Last Friday, the EU and the Mercosur countries – Argentina, Brazil, Paraguay, and Uruguay – reached a deal on the free trade agreement that has been negotiated for nearly 25 years. With the agreement, European companies gain increased access to a large market, and the EU strengthens ties with a like-minded partner in a time marked by uncertainty and geopolitical tensions.
Negotiations between the EU and Mercosur on a free trade agreement began in 2000 and have been going on back and forth ever since. They are now finally completed. The four Mercosur countries (Brazil, Argentina, Uruguay, and Paraguay) together have a population of 275 million, and their combined GDP makes them the world’s sixth-largest economy. The Confederation of Swedish Enterprise welcomes the agreement, which is important both from a strategic and economic perspective.
In an increasingly geopolitical world, stronger ties between the EU and Mercosur should be a given from a strategic standpoint. The agreement can contribute to the EU’s efforts to strengthen competitiveness, as open markets are a prerequisite for increasing the EU’s productivity growth. Free trade agreements provide increased market access and stable, predictable rules, which are crucial for European companies to develop, compete, and grow on a global level. Trade agreements are also an important component for companies in making their supply chains more resilient, thus contributing to strengthening the EU’s economic security.
The Mercosur countries have access to raw materials and minerals that the EU needs for the green and digital transitions. Implementing the agreement would therefore be in line with the EU’s strategy to increase economic security and diversify away from other less reliable sources. Several critical raw materials, such as iron ore, bauxite, copper, and nickel, are extracted in Brazil, while Argentina has large deposits of lithium. The agreement improves and secures the EU’s access to these by, among other things, severely limiting the opportunities to impose export restrictions.
The agreement is also important from an economic standpoint. 60,000 European companies export to Mercosur. These companies and their suppliers support 855,000 jobs in the EU. Additionally, the EU is Mercosur’s second-largest trading partner for goods after China, with a value of nearly 110 billion euros in 2023. The EU is also a major investor in the region. Still, the untapped potential is enormous. Mercosur currently has very high tariffs on certain goods important for European exports, such as motor vehicles, textiles, and chemicals. One of the biggest advantages of the agreement is that it removes most tariffs gradually.
The agreement will also make it easier for European companies to sell services to and invest in Mercosur. This includes business services, financial services, and telecommunications services. There are also other benefits of the agreement, such as making it easier for European companies to participate in government contract tenders and increasing transparency in tender processes. The Mercosur countries are not members of the Government Procurement Agreement (GPA) within the World Trade Organization, and the trade agreement can therefore make a difference for European companies.
The deal represents a milestone for the EU’s trade policy and an opportunity for European companies to diversify their supply chains and strengthen ties with like-minded partners.
The agreement establishes an institutional framework for cooperation on sustainability issues. It includes an ambitious sustainability chapter that stipulates that trade between the partners should support and uphold existing environmental standards, forest conservation, and workers’ rights. The increased opportunities for European companies at the forefront of developing green technology to enter and export to the Mercosur markets can have a significant positive impact.
The deal represents a milestone for the EU’s trade policy and an opportunity for European companies to diversify their supply chains and strengthen ties with like-minded partners. At the same time, it brings significant trade opportunities for European companies, not least small and medium-sized enterprises. It is now essential that the agreement is approved and can enter into force as soon as possible.
The press release and more information from the European Commission can be found here.
The full text of the agreement: EU-Mercosur: Text of the agreement
Free trade