With the trade policy chapter of the EU-Mercosur Agreement entering into force on 1 May 2026, a long‑standing political initiative becomes a commercial reality. Businesses will need to adapt to new conditions for trade with Brazil, Argentina, Paraguay and Uruguay – bringing implications for pricing, supply chains and internal processes.
At the core of the agreement is the gradual reduction of tariffs, which to date have been substantial across many sectors. In the automotive industry, tariffs have reached up to 35%; in mechanical engineering, they have often ranged between 14% and 20%; and for chemical products, duties have in some cases been as high as 18%. Under the agreement, these tariffs will be progressively reduced, and in many instances eliminated altogether.
For businesses, this creates tangible competitive advantages in South American markets. However, these benefits are not available automatically. Companies must actively comply with the agreement’s requirements and provide the necessary documentation. It is at this point that the real need for action begins.
For customs duties to be reduced or waived under the agreement, goods must comply with the so‑called rules of origin. The decisive factor is whether a product is considered to have preferential origin. These requirements are particularly relevant for exports, as it is the exporter who must demonstrate that the goods meet the applicable criteria in order for tariff preferences to be granted in the country of destination.
In practice, this means that a product must either have undergone sufficient value creation in the country of origin – i.e. a substantial part of its manufacture or processing must have taken place there – or meet specific production or processing requirements. These requirements are precisely defined in the agreement and vary depending on the product category.
In many cases, verifying compliance is complex. The entire supply chain must be taken into account, and origin rules can differ significantly between products. For companies with international supply chains in particular, this raises a key question: do their products meet the relevant origin requirements, or are adjustments to sourcing or production processes necessary?
A crucial aspect of the agreement – and one that is often underestimated in practice – is the long‑term supplier declaration (LTSD). In the context of customs and foreign trade, these are formal declarations in which a supplier confirms to its customer that the goods supplied meet specific rules of origin. LTSDs typically apply to deliveries over an extended period, provided the goods are expected to retain the same origin status.
They form the essential basis on which an exporter can issue a declaration of origin and, in turn, benefit from preferential customs treatment. The EU–Mercosur Agreement introduces changes that directly affect how these declarations must be handled.
What is changing:
In practice, difficulties often arise because many long‑term supplier declarations were issued years ago and have not been reviewed since. As a result, origin information frequently no longer complies with the rules currently in force. In addition, supply chains may have evolved over time without corresponding updates to the supporting documentation.
Incorrect or outdated LTSDs can have significant consequences. These include the loss of tariff preferences, retroactive customs duties, and potential liability towards customers. Issues may also arise in the course of customs inspections or audits.
What companies should do now:
As trade with Mercosur countries increases, existing contractual arrangements should be reviewed and, where necessary, adapted. Many supply and framework agreements have historically been designed with a primary focus on European markets and often take limited account of the specific characteristics of trade with Brazil, Argentina, Paraguay and Uruguay.
In particular, contractual provisions relating to Incoterms, delivery timelines, transfer of risk and payment terms become more critical when dealing with longer distances and differing commercial practices. At the same time, higher trade volumes inevitably increase the risk of disputes, for example in relation to delivery delays, quality defects or payment defaults. Companies should therefore address potential conflict scenarios at an early stage and clearly determine how and where disputes will be resolved, whether through jurisdiction clauses, arbitration agreements or other dispute resolution mechanisms.
Alongside the economic opportunities, compliance and supply chain requirements are also becoming more demanding. Obligations relating to environmental and social standards, contractual assurances given to business partners, and expanded documentation requirements are no longer limited to large corporations; they are increasingly affecting small and medium-sized enterprises as well. The EU-Mercosur Agreement reinforces this development, making it necessary to systematically review and, where appropriate, adapt existing compliance and governance structures.
The entry into force of the EU-Mercosur Agreement marks the start of an ongoing adjustment process for small and medium‑sized enterprises. While the gradual elimination of tariffs offers considerable economic opportunities, the extent to which these benefits can actually be realized depends largely on effective and compliant implementation in practice.
Particular attention should be paid to the rules of origin and long‑term supplier declarations. Only companies that carefully review and update these instruments – and align their supply chains accordingly – will be able to make full use of the intended preferential treatment. Failing to do so may result not only in the loss of tariff savings, but also in legal risks arising from incorrect origin declarations, retroactive customs duties or administrative penalties.
At the same time, the agreement’s entry into force presents an opportunity to reassess existing legal and organizational structures and adapt them where necessary. If you would like to review whether your long‑term supplier declarations, proofs of origin or contractual arrangements comply with the new requirements, we would be pleased to assist you with legally sound implementation and classification. An early review ensures legal certainty and enables businesses to take consistent advantage of the agreement’s economic benefits from the outset.
![[Translate to English:]](/fileadmin/_processed_/a/0/csm_IP_Header_Scott_738ee40874.jpeg "[Translate to English:]")
