Indian Council of World Affairs

Introduction

On 17 January, the MERCOSUR Bloc of South American countries, comprising Argentina, Brazil, Paraguay and Uruguay, and the EU formally signed a free trade agreement after 25 years of prolonged negotiations.^[i] The agreement aims to establish one of the world’s largest free trade areas, covering a market of roughly 780 million people, accounting for a quarter of global GDP.^[ii] Although the deal has been politically concluded, the ratification is currently delayed. On 21 January 2026, the European Parliament voted narrowly (334–324) to refer the signed trade deal to the Court of Justice of the European Union (CJEU) to assess its legal compatibility with the EU treaties.^[iii] This action prompted widespread protests by farmers across various EU countries who fear that cheaper agricultural imports from MERCOSUR countries will undermine European agricultural goods. This study aims to provide an analysis of the MERCOSUR-EU trade agreement. 

Background and Scope of the Deal 

The negotiations for a comprehensive trade agreement between MERCOSUR (comprising Argentina, Brazil, Paraguay, and Uruguay) and the EU officially began in 1999.^[iv] From the outset, significant disagreements emerged over agricultural market access, tariff-rate quotas (TRQs), and regulatory standards, as MERCOSUR sought greater access to EU markets. On the other hand, several EU member states resisted agricultural liberalisation under pressure from domestic farmer lobbies, leading to the suspension of talks in 2004. 

Subsequent efforts to revive the negotiations made only limited progress between 2006 and 2009, shaped by shifting political priorities and recurring economic crises within MERCOSUR, forcing governments to focus inward, on inflation, employment, and social stability, rather than committing to a far-reaching trade agreement that could expose domestic industries to EU competition. ^[v] Talks stalled again in 2012, when Paraguay was suspended from MERCOSUR over the impeachment of President Fernando Lugo. A revival occurred in 2015-2016 with the election of centre-right, pro-business governments under Mauricio Macri in Argentina and Michel Temer in Brazil, but agriculture remained the biggest bone of contention amid EU concerns about cheap South American agricultural imports. Momentum built towards in an ‘agreement in principle’^[vi] announced in 2019. However, implementation faced further setbacks from the EU primarily due to environmental and sustainability concerns, particularly regarding deforestation in the Amazon under Brazil’s Bolsonaro government.^[vii] The breakthrough came amid a changing geopolitical landscape, shaped by trade wars, rising protectionism, supply-chain disruptions, and strategic political recalibration within both blocs. Under these conditions, the parties were able to overcome long-standing disagreements and formally sign the agreement on 17 January 2026, marking the conclusion of one of the longest and most complex trade negotiations. 

At its core, the agreement aims to eliminate tariffs on approximately 90 per cent of goods traded between the two blocs.^[viii] Once finalised, MERCOSUR gains enhanced access to the EU market for agricultural products such as beef, poultry, sugar, grains, pulp, ethanol, and soy-based goods. In return, MERCOSUR opens its markets to EU exports of high-value industrial and manufactured goods, including automobiles, machinery, chemicals, pharmaceuticals, and processed food products.^[ix] The agreement also incorporates safeguard mechanisms and includes provisions on services liberalisation, public procurement, customs facilitation, and intellectual property rights.^[x] Further, both sides commit to labour standards and environmental protection, including adherence to the Paris Climate Agreement.^[xi]

Key Benefits for MERCOSUR and the EU

In 2024, total trade in goods between the EU and MERCOSUR exceeded €111 billion with EU exports at approximately €55 billion, and imports at €56 billion, indicating a broadly balanced trade volume between the two regions.^[xii]

Upon entry into force of the EU–MERCOSUR agreement, MERCOSUR will gradually eliminate tariffs on approximately 91–92 per cent of EU exports over a period of 10–15 years, while the EU will liberalise around 92 per cent of imports from MERCOSUR within a decade.^[xiii] 

The table below highlights the details of the deal as well as expected key benefits:

Source: EU-MERCOSUR PARTNERSHIP AGREEMENT (EMPA)^[xvii]

Analysis of the Deal

The issues that delayed the MERCOSUR-EU negotiations for 25 years persist. In agriculture, EU fears of low-cost MERCOSUR imports have been addressed through TRQs and safeguard clauses, yet farmer opposition persists and protests continue, indicating that the problem has merely been postponed. Environmental concerns, particularly regarding Amazon deforestation, have now been addressed through pegging the deal to the Paris Climate Agreement; however, enforcement remains an issue. On the other hand, MERCOSUR fears that EU regulatory and environmental standards could be used to restrict their exports, and the deal can result in deindustrialisation and job losses.

Through the lens of dependency theory perspective, the deal reflects core-periphery dynamics. MERCOSUR’s comparative advantage lies in primary commodities, including agricultural goods, animal products and critical minerals, etc., while EU excels in manufacturing and technology. As a result, liberalised access to European industrial goods places competitive pressure on MERCOSUR’s relatively weak manufacturing base. Local and emerging manufacturing sectors may struggle to compete with the EU’s highly developed industries, limiting prospects for industrial upgrading and deepening MERCOSUR’s dependence on an agriculture-led export model. The trade of products like beef, poultry, soy, and sugar in the region may accelerate environmental degradation including deforestation and biodiversity loss. Though inclusion of the Paris Agreement as an ‘essential element’^[xviii] is a step forward, it remains very difficult to operationalise in practice, as it lacks enforceable commitments to halt deforestation, protect indigenous rights, or ensure compliance with EU environmental standards.

Additionally, the agreement addresses non-tariff barriers to encourage trade and investment, like making customs procedures easier, reducing and aligning technical requirements, and standardising health and safety measures according to international standards. On the other hand, MERCOSUR countries see the EU’s regulatory rules as non-tariff barriers that can restrict effective market access. Stringent EU standards on food safety, pesticide use, animal welfare, labour conditions, and environmental compliance increase production and certification costs for MERCOSUR exporters and, in some cases, exemplify their fear of whether this can be used as an excuse to exclude products from the European market altogether. For instance, in 2024 the European Commission carried out an audit of Brazilian beef destined for the EU and found shortcomings in traceability and control systems, leading Brazilian authorities to suspend exports of female beef until compliance guarantees could be provided.^[xix] Thus, MERCOSUR remains sceptical of the EU getting to decide global standards for sustainability and production.

Agricultural exports from MERCOSUR are further constrained by TRQs, safeguard mechanisms, and complex regulatory procedures. Goods like beef, poultry meat, milk powder, cheese, rice, maize and sorghum, sugar, honey, ethanol, and biodiesel will be subject to specific TRQs^[xx] as the EU has classified them as ‘sensitive’ commodities. In contrast, the elimination of high MERCOSUR tariffs on EU industrial goods (particularly automobiles, machinery, chemicals, and pharmaceuticals) provides European firms with substantial cost savings and enhanced competitiveness, underscoring the asymmetric nature of market opening under the agreement. European industry, notably machinery makers and producers of wine, cheese, and spirits, stand to benefit handsomely as tariffs fall and products become cheaper for Latin American buyers. Meanwhile, European farmers fear that MERCOSUR’s lower-cost, lower-standard agricultural and animal products – particularly beef, poultry, and sugar – could flood the EU market and depress prices. EU concerns were also amplified by differences in production practices within MERCOSUR; for instance, agricultural production in MERCOSUR countries is largely based on monocultures of GMO crops, which heavily depend on pesticides and fertilisers that are banned by the EU due to their severe impact on health.^[xxi]

Regarding jobs, the EU has projected that the agreement could generate up to 600,000 jobs. However, trade unions and civil society groups within MERCOSUR saw potential job losses in the manufacturing sector because increased competition from EU industrial goods could accelerate deindustrialisation and adversely affect domestic start-ups. This, if not addressed carefully, can challenge the small and medium-sized enterprises chapter, which aims to address the specific challenges they face in trade and investment.

On critical minerals, the EU secures long-term access to critical minerals needed for its green and digital transition, keeping MERCOSUR just as a supplier of primary goods, perpetuating unequal exchanges. Without binding commitments on technology transfer, local processing, and industrial development, it may primarily serve the strategic interests of EU rather than fostering genuine structural transformation in MERCOSUR economies.

Despite the flaws, the deal is a positive step, as it will provide new market and investment opportunities, creating institutional space for dialogue and market access between two highly unequal blocs.

Geopolitical and Strategic Reasons behind the Trade Agreement

The agreement's conclusion neglect that the cost of not concluding outweighs the cost of compromise, amid global shift towards protectionism, tariff wars and supply chain disruptions. Both aim to reduce reliance on traditional partners, diversify partnership and maintain strategic autonomy amid intensifying US–China rivalry. This was reflected in the statement of the European Commission President Ursula von der Leyen at the conclusion of the negotiation in Asuncion, as she described the agreement not only as an economic opportunity but also a political necessity, a choice of cooperation over competition and partnership over polarisation.^[xxii] While Brazilian President Lula stated that ‘the deal is multilateralism’s response to isolation’.

For the EU, the agreement strengthens ties with a resource-rich region, securing critical mineral supplies (including niobium, lithium, nickel, and rare earths), essential for its green and digital transition. For MERCOSUR, it provides access to a stable and high-value market. 

Importantly, after more than 25 years of negotiations, failure to conclude the agreement carried significant reputational costs for both sides. For MERCOSUR, prolonged deadlock increasingly raised doubts about its credibility and coherence as a negotiating bloc. For the EU, failure to advance the agreement risks weakening its trade agenda in the Global South. Together, these factors, combined with comparatively favourable political conditions, enabled them to conclude the deal after 25 years of prolonged negotiations.

Risk Involved and Challenges Ahead

Although the MERCOSUR-EU Partnership Agreement has been politically concluded, the deal is yet to be ratified. By late January 2026, the European Parliament voted narrowly (334 to 324) to refer the signed trade deal to the CJEU to determine whether it is legally compatible with EU treaties.^[xxiii] This referral suspends the ratification process, potentially for up to two years.

The challenges currently affecting the ratification of the EU–MERCOSUR agreement are not new; rather, they reflect long-standing concerns within the European Union. Farmers in several EU member states fear intensified competition from agricultural imports from MERCOSUR, produced at lower cost due to differences in production scale, labour costs, and regulatory requirements. They have also questioned MERCOSUR imports’ compatibility with the EU’s environmental and pesticide standards. Together, these concerns have translated into widespread farmer protests and political resistance within the EU, complicating the ratification process.

On the other hand, MERCOSUR countries have concerns that the agreement may generate asymmetric gains. Local industries and startups, in particular, fear being placed at a competitive disadvantage as markets open to EU industrial and manufactured goods. Moreover, trade unions and civil society groups have also highlighted potential job losses in the manufacturing sector and deindustrialisation.

Conclusion

After 25 years of prolonged negotiations, the MERCOSUR–EU trade deal received renewed momentum due to a favourable political climate within both blocs and geopolitical pressures including Trump-era tariff wars, rising protectionism, supply-chain disruptions, and strategic autonomy amid US–China tensions. However, the agreement now faces institutional scrutiny on the EU side, triggered by widespread farmer protests, which led the European Parliament to refer the deal to the EU’s top court for review, effectively freezing the ratification process for the next 18–24 months. Nonetheless, one should not view the agreement as asymmetrical in its costs, as both parties bear equal risks. Within the EU, strong opposition from farmers stems from concerns that cheaper agricultural and animal products from MERCOSUR, produced under lower environmental and animal welfare standards than those required in the EU, could flood the EU market, depress prices, and undercut domestic production. On the other hand, EU industrial sectors stand to gain significantly from exporting goods and services to MERCOSUR. For MERCOSUR, the risks are structural: continued reliance on primary commodity exports may reinforce extractive growth patterns, exacerbate deforestation pressures, and expose domestic industries to intense competition from highly industrialised EU goods, potentially accelerating job losses and deindustrialisation.

Nonetheless, viewed pragmatically, the agreement was made possible because MERCOSUR and the European Union understood they had far more to gain together, and hence, it represents a pragmatic step forward, as it brings in access to new markets and investment opportunities, creates institutional space for dialogue and cooperation, and signals that even unequal partners can prioritise engagement over fragmentation and partnership over uncertainty in an increasingly complex global order. Both regions stand to gain economically, diplomatically and geopolitically. The EU must therefore overcome the current deadlock surrounding the agreement, as failure to conclude it after more than twenty-five years of negotiations would cast doubt on its credibility and weaken its trade agenda in the Global South.

***** 

*Ayush Joshi, Research Intern, Indian Council of World Affairs, New Delhi
Disclaimer: Views expressed are personal. 

References

[i] AP. ‘EU, Mercosur Bloc of South American Nations Sign Landmark Free Trade Agreement’. World. The Hindu, January 18, 2026. https://www.thehindu.com/news/international/eu-mercosur-bloc-of-south-american-nations-sign-landmark-free-trade-agreement/article70521129.ece.

[ii] European Parliament, “EU–Mercosur Association Agreement: Assessing Its Economic, Social and Environmental Impact – In-Depth Analysis,” https://www.europarl.europa.eu/RegData/etudes/STUD/2021/653650/EXPO_STU(2021)653650_EN.pdf.

[iii] ‘EU-Mercosur: MEPs Demand a Legal Opinion on Its Conformity with the EU Treaties | News | European Parliament’. January 21, 2026. https://www.europarl.europa.eu/news/en/press-room/20260116IPR32450/eu-mercosur-meps-demand-a-legal-opinion-on-its-conformity-with-the-eu-treaties.

[iv] ‘EU Trade Relations with Mercosur’. January 17, 2026. https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/mercosur_en.

[v] Note - Argentina’s debt crises, Brazil’s recessions, currency volatility, and fiscal stress repeatedly forced governments to focus inward, on inflation, employment, and social stability, rather than committing to a far-reaching trade agreement that could expose domestic industries to EU competition. Similarly, political tensions were witnessed from EU countries such as France, Poland, and Ireland, as the farmers remain unconvinced, arguing that the promised gains come at a direct cost to their livelihoods.

[vi] Note: The 2019 agreement in principle meant finalising most of the agreement contents, a significant step forward in the face of the previous history, but did not mark the end of negotiations.

[vii] European Parliament, “The EU–Mercosur Association Agreement,” European Parliamentary Research Service (EPRS) Briefing, November 2019, accessed February 2026, https://www.europarl.europa.eu/RegData/etudes/BRIE/2019/640138/EPRS_BRI(2019)640138_EN.pdf.

[viii] Refer to footnote 2.

[ix] ‘EU-Mercosur Partnership Agreement’. Accessed February 9, 2026. https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/mercosur/eu-mercosur-agreement/factsheet-eu-mercosur-partnership-agreement-opening-opportunities-european-farmers_en.

[x] Refer to footnote 5.

[xi] Refer to footnote 7.

[xii] Council of the European Union, “EU–Mercosur Trade” (infographic), accessed February 2026, https://www.consilium.europa.eu/en/infographics/eu-mercosur-trade/

[xiii] European Parliament, EU–Mercosur Partnership Agreement: Briefing (European Parliamentary Research Service, EPRS, January 2025), accessed February 2026, https://www.europarl.europa.eu/RegData/etudes/BRIE/2025/769537/EPRS_BRI(2025)769537_EN.pdf.

[xiv] ‘The EU-Mercosur Trade Agreement - European Commission’. Accessed February 9, 2026. https://commission.europa.eu/topics/trade/eu-mercosur-trade-agreement_en.

[xv] ‘El Acuerdo UE–Mercosur: un acuerdo histórico que el mundo necesita más que nunca | EEAS’. Accessed February 9, 2026. https://www.eeas.europa.eu/delegations/argentina/el-acuerdo-ue%E2%80%93mercosur-un-acuerdo-hist%C3%B3rico-que-el-mundo-necesita-m%C3%A1s-que-nunca_und-0?s=190.

[xvi] ‘The EU-MERCOSUR Agreement: An IP Perspective - IP Helpdesk’. Accessed February 9, 2026. https://intellectual-property-helpdesk.ec.europa.eu/news-events/news/eu-mercosur-agreement-ip-perspective-2025-01-30_en.

[xvii] European Commission, “EU–Mercosur Agreement,” Directorate-General for Trade, European Commission, accessed February 2026, https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/mercosur/eu-mercosur-agreement_en.

[xviii] Climate commitments earlier were not framed as an essential or enforceable element of the agreement. However, after the negotiation of 2019, the Paris Climate Agreement became a binding (‘essential element’) in the EMPA, stating that it will allow the suspension of the agreement if a party leaves the Paris Agreement and also if it stops being a party ‘in good faith’, i.e., undermines the Paris Agreement. 

[xix] Euronews. ‘Will the Mercosur Agreement Really Bring “toxic” Food to Our Plates?’  January 28, 2026. https://www.euronews.com/my-europe/2026/01/28/fact-check-will-the-mercosur-trade-deal-open-the-door-to-toxic-food-in-the-eu.

[xx] Refer to footnote 7.

[xxi] Europe Écologie, Résumé et Analyse de l’Accord UE–Mercosur (Paris: Europe Écologie, July 2021), accessed February 2026, https://europeecologie.eu/wp-content/uploads/2021/07/ResumeAnalyseAccordUEMercosur.pdf

[xxii] ‘EU and Mercosur Sign Historic and Ambitious Partnership - European Commission Representation in Cyprus’. Accessed February 9, 2026. https://cyprus.representation.ec.europa.eu/news/eu-and-mercosur-sign-historic-and-ambitious-partnership-2026-01-17_en. 

[xxiii] Refer to footnote 3.