EU x Mercosur - FTA

The agreement between Mercosur and the European Union ("EU") represents a historic milestone in trade relations between the blocs. It promises profound transformations in the global economic and trade scenario and reinforces important commitments on the ESG agenda. The discussion, which began 30 years ago, has advanced significantly this year, especially after establishing a mechanism to prevent unilateral measures from harming the balance between countries (such as the EU's meat export quotas), paving the way for the agreement.

Negotiations had advanced in 2019 when the main trade-offs were declared, such as those related to agricultural quotas, and, in 2023-2024, adjustments were proposed to preserve the countries' ability to leverage public interest policies, such as those related to medicines. In addition to representing Mercosur's entry into a virtuous cycle and the abandonment of its isolation, the agreement sends an impactful message about the need for collaboration between regions that defend the same values and interests. This strategical alignment agreement includes political, cooperation, and free trade aspects, reinforcing independence and equidistance about geopolitical tensions, such as those between the US and China.

From a foreign trade perspective, one of the main advantages of this agreement lies in the reduction and, in many cases, the elimination of customs tariffs on a wide range of products. This measure, by facilitating the flow of goods between the two markets, stimulates bilateral trade, increases the competitiveness of companies and, consequently, generates new jobs and business opportunities.

For Brazil, the agreement has strategic value both in financial terms — since the European bloc is its second largest economic partner, with a trade flow of US$ 92 billion in 2023 — and in infrastructure, due to the potential for modernizing the Brazilian industrial estate and expanding its base of trading partners, which could increase Brazil's integration into the global market by up to five times.

On the European side, in addition to the savings of 4 billion euros in taxes paid annually by European companies, the agreement presents an even more valuable strategic attraction, considering that the EU faces constant trade disputes with its two largest partners, the United States and China.

As the next steps, the agreement enters a critical phase: ratification by all EU member states and the four Mercosur countries.

One of the last agreements finalized by the EU was the FTA with New Zealand, which took two years between the agreement on the final text and its signature for entry into force. In other words, despite the joint efforts and the economic and trade situation exposed here, which are putting pressure on the agreement to be signed, there is no doubt that it will still take time.

In general, Brazil is expected to benefit significantly from the import of high-value-added products, such as machinery, equipment, and capital assets from Europe. In return, Brazil should continue to export agricultural commodities, such as soybeans, contributing to global food security. By diversifying Brazil's export portfolio, this trade dynamics reduces dependence on a few products and strengthens the national economy.

However, this is also one of the most critical points of the negotiation: the agreement brings broad benefits to sectors such as the automotive and machinery industries in Mercosur and to the essential minerals sector in the EU, but it may disadvantage the European agricultural sector.

Last year, 32.4% of Mercosur's exports to the EU were food and live animals, and 29.6% were mineral products. While European farmers fear unfair competition, it is urgent and critical for the EU to diversify its sources of essential minerals, which are needed to build batteries, solar panels, and to harvest wind energy and green hydrogen. The EU currently relies heavily on China for these minerals, which is facing intense trade disputes that limit not only its transactions with the Asian country but also the sale of finished Chinese products to markets such as the United States. Despite the changes made to the final text of the agreement, which includes modern measures such as sustainable development, fighting climate change, standardizing food safety measures, and safeguard mechanisms to balance transactions between the blocs, there is still strong resistance, especially from France, followed by Italy, due to the supposed damage that the agreement could cause to the agricultural sector. For this reason, European representatives have constantly emphasized that most of the products covered by the agreement do not have a significant volume of transactions and are subject to quota mechanisms and other restrictions to prevent unbridled exports to European countries. Furthermore, the deal guarantees the protection of more than 250 food products under Geographical Indications (GIs), maintains the strict food safety standards in force in the EU, and favors the exchange of information on issues such as antimicrobial resistance, and the openness to implement additional safety measures in case of new scientific information update the existing ones.

The final phase is the signing and approval of the political dialogue, cooperation, and free trade agreements. The opposition of France, Italy, and Poland should be overcome by the majority led by Germany, Portugal, and Spain. It is worth mentioning that Argentina's request for greater flexibility in unilateral negotiations with other countries exposes a possible attempt at a trade agreement with the USA.

In Brazil, all these changes have been seen as positive, as they pressure the country to adopt more sustainable and responsible practices. The EU, recognized for its high environmental and social standards, encourages Brazil to strengthen its commitments to sustainability, governance, and energy transition. This positive pressure can accelerate the creation of more efficient public policies and stimulate the development of clean and renewable technologies in Brazil.

By aligning with European standards, Brazil increases its attractiveness to foreign investment, consolidating itself as a reliable trading partner committed to sustainable development. Thus, the Mercosur-EU agreement, with its innovative and balanced commitments, combined with the diversification of its export portfolio, has great potential to attract foreign investment, strengthen the Brazilian economy, and consolidate the country on the global scene.