European Commission President Ursula von der Leyen confirmed on Friday (6 December) that the EU has reached a free trade agreement with Argentina, Brazil, Paraguay, and Uruguay – the Mercosur bloc.

The deal, announced alongside Argentinian leader Javier Milei, Brazil’s President Luiz Inácio Lula da Silva, Paraguay’s President Santiago Peña, and Uruguay’s Luis Lacalle Pou, concludes 25 years of negotiations that saw some fierce opposition by France, farmers and EU environmental groups across the Union.

“Today marks a truly historic milestone,” von der Leyen said after a two-day summit in Montevideo. “We are sending a clear and powerful message to the world, in an increasingly confrontational world […], that this agreement is not only an economic opportunity but a political necessity.”

“We believe openness and cooperation are the true engines of growth and prosperity,” the EU executive’s president added. “We know strong winds are blowing in the opposite direction […] but this agreement is our response.”

The EU’s top diplomat, Kaja Kallas, added: “This is good foreign policy and a good day for the EU and our partners in Latin America.”

Corroborating the intricacies of negotiations, Lacalle Pou said the deal would “not be a magical solution,” adding  that “steps will be incremental but certain.”

Kicked off in 1999, negotiations for the EU-Mercosur deal yielded a first ‘political agreement’ in 2019. Its ratification by member states was, however, withheld due to widespread farmers’ discontent and continued concerns over the discrepancies of environmental standards between the EU and the South American bloc.

The agreement is meant to create one of the largest free-trade areas in the world, with tariffs removed for key EU exporting industries, such as cars, machinery, chemicals and pharmaceuticals. 

In total, the deal will eliminate import duties on 91% of EU exports to Mercosur countries, as well as 92% of Mercosur exports to the EU, according to Commission data. 

In the agri-food sector, the agreement will gradually eliminate 93% of tariffs on EU exports to Mercosur countries, including on wine, spirits, olive oil and canned peaches, while also liberalising 82% of agricultural imports. 

At present, Mercosur countries are already key trading partners for the EU, with EU exports to Brazil, Argentina, Uruguay, and Paraguay totalling €55.7 billion in 2023. Imports from these countries to the EU amounted to €53.7 billion in the same year. 

Given the increased tensions with two of the EU’s main global trading partners, the US and China, export giant Germany has, in particular, advocated for a swift conclusion of the deal, with several industries and politicians suggesting splitting the agreement into two components.

This would enable a ratification of key parts of the deal, including tariffs and import quotas, by a qualified majority of EU countries, meaning at least 15 countries representing 65% of the total EU population, as well as the European Parliament.

Only the ‘start of a process’

The conclusion of the deal comes as France, its staunchest critic, is marred with political uncertainty, as Prime Minister Michel Barnier resigned on Thursday (5 December) after losing a vote of confidence on budget plans at the National Assembly a day before. 

“The Commission has exclusive competence to negotiate trade agreements,” Commission spokesperson Olof Gill told journalists on Thursday, responding to a question about how the French government crisis would affect the Mercosur negotiations. 

Critics of the agreement, including the governments of France and Poland, have warned against increased cheap food imports from the Mercosur bloc, which they argue create unfair competition for European farmers due to differences in environmental standards. 

Seeking to assuage ongoing concerns, in 2019, the Commission proposed a financial support package of up to €1 billion in the event of market disturbance. However, von der Leyen did not refer to this package during Friday’s press conference.

Meanwhile, over the last few weeks, France was aiming to build a so-called “blocking minority” against the deal – consisting of at least four countries representing at least 35% of the EU population. While only Poland explicitly spoke out against the deal, other countries are also said to have reservations, including Austria, the Netherlands, and Belgium.

Hopes of the deal being ratified by member states suffered a further blow on Thursday when AFP reported that Italian government sources said that “conditions are not in place” for Rome to sign the agreement. Italian News Agency ANSA corroborated AFP’s reporting on Friday morning.

“The signing of the EU-MERCOSUR Association Agreement can only take place on condition of adequate safeguards and compensation in the event of imbalances for the agricultural sector,” ANSA quoted Italian government officials as saying.

However, a senior EU Commission official was adamant that the agreement will not be altered to address member states’ concerns.

“I think this is the best possible outcome that we as negotiators could achieve,” the official said. “Now it is our job to really explain exactly what the text that we have negotiated means. The text cannot be changed.”

On Friday, Gill also said: “It is very important to keep in mind that a political agreement is just the first stage in a long process to achieve final ratification of any trade or investment or partnership agreement.”  

“This is not the end of a process; it is the start of a process,” he added. 

Sofia Sanchez Manzanaro, Maria Simon Arboleas, Nikolaus J. Kurmayer, and Alexandra Brzozowski contributed reporting.

[Edited by Anna Brunetti/Martina Monti]