Inside the The EU-Mercosur Impasse

Javier Milei, Luis Alberto Lacalle Pou, Ursula von der Leyen, Luiz Inácio Lula da Silva, and Santiago Peña in Uruguay.

Photo by  Dati Bendo – EC Audiovisual Services / ©European Union, 2024.

Over 25 years ago, the EU and Mercosur began negotiations to create the world’s largest free trade zone. Yet the deal still has not been signed/completed.

If entirely approved, the deal would create a market of over 700 million consumers that would collectively represent ~25% of the world’s GDP. The deal includes greater EU access to vast quantities of South American agricultural products and more open markets to European automobiles, industrial machinery, pharmaceuticals, and chemical products for Mercosur members. Apart from the increased variety of goods, EU firms will reap the economic benefits of saving some $4.6b in tariffs they currently pay to export to Mercosur members.

Furthermore, the deal carries geopolitical significance. Currently, China is South America’s largest trading partner, and it wields influence through its Belt and Road Initiative infrastructure projects across the continent. If fully implemented, the EU-Mercosur deal would both reduce China’s share of influence and grant the EU access to higher quantities of critical minerals like lithium, graphite, and nickel.

However, the “free” part of free trade is a misnomer, as everything comes at a cost. Despite the estimated gains and benefits for consumers and producers on both sides of the Atlantic, some EU member states have opposed the deal. Poland, France, Hungary, among others, claim the projected flood of cheaper agricultural imports will undermine domestic primary sector producers. They have also expressed discontent with the fact that they must compete in price with countries that are not subject to the EU’s high health and animal welfare standards, creating an unfair playing field.

Despite the opposition the deal faces and the fact that it is still pending a legal review from the EU Court of Justice, the renewed focus to complete the agreement represents cooperation and stability among democracies in regions shaken by fragmentation and instability driven by the Trump administration. Now, it remains to be seen if the EU can overcome its internal strife to bring the deal to fruition.