last year after a meeting in Brasília between Brazilian President Luiz Inácio Lula da Silva and Von der Leyen. In July, the two leaders met again in Brussels, in the framework of the CELAC summit, and committed to closing the negotiations. With the European elections over, and Von der Leyen confirmed for a new term, there were no longer any obstacles.

The general revision and translation phase of the texts now begins, a task that could take at least half a year. The European Commission, which has exclusive competence in trade matters, will then have to submit it to the European Parliament, where a majority is required, and to the Council of the EU for ratification. It will be in this second institution, which includes the EU member states, that there will be greater difficulties. There, a qualified majority will be needed (55% of states with at least 65% of the population) and France will do everything possible to obtain a blocking minority. If these obstacles are overcome, on the European side, the treaty can enter into force provisionally and not in all its terms, something that would require ratification by each member state.

In the Latin American bloc, however, it is the national parliaments that must ratify trade agreements, but without veto power over the whole. In other words, the partners are subject to the agreement as they ratify it.

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