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The EU-Mercosur Agreement is projected to be signed by the end of 2023

by | Jun 30, 2023

The EU-Mercosur agreement will usher in the creation of one of the largest free trade regions in the world, with a population of eight hundred million people.

An agreement twenty years in the making

A pending issue has existed between the European Union (EU) and the Common Market of the South (Mercosur) for over 20 years. For two decades, the Europeans and South Americans have been unable to resolve their differences and ratify an association treaty that turns their relationship into a broad strategic and economic alliance. In 2019, both blocs reached a hopeful agreement in principle, but since then, the final texts of an EU-Mercosur agreement have yet to be signed or ratified. This year, however, according to Andrés Allamand, the Ibero-American Secretary General, “the stars have aligned” to relaunch the effort to concretize Euro-Latin American ties.

This cosmic alignment is occurring on both sides of the Atlantic. In Europe, there is a widespread conviction that the signing of an EU-Mercosur agreement will be the cornerstone of strengthening the trading bloc’s alliance with Latin America. This commitment is led by Spain, which has a stock of direct investment of more than 66,000 million euros in the Mercosur region, and Brussels, where Josep Borrell, High Representative of the Union for Foreign Affairs and Security Policy, has prioritized the agreement that qualifies as one of the “most important in the history of the European Union.”

This determined European commitment to Mercosur is now more receptive after the ascendence of Lula da Silva to the office of the presidency in Brazil. Lula’s agenda (he is committed to multilateralism, strategic autonomy, and sustainable development with the defense of the Amazon as the axis of his environmental policy) goes hand in hand with the EU’s. Proof of this change in trend is the words of two Spanish ministers, the Minister of Foreign Affairs, José Manuel Albares, and the Minister of Industry, Trade, and Tourism, Reyes Maroto, who consider that the ratification of the EU-Mercosur Agreement is closer with Da Silva in Brazil’s presidential palace.

EU-Mercosur agreement countries must convince their citizens

Converting the pending issue of the EU-Mercosur agreement into approval requires two preconditions: a lot of persuasion and efficient public policies to protect the sectors that lose out after the signing of the long-awaited accord. In the first place, persuasion is needed to convince countries that do not welcome the treaty signing or are not confident that the commitment to Ibero-America will strengthen the EU by providing it with new allies.

In Europe, some countries, such as Spain, Portugal, and Germany, are leading the drive to finalize the EU-Mercosur agreement. On the other hand, some nations, such as France, Poland, Ireland, and the Netherlands, have blocked the pact due to protectionist sentiments presented under the guise of environmental issues. This pedagogy is necessary to make reticent countries see that, for the EU, the agreement with Mercosur proves its role as a global leader in environmental policies. The deal would be a compelling message for the rest of the region at a time (after the invasion of Ukraine) in which the European Union seeks to rebuild its alliances, project itself internationally and find dependable suppliers, especially those with raw materials and energy resources.

Strengthened ties between the European Union and Latin America

The ratification of an EU-Mercosur agreement would also be an unmistakable sign of the Union’s renewed will to strengthen ties and elevate its relationship with Latin America to form a new strategic alliance. This is something that the Government of Spain has strongly endorsed and has made a priority of the current presidency of the Union that Spain will occupy in the second half of 2023.

In addition, there is an economic incentive: a report by the London School of Economics calculates that the EU-Mercosur agreement would increase the GDP of the EU by 0.1% per year until 2032 and by 0.3% for the Mercosur countries. It would be one of the political and economic-commercial alliances with the most significant global geopolitical weight that would give birth to one of the largest free trade zones in the world. The treaty will create a joint market of eight hundred million people (Mercosur is the fifth largest trade area in the world) and account for almost a quarter of the world’s GDP and more than US $1 billion in trade.

For Mercosur, where resistance is linked to protectionist interests, the educational effort is focused on showing the agreement as a critical lever to modernize the regional productive matrix, accelerate the green transition, facilitate technology transfer, and promote sustainable value chains through European cooperation. Likewise, the EU-Mercosur agreement can end Mercosur’s stagnation thanks to what would be its first free trade agreement with another sizeable regional bloc.

Additionally, the agreement must design a set of public policies that protect the sectors that will be negatively impacted by the agreement on one side and the other of the Atlantic. In Mercosur, there are still significant trade barriers. For example, the region’s automotive industry is protected. In Europe, rural sectors, such as the influential French and Eastern European farmers, fear being harmed by the agreement, which could become a breeding ground for an increase in social unrest. It is, therefore, essential to improve the economic situation and well-being of those negatively impacted by the accord to increase the legitimacy of the trade agreement within the EU and Mercosur and transform a perennially elusive subject into a reality.

Contact LATAM FDI to discuss your foreign direct investment plans in Latin America.

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