Forget about tariff disputes: The EU and Mercosur are creating one of the largest free trade areas globally

Historic EU-Mercosur Trade Pact Nears Completion

CAÑUELAS, Argentina (AP) — Negotiations for a groundbreaking free trade agreement between the European Union and the Mercosur bloc of South American nations began decades ago—before the euro existed, China joined the WTO, or Venezuela ceased being the primary oil supplier to the U.S.

Now, with the global landscape transformed and despite significant challenges—including opposition from influential protectionist groups—the EU and Mercosur are poised to officially sign their long-awaited trade deal this Saturday in Paraguay.

This marks Mercosur’s first major trade agreement, uniting Brazil and Argentina—the region’s economic heavyweights—with Paraguay and Uruguay. Bolivia, which recently joined the bloc, did not participate in the talks but may join the pact in the future.

The EU-Mercosur agreement aims to eliminate tariffs on a wide range of goods, from Argentine beef and Brazilian copper to German automobiles and Italian wines. However, the deal still requires approval from the European Parliament.

Establishing one of the world’s largest free trade zones—encompassing over 700 million people and representing a quarter of global GDP—takes on added significance as former President Donald Trump steers the U.S. away from international economic engagement.

Shifting Global Dynamics

This time, the focus isn’t on U.S.-China rivalry. European Commission President Ursula von der Leyen recently described the agreement as a strong affirmation of multilateral cooperation “in an increasingly adversarial and transactional world.” Brazil’s President Luiz Inácio Lula da Silva called it a rare “win for dialogue, negotiation, and a commitment to cooperation.”

Analysts note that this achievement comes as the U.S. under Trump asserts its influence in Latin America and China expands its reach through trade and financing initiatives.

“South American countries are signaling their desire to move beyond the tug-of-war between the U.S. and China,” said Lee Schlenker of the Quincy Institute’s Global South program. “This demonstrates the region’s ability to diversify partnerships and assert a degree of independence on the world stage.”

Opportunities for South American Agriculture

The agreement provides South American exporters—renowned for their productive farmland and skilled agricultural sector—greater access to the European market with preferential tariffs on farm products.

In Argentina, exporters anticipate saving tens of millions of dollars annually as the deal immediately removes a 20% tariff on the EU’s quota for premium meat imports.

This represents a major shift for Argentina, which for years was governed by left-leaning populists who kept the economy largely closed and imposed export taxes to keep domestic food prices low.

“We’re experiencing a fundamental change,” said Carlos Colombo, head of the Cañuelas Cattle Market near Buenos Aires, where thousands of cattle are sold daily, many destined for Europe and China. “Argentina is opening up to the world again.”

President Javier Milei, often seen as ideologically close to Trump and known for his skepticism toward the UN and the Paris climate agreement, is anything but a protectionist.

Initially, Milei dismissed Mercosur as outdated and considered leaving, but later recognized the bloc’s value in reducing tariffs and simplifying trade procedures.

“He now views this agreement as a way to revitalize Mercosur,” noted Marcelo Elizondo, an Argentine expert in international trade.

Brazil’s economy, long shielded from global competition, is also embracing the deal. The government’s investment agency, Apex, projects that agricultural exports to the EU—such as coffee, poultry, and orange juice—could generate $7 billion in the coming years.

European Farmers Voice Concerns

European farmers, worried about stricter environmental rules and an influx of cheaper imports, have blocked roads and protested in major cities to express their frustration with the agreement.

To address these concerns, the EU has spent years adding environmental and animal welfare provisions and setting strict quotas on South American meat and sugar exports to protect European producers.

Nevertheless, farmer protests led France, Poland, and others to oppose the deal in a recent EU vote, denying supporters the unity they sought. Italy and other agricultural nations only supported the agreement after the EU promised $52 billion in subsidies to farmers.

“That’s a substantial incentive,” said Jacob Funk Kirkegaard of the Peterson Institute for International Economics. “EU leaders believe the deal’s importance justifies the cost.”

“Cows for Cars”: Industrial Benefits

The pact has been nicknamed “cows for cars,” reflecting the expectation that Europe’s automotive sector will benefit significantly.

With rising competition from China and steep U.S. tariffs, German automakers like Volkswagen and BMW, as well as European pharmaceutical, construction, and machinery firms, stand to gain access to millions of new consumers.

Experts point out that removing 35% tariffs on cars and auto parts gives European manufacturers a rare opportunity to reclaim market share in South America from lower-cost Chinese competitors.

“If the EU-Mercosur deal had failed, Latin America might have moved closer to China,” said Agathe Demarais of the European Council on Foreign Relations.

Still, many remain cautious after years of slow-moving negotiations and last-minute setbacks.

“There are still hurdles to clear, and Europe remains cautious,” Colombo observed, speaking over the noise of cattle being loaded for export. “But this is a milestone—we’ve never achieved an agreement of this scale before.”

Reporting contributed by Mauricio Savarese in Sao Paulo for the Associated Press.