After more than two decades of negotiations, the Council of the European Union cleared the way for the free trade agreement between the EU and Mercosur on 9 January 2026. The signing is expected to take place this week. With the consent of the European Parliament, the agreement can soon enter into force.
The agreement marks a milestone in trade relations between Europe and South America, creating one of the largest free trade zones in the world with over 780 million consumers. Mercosur (Mercado Común del Sur – Common Market of the South), with Argentina, Brazil, Paraguay and Uruguay as members, represents the fifth largest economy outside the EU with a gross domestic product of 2.7 trillion euros (as at 2024).
Removing trade barriers instead of creating new trade barriers and tariffs is a welcome political signal for the economy and strengthens the EU's strategic position.
The central element of the agreement is the gradual reduction of customs tariffs over the next few years. Many industries are to benefit from the agreement, such as mechanical engineering, the automotive industry, chemicals and pharmaceuticals. In addition to tariffs, non-tariff trade barriers are also to be eliminated, for example by harmonising technical standards and labelling regulations. However, the agreement will also cover the services sector, opening up previously protected sectors to competition and allowing EU companies to bid on public procurement in Mercosur countries on an equal basis with local companies. In addition, the posting of personnel will be facilitated.
The European Commission forecasts that EU exports to Mercosur will increase by 39 percent (48.7 billion euros), with the largest gains in motor vehicles, machinery and equipment, and chemicals. Exports from Mercosur to the EU are expected to increase by 16.9 percent (8.9 billion euros).
However, the economic opportunities go beyond a mere increase in trading volume. Since Mercosur has only a few free trade agreements, it offers a first-mover advantage to European companies. Furthermore, it is to be expected that the agreement also offers potential for strategic alliances and repositioning in global supply chains. Mercosur countries can become a more attractive destination for foreign direct investment through preferential access to the European market and the agreement could thus lead to greater integration of Mercosur countries into European value chains.
The EU-Mercosur agreement is divided into two legally distinct but interrelated treaties:
Interim Trade Agreement (ITA):
ITA covers only trade-related provisions, including tariff dismantling, rules of origin, services, public procurement and intellectual property rights. It falls entirely within the exclusive competence of the EU under Article 207 of the Treaty on the Functioning of the European Union (TFEU). Approval is granted by a Council decision after obtaining the consent of the European Parliament in accordance with Article 218(6) TFEU. Ratification by the national parliaments of the EU member states is not required.
A key mechanism of the ITA is the possibility of provisional application under Article 23.3 of the ITA. This allows the EU and individual Mercosur states to put the ITA into force as soon as the respective internal procedures (of the EU and the Mercosur signatories) have been completed. This will allow trade benefits to be realised even before the full ratification of the Comprehensive Partnership Agreement.
EU-Mercosur Partnership Agreement:
This more comprehensive agreement contains provisions on political dialogue and cooperation in addition to the trade pillar. It must first be ratified by all 27 EU member states according to their respective procedures. Once fully ratified, the ITA will be replaced by the Partnership Agreement and the ITA will cease to be in force.
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Dr Philipp Sahm
