Cars, Beef, and Free Trade. The EU-Mercosur Agreement

On December 5th, 2024, the European Commission President, Ursula von der Leyen, and the four Mercosur countries—Argentina, Paraguay, Uruguay, and Brazil—finalized negotiations and reached a political agreement for the EU-Mercosur Partnership Agreement. This milestone marks a momentous point in the history of this partnership and international trade in general. To understand the importance of this date, it is necessary to first explore the journey leading up to it. Negotiations between Mercosur and the European Union began in 1999. Both blocs, which are two of the world’s largest trading entities in the world, were seeking to deepen their economic and political ties through a trade partnership agreement. Since 1999, there have been several rounds of negotiations. In June 2019, the EU and Mercosur finally concluded discussions.  However, EU members refused to ratify the deal. Thus, the agreement reached in December 2024 is a political agreement as the EU and Mercosur states signed the deal. Nevertheless, for the agreement to enter into force,  all 27 EU member states must endorse it. Therefore, there is still a long way to go before this agreement can come to fruition and deliver the benefits it claims to hold.

The agreement is structured on three pillars:  trade, political dialogue, and cooperation.  Most notably,  it would remove 90% of bilateral tariffs, along with reducing non-tariff barriers and harmonizing regulations in key areas such as technical requirements. Eliminating these bilateral tariffs saves billions for both EU and Mercosur consumers. Furthermore, removing such high tariff barriers would enable EU exporters to save 4 billion euros in customs duties every year. In economic terms, it will also affect 109.5 billion euros in trade per year between the two blocs. Even without the agreement, the two blocs are already extremely important to one another. The EU is Mercosur’s number one partner in terms of trade and investment, and the EU exported 56 billion euros in goods in 2023 and 28 billion euros in services to Mercosur. In 2021, the EU was the largest foreign investor of Mercosur, with a stock of 340 billion euros. This all occurred with substantial barriers facing one another. The agreement would further increase the flow of trade between the two countries, leading to greater potential economic growth and savings. 

Specific industries are highly limited by the tariffs discussed above and would be able to free themselves considerably through this agreement. For example, Mercosur imposes a 35% tariff on car parts from EU companies. Removing such tariffs increases competition in the market, specifically in terms of cars and auto parts, giving consumers greater access to a broader range of products. However, there are some areas in which the agreement still holds protectionist values. In the beef sector,  the EU will only allow 99,000 tonnes of beef that comes from Mercosur to enter the bloc with a 7.5% duty. This represents 1.6% of European beef production. This demonstrates the balance was reached between opening markets and protecting domestic industries from losses. Nonetheless, this is still an improvement on the current circumstances as it still reduces the tariff on beef and allows more of it into the EU.

The implications of the agreement go beyond South America and Europe.  If ratified by the EU, it could signify a shift away from the current reliance of European states on the US. The economic power of the US is widely recognized, with only China outperforming it in terms of exports of goods and services.  Indeed, the US  is projected to maintain its position as the country with the highest nominal GDP in 2025, at over 30 trillion USD.  China is in second place with a GDP of approximately 19.53 trillion USD. Importantly, the EU is predicted to reach a nominal GDP of around 20.29 trillion USD this year, while Mercosur’s will be around 4.38 trillion. At this current point, combining the EU’s and Mercosur’s nominal GDP would still be less than the US’s. Moreover, the amount of trading the US does with both Mercosur and the EU is substantial. In 2024, the US exported over 370 billion USD to the EU, while in 2023, the EU exported over 500 billion USD 2023 to the US.. Down south, Mercosur exported 44 billion USD to the US, while the US exported 51.1 billion USD to Mercosur.

All of this is meant to paint a picture of the important relationship that Mercosur and the EU have with the US. While the US also depend on these blocs for trade, it is nonetheless still the US that holds the crown of power in trade. Given what has been discussed about the agreement, there is a potential for both blocs to move their focus away from the US and into each other. Indeed, there is already motivation to do so. US President Donald Trump has stated he is going to impose retaliatory tariffs on the EU, targeting steel and aluminum. He further doubled down on these threats, claiming he will impose a 200% tariff on wine and champagne from European Union countries. The endless tariff threats by the US give the EU a reason to consider focusing on trade with other countries. This is where the agreement with Mercosur can truly flourish. Because of this agreement, European products can enter the Mercosur market under better conditions than US products. Such an agreement would help to boost the autonomy of the EU and reposition itself from being so dependent on American security.  This agreement further works to deepen the economic relations between South America and Europe, and reduces their dependency on global trading powers, such as the US. For Europe, signing off on this deal would not only be economically significant, but also strategically significant because of its current dispute with the US. It is in the hands of European leaders to make such a decision.

The greatest benefit of this deal for Mercosur lies not so much in increased exports, but rather in the development of its industries. The agreement will integrate Mercosur industries into highly innovative value chains, which will increase their competitiveness. As Mercosur states are looking to diversify their economies and export fewer commodities through producing higher-value goods and services, the agreement with the EU would provide valuable opportunities for this transition. Additionally, this deal sends a clear message to the US and Donald Trump, which signals that the EU and Mercosur are committed to shaping global trade rules based on their shared standards of democracy and the rule of law, as well as rejection of protectionism. 

With all this being said, there is a reason that the agreement has not entered into force. One particular issue is environmental concerns, as opposition forces claim there are insufficient guarantees to protect against deforestation, for example. There are also concerns about climate change and human health, as the agreement would lead to an increase in exports of cars, single-use plastics and pesticides from the EU at lower prices. However, opposition extends past just the environment.  Indeed, France has been vocal about its disagreement with the agreement, especially in terms of the agricultural industry. French farmers have argued that the beef quota that was mentioned previously would lead to unfair competition in Europe, as farms in South America are larger, their health and safety standards are not as strict in Europe, and their labour costs tend to be lower. France is a powerful member of the EU, and thus its position would be vital in either making or breaking this agreement. 

Just as is the case with any major trade agreement, there will always be those in favour and those who oppose it. While both sides have legitimate arguments, it must ultimately be decided whether the pros outweigh the cons for the agreement to move forward. Even considering all its struggles, the US continues to be the global superpower. For competition to arise against them,  states and institutions must start working together.  The EU-Mercosur agreement represents an important opportunity for both the EU and Mercosur to demonstrate that being successful in trade does not equate with working with the US. Nevertheless, if this agreement does not come to fruition, the status quo will persist and constant tariff threats will be the norm.