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EU chiefs and leaders of South America’s Mercosur bloc have signed a long-awaited blockbuster trade deal after more than a quarter of a century of talks, though hurdles remain before the application of the broad commercial agreement.
The presidents of the European Commission, European Council and Argentina, Uruguay and Paraguay, as well as Brazil’s foreign minister, attended a ceremony in Asunción on Saturday to ink the accord, which will gradually eliminate more than 90 per cent of tariffs between the two regions.
Once it is ratified by the blocs’ member states, the agreement will create one of the largest free trade zones in the world with a population of more than 700mn people. Total goods exchanged between the EU and Mercosur reached €111bn in 2024.
“Our signal to the rest of the world is clear: the EU and Mercosur are choosing co-operation over competition, and partnership over polarisation,” European Commission president Ursula von der Leyen said.
Once dubbed a “cows for cars” deal, reflecting South America’s strong agricultural output and European industrial might, the agreement has been the subject of stop-start negotiations that began in 2000.
Supporters argue the deal is urgently needed for both regions as they face aggressive US trade and foreign policy under President Donald Trump and rising Chinese economic influence.
Uruguay’s foreign minister Mario Lubetkin said diversification was at “the heart” of the deal. “If this period of tremendous upheaval has served any purpose, it is to show that we all have to find mechanisms to protect ourselves,” he said. “No one should depend solely on anyone else.”
The agreement provides a “geopolitical hedge” and has symbolic weight, said Oliver Stuenkel, senior fellow at the Carnegie Endowment for International Peace.
“[It shows] that both Europeans and South Americans are committed to a rules-based order and multilateralism,” he said. “Neither the Europeans nor Mercosur want to be pushed around by Beijing or Washington.”
The signing was expected to take place in December but was postponed after resistance from some countries led by France, where farmers protested over fears of being undercut by cheaper produce from Mercosur.
Brussels won over waverers including Italy with extra subsidies and possible bans on some agricultural imports. The EU also agreed safeguards to temporarily suspend tariff exemptions for certain agricultural products if imports surge or prices drop. Transition periods for removing tariffs range up to 30 years.
Paraguay’s foreign minister Rubén Ramírez Lezcano said it was a “balanced agreement”.
“We are obviously not 100 per cent satisfied, nor is the European Union. We would have liked to achieve more, but here we are,” he said.
Hurdles to implementation remain. The European parliament will on Wednesday vote on a motion on whether to refer the deal to the European Court of Justice, which would delay approval by around 18 months.
Four MEPs and EU officials told the FT they expected the motion to be rejected. Lawmakers will then vote on the deal, probably by May. Groups including the Greens and far right Patriots will say no. “It’s on a knife edge,” said Barry Andrews of the Liberal Renew group.
Mercosur’s national parliaments must also ratify the agreement. Welber Barral, a consultant at BMJ Associados, said elections were likely to delay its passage in Brasília until at least 2027.
“In general, there is a lot of support from the congresses and governments of Mercosur,” he added.
The deal will contribute just 0.1 per cent to EU GDP in 2031, according to the Commission. But Thijs Geijer, an economist at ING bank, said it would help struggling sectors including car and chemical manufacturers with a €50bn annual export boost, replacing some lost demand from the US and China.
The Commission said EU companies would save €4bn annually on tariffs that are as high as 35 per cent on car parts and 28 per cent on dairy.
European high-value products like wine, cheese and clothing are likely to benefit, as are South American farmers — even if they consider access to the EU market still limited under the deal.
A 2024 study by Ipea, a Brazilian government think-tank, estimated the agreement would increase the country’s GDP by 0.46 per cent by 2040. This was higher than projected gains for the EU, at 0.06 per cent, and other Mercosur states, at 0.2 per cent.
“The agreement tackles areas which have been an impediment to productivity growth within the Mercosur region, which is low compared with peers,” said William Jackson of Capital Economics.
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