THE SUBTLE BALANCE OF THE AGREEMENT BETWEEN THE EU AND MERCOSUR

The EU-MERCOSUR agreement is experiencing its worst moment in recent times. The free trade agreement with Argentina, Brazil, Paraguay, and Uruguay is once again dividing the 27 EU member states. Tensions threaten to derail the signing, which was scheduled for mid-December in Brazil. European leaders have decided to postpone approval of the trade agreement between the EU and the South American Mercosur trade bloc, which includes Brazil, Argentina, Uruguay, and Paraguay, until January. After 26 years of negotiations, the Union is still hesitating, fearing an invasion of agricultural and food products that do not comply with the high technical, phytosanitary, and hygiene standards established to protect European consumers and ensure fair competition for European producers. A decisive round of deliberations was held precisely on a package of agricultural safeguard measures, strongly supported especially by France, Poland, Ireland, Austria, and Hungary, but which also reflected the doubts of Belgium and Italy. Authorizing the agreement’s formalization required a qualified majority: at least 15 member states representing at least 65% of the population.

Pressure to postpone ratification also came from the protests on December 18, in which over 40 European agricultural associations took to the streets of Brussels to reject the cuts planned for the sector in the new Common Agricultural Policy (CAP), as well as trade agreements that, in their view, penalize Made in EU products. The aspect most underestimated by European institutions is precisely the different production standards between the two areas. Indeed, although in the EU the production and processing of products intended for sale must follow strict European standards, which not only slow down production processes but also entail costs, with the aforementioned agreement, European countries would import products at a lower cost and with fewer controls on the production system. However, alongside these issues that need to be addressed, there are undoubtedly important advantages for EU countries.

Mercosur represents an area of over 260 million consumers, with growing demand for machinery, industrial technologies, components, chemicals, pharmaceuticals, fashion, and medium- to high-end consumer goods. These are sectors in which the European manufacturing base, made up of specialized, flexible, and quality-oriented companies, has a recognized competitive advantage. Currently, however, tariffs of up to 35 percent and complex customs procedures make access costly and uncertain, discouraging especially smaller companies.

For European countries, trade relations with Mercosur are already important: in Italy, for example, in 2024, trade reached approximately €13.4 billion, with a positive trade balance, driven primarily by industrial goods, which account for over 80 percent of Italian exports to those countries. In sectors such as machinery, equipment, and transportation, Italian exports to Mercosur will grow precisely because entry costs will be lower. More than 30,000 European small and medium-sized businesses already export to Mercosur countries, and with more streamlined rules, they could increase their commercial presence. From an economic standpoint, the agreement would be a catalyst for growth. Tariffs averaging 35 percent on over 90 percent of goods would be gradually eliminated, and European companies could save billions in exports: sectors such as the automotive, mechanical engineering, and pharmaceutical industries would particularly benefit.

The European commission was very clear. A secure and sustainable supply of critical raw materials is an essential element of the green and digital transitions. It is essential to strengthening the EU’s security and defense capabilities. Although European legislation on critical raw materials aims to ensure a diversified, secure, and sustainable supply of critical raw materials for EU industry, the EU is not yet self-sufficient in these raw materials and will continue to depend on imports. The EU-Mercosur agreement will be instrumental in ensuring the secure and sustainable supply of critical raw materials, given that Mercosur countries are the main producers of many of these raw materials.

But it’s not just the economic aspect that makes the timing particularly opportune. With the agreement, Europe would secure improved access to critical raw materials, from lithium and copper to nickel and rare earth elements, essential for the energy transition and future technologies.

By Domenico Greco