(VOVWORLD) - The European Union and the Common Southern Market (Mercosur) signed a new Free Trade Agreement on last Friday. The agreement is expected to bring great economic and political benefits to both sides, but the ratification process is likely be difficult.
President of the European Commission Ursula von der Leyen and heads of Mercosur states including Brazil, Argentina, Uruguay, and Paraguay signed the EU-Mercosur Free Trade Agreement on December 6 in Montevideo, the capital of Uruguay, completing a difficult negotiation that lasted more than two decades.
Huge economic benefits
The EU and Mercosur began negotiating a bilateral Free Trade Agreement in 1999 and by 2019 had reached a preliminary agreement. At that time, it was expected to be completed in 1 or 2 years more, and ratified by all the EU member states. However, the COVID-19 pandemic and protests by European farmers, particularly in France, Belgium, and Spain, interrupted progress on the agreement for 5 years.
Efforts to finalize the Agreement accelerated following major changes in the Mercosur leadership, particularly after the reelection of Lula da Silva as President of Brazil in early 2023. As Chair of the emerging G20 economies, in 2024 Lula convinced many European leaders to start supporting the EU-Mercosur Agreement more strongly.
Observers say that despite many reservations, especially on the European side, the new agreement opens up huge opportunities for both the EU and Mercosur. Once it’s approved, the Agreement will create one of the largest free trade areas in the world, with more than 720 million people, accounting for about 25% of global GDP. It will remove more than 90% of tariff barriers between the two sides, allowing European cars, machinery, chemicals, telecommunications equipment, and pharmaceuticals to enter the Mercosur market of 273 million people with more incentives than competing products from the US or Japan.
In return, agricultural and mineral products, which are advantages of Mercosur countries, will be imported into the EU market of 450 million people. Mercosur is currently the EU’s 10th largest trading partner. Last year’s two-way trade turnover reached 110 billion USD. Mercosur has materials like lithium and nickel that Europe needs for its energy transition.
This agreement will facilitate European investments in key sectors in Mercosur countries, such as sustainable mining, renewable energy and sustainable forestry, said Von de Leyen. "It will also support projects with a direct impact on the daily lives of the people, such as the extension of electricity networks to rural and isolated areas, or the acceleration of digitalization throughout the region."
Political necessity
Before the agreement was signed in Uruguay, it still faced opposition within the EU. France had convinced Poland, Austria, and part of Italy to oppose some terms of the agreement. Von der Leyen’s clinching the agreement came as a surprise. She explained that, besides economic benefits, this agreement also has great political significance, representing the vitality of multilateralism and global free trade.
The new agreement will open opportunities for Europe to join public investment projects in Mercosur, said Von der Leyen. "This agreement represents a partnership based on values, where openness and cooperation are the engines of progress and prosperity. It is a clear response to those who advocate isolation and fragmentation.”
Pedro Brites, an expert with the Getulio Vargas Research Foundation in Brazil, said Donald Trump’s threat to impose tariffs on US trading partners put pressure on both the EU and Mercosur to quickly complete the FTA, expand their markets, diversify trading partners, and respond to the risk of trade conflicts with the US.
Brites said: “It’s predictable that with the victory of Donald Trump, the US will pursue a more selfish and closed policy toward the international market. I think it has forced European and Mercosur countries to speed up, remove obstacles, and complete the agreement.”
The biggest challenge for the FTA is to overcome internal obstacles in Europe. According to EU regulations, the agreement will only take effect if it’s ratified by 15 of 27 member states and receives majority support in the European Parliament.
France, Poland, and Austria oppose the agreement’s current terms, saying that it will cause great damage to European agriculture. Observers say the EC will have to issue new preferential policies on agriculture soon to appease farmers' associations and get enough votes for ratification.