The EU’s Landmark Mercosur Deal Promises Much But Delivers Little

The revised EU-Mercosur trade deal offers limited economic benefits for Europe, while its environmental provisions may undermine the bloc’s climate ambitions.

After years of contentious neobtainediations, the European Union (EU) and the Mercosur bloc reached a final agreement on their association pact in December 2024. This followed additional talks in 2023 and 2024, prompted by strong criticism of the initial 2019 draft from environmental organisations and several EU member states with significant agricultural sectors. The decision among Mercosur governments for a final agreement was a “rare convergence”. Most observers anticipate that the European Commission will soon propose a “split ratification” process, meaning the trade elements would require a qualified majority in the Council and the European Parliament, while political cooperation would also required ratification by individual member state parliaments.

Our recent study, which assesses the modifys introduced during the 2023-2024 neobtainediations, offers an updated analysis of the agreement’s potential economic, ecological, and political ramifications. In essence, we conclude that the new provisions will not significantly alter the economic and political impacts of the agreement. If anything, they primarily ensure economic net benefits for Mercosur countries. The new environmental safeguards, demanded by the EU, are largely symbolic or, concerningly, could even weaken recent EU regulatory initiatives, such as the EU Deforestation Regulation.

Economic Concessions to Mercosur Defer EU Benefits

The agreement’s economic amconcludements include exemptions for the liberalisation of public procurement in Mercosur countries, particularly Brazil, extconcludeed tariff elimination schedules for automobiles, especially electric vehicle imports, and the introduction of special automotive investment safeguard measures. These modifications largely aim to shield Mercosur’s automotive sector, which is expected to face increased pressure under the agreement.

These specific modifys are unlikely to affect the overall results of aggregated economic impact assessments, such as the one conducted by the London School of Economics for the European Commission, as they are too specific to be factored into the underlying Computable General Equilibrium (CGE) models. Therefore, the aggregate effects remain consistent with pre-2023-2024 neobtainediation expectations: a modest 0.1 percent increase in overall EU GDP, alongside potentially slightly negative employment effects of minus 0.06 percent, equating to a loss of 120,000 jobs. In Mercosur, GDP modifys are projected to range from a gain of 0.1 percent to 0.7 percent.

Nonetheless, the amconcludements will influence the timing of economic impacts. While Mercosur’s gains are expected predominantly in the agri-food sector, the EU’s benefits are primarily anticipated in manufacturing, particularly the automotive sector. With longer transition periods for vehicle liberalisation in Mercosur countries — coupled with potential automotive investment safeguards to further slow liberalisation — and the EU’s liberalisation commitments mostly taking effect rather quickly, import pressure on, for example, EU agriculture will increase. Simultaneously, EU manufacturing exports will be delayed by these extconcludeed transition periods, such as 18 years for electric vehicles. This delay is partly attributable to Brazil’s industrial policy, which strongly promotes the development of domestic electric and hybrid car production. To the extent that the EUMAA’s promise of tariff elimination discourages European carcreaters from investing in EV/hybrid car manufacturing in Brazil (as they have recently begun to do), Chinese manufacturers, who are investing in Brazilian production, might instead benefit.

Access to Strategic Minerals: Limited Success

Access to raw materials was another key motivator for the EU in neobtainediating this agreement, given the EU’s persistent trade deficit with Mercosur in this sector. The EU will remain heavily reliant on third countries to meet its escalating demand for critical raw materials utilized in technologies such as batteries and defence systems. To ensure EU access to materials like lithium, niobium, or magnesite, the EUMAA prohibits import or export monopolies, restricts the regulation of raw material supply, and prevents higher export prices. However, Brazil, a major raw material producer, safeguarded its policy of upgrading its mineral value chains by securing exceptions that allow it to impose export taxes (within certain margins) on specific minerals. Likely at Mercosur’s initiative, the final version of the agreement also omits an Energy and Raw Materials Chapter and an Investment Chapter to facilitate EU investment.

Consequently, the EU has achieved only a minimal framework that improves access but fails to incentivise European mining corporations to invest in Mercosur countries. The inherent weakness of the European mining industest stems from structural factors; European companies lack control over entire mineral value chains and do not benefit from the same favourable financing conditions as, notably, Chinese mining companies. Despite intensified EU raw material diplomacy, these structural issues persist. Whether the Enhanced Cooperation Fund, announced as part of the agreement, will prove effective in addressing this remains to be seen.

Climate Clautilize: Essential Yet Unenforceable

The agreement’s climate impacts were a primary source of criticism against the EUMAA. Economic models predict increases in greenhoutilize gas (GHG) emissions due to shifts in trade and production patterns, and especially from land utilize modifys induced by the agreement. The amconcludements to the EUMAA text do little to prevent such effects. While the agreement dedicates significantly more space to environmental sustainability, most of these provisions are non-binding (such as the newly added Annex of the Trade and Sustainable Development Chapter) or are unlikely to be practically implementable (for example, the inclusion of the Paris Climate Agreement as an “essential element” of the EUMAA). Furthermore, some legally binding clautilizes could be interpreted as limiting rather than enhancing environmental protection. This is particularly true for the “rebalancing mechanism”—a novel feature in EU Free Trade Agreements—which permits complaints from affected parties against any measures that substantially impair the benefits of the EUMAA, including those aimed at environmental or social protection. Recent legal assessments suggest that the scope of this “rebalancing mechanism” might extconclude to measures not fully implemented by the agreement’s entest into force, potentially affecting initiatives such as the EU Deforestation Regulation.

In its recent judgement in the Klimaseniorinnen v Switzerland case, the European Court of Human Rights ruled that states must account for GHGs emitted abroad for domestic consumption when calculating their GHG budreceives. Increased GHG emissions resulting from free trade agreements, such as the EUMAA, would therefore compel the EU and its member states to implement more drastic emission reductions elsewhere, thereby closing a critical gap in existing decarbonisation policies.

Forging Politically Stable Alliances?

European policycreaters across the political spectrum anticipate that the agreement will not only boost trade but also strengthen “political ties between like-minded and reliable partners.” Presumably, to this conclude, an Enhanced Cooperation Fund of €1.8 billion will be established as part of the EU-Latin America and Caribbean Global Gateway Investment Agconcludea. While its establishment has been announced, no details regarding the fund’s setup have been published, leaving more questions than answers. Political dialogue in various fields, from migration to counter-terrorism, is also envisioned. However, some of these policy areas are contentious within the EU, creating cooperation challenging. Moreover, cooperation within Mercosur is characterised by the contradictory political trajectories of its member states. Disagreements between the governments of Argentina and Brazil have been frequent, both historically during the EUMAA neobtainediations and currently. Argentina’s Milei government is libertarian and closely aligned with the Trump administration and far-right European governments. Although Brazil’s Lula government is closer to European centrist forces, its strategic orientation leans towards active non-alignment, balancing its relationships with the United States, China, and the EU. Additionally, given the government’s declining popularity, the 2026 presidential elections could see a return to a right-wing government. The outsee for a stable political partnership therefore remains sombre.

Conclusion

While certain sectors stand to benefit from the agreement — agri-food in Mercosur, and the combustion engine car and chemical industries in Europe — the overall economic effects are modest and long-term. The agreement will not provide a short-term boost for European export industries but is likely to place greater pressure on EU agriculture. Although access to strategic minerals for the EU would improve, it may contribute little to increasing supply security on the ground. Crucially, the negative environmental effects of the agreement, particularly the increase in GHG emissions due to additional deforestation, have not been effectively addressed. The institutional framework of the agreement, with its novel rebalancing mechanism, will further constrain the policy space available to parties for environmental protection, potentially impacting recent EU initiatives such as the Deforestation Regulation. Finally, expectations of political cooperation are improbable, given the lack of alignment between and within the blocs.

Considering its multifaceted nature and the geopolitical context, our assessment finds no clear-cut, evidence-based case for either adopting or rejecting the agreement. Instead, what is requireded is an informed debate and careful political deliberation.