The European Union recently postponed signing a free trade agreement with South American countries until mid-January. The European Commission’s president was due to sign the EU-Mercosur Trade Agreement in Brazil last month but resistance from some members delayed the signing.
What is the EU-Mercosur Trade Agreement?
The EU-Mercosur Trade Agreement is a comprehensive trade deal negotiated between the EU and Mercosur, an economic bloc comprising Brazil, Argentina, Uruguay, and Paraguay. The agreement aims to lower tariffs, expand market access, and set common rules for trade between the two regions.
Under the agreement, the EU would cut or eliminate tariffs on agricultural exports from Mercosur. Simultaneously, Mercosur would lower tariffs on EU exports such as cars, machinery, chemicals, pharmaceuticals, and dairy.
Negotiations were concluded in principle in 2019, but the agreement has not yet been ratified due to reluctance from European members.
Expanding market access
The deal would eliminate European duties on 100 percent of imported industrial goods over a transitional period of up to 10 years. Mercosur would fully remove duties in key offensive sectors such as cars, car parts, machinery, chemicals and pharma.
Additionally, it would significantly reduce duties on most EU agri-food exports while the EU opens most agricultural imports, limiting sensitive products with quotas and exclusions. That includes agricultural products of beef, poultry, pork, sugar, ethanol, rice, and dairy products.
The original document of the deal included a chapter on dumping and subsidisation to protect both blocs from unfair trade practices, similar to measures outlined in the United States-Mexico-Canada Agreement.
Why does the deal matter to U.S. agriculture?
The European Union is the fourth-largest destination for U.S. agricultural exports by region. In 2024, the EU represented 7 percent of total export value.
The largest impacts on U.S. agriculture would likely be felt in ethanol and dairy products. U.S. ethanol exports to the bloc for the first nine months of this year are 111 percent higher than a year ago, according to the USDA’s Foreign Agricultural Service. That has been largely due to the EU’s climate policy that benefited U.S. exports, though European carbon rules favor Brazil’s sugarcane ethanol.
Dairy imports from the U.S. are 79 percent higher during that same time period. Increased shipments of cheese and butter supported the growth.
Other commodities that could also be impacted by a trade deal between the two blocs include beef, soybeans, and soybean products. South America is the largest exporter of soybeans and soybean meal. The deal would reinforce South America’s role as the EU’s preferred oilseed supplier.
An official deal between the EU and Mercosur could lead to lost market share for the U.S. in Europe. U.S. trade negotiators may have to keep close relationships with European counterparts, as well as expand relationships with other growth areas, such as Southeast Asia, to maintain global market share.
Chances of a deal?
Political pressure has delayed progress on the agreement for years. Opposition has come largely from Poland and Hungary, while France and Italy have expressed concerns about increased agricultural imports. BusinessEurope, a group representing the EU’s industry interests, argues that the agreement would strengthen Europe’s strategic autonomy inside and outside of agriculture.
Over the past 25 years, the EU lost its dominance in trade with South America due to growing exports from China. The lack of a deal could cause the EU to further lose export share in Mercosur’s market. Meanwhile, a bilateral agreement would make the EU more competitive with China, BusinessEurope noted.
—
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. FUTURES TRADING INVOLVES SUBSTANTIAL RISK AND IS NOT SUITABLE FOR ALL INVESTORS.