KPMG report: Free trade agreement finalized between EU and Mercosur

The European Union (EU) and Mercosur—a South American trade bloc comprising Argentina, Brazil, Paraguay, and Uruguay—finalized a free trade agreement after 25 years of negotiations.

The EU and Mercosur initiated trade discussions in 1999, seeking to enhance economic ties between the two regions. Despite shared interests, the negotiations faced numerous challenges, including disagreements over agricultural tariffs, industrial regulations, and environmental standards. A political agreement was reached in principle in 2019; however, concerns from some EU members delayed finalization.

This agreement comes at a critical time for both sides, presenting opportunities for major mutual gains through strengthened geopolitical, economic, sustainability and security cooperation.

Key provisions of the agreement

• Value-based trade agenda: Protection of labour rights, the environment, and promotion of corporate social responsibility
• Tariff elimination: Removes high tariffs on European products to facilitate exports to Mercosur; the EU will remove tariffs on importations from Mercosur
• Trade promotion: Enhances EU exports by removing non-tariff barriers and discriminatory taxes and improving access to raw materials
• Rejection of protectionism: Signals that the EU and Mercosur support open trade based on fair rules and high standards
• Impact on goods and services: Abolishes import tariffs and eases export obstacles for goods, while facilitating service trade and investment opportunities

What does this agreement mean for the Mercosur?

The EU-Mercosur trade agreement will facilitate Mercosur exports to the EU by adhering to high standards of sustainability, health, and food safety, while integrating Mercosur industries into EU value chains to enhance competitiveness and economic diversification. It will provide Mercosur citizens more opportunities to offer services in the EU and improve the business climate in Mercosur through transparent regulations, attracting global investment.

Next steps for implementation

The finalized text will undergo legal review and be translated into all official EU and Mercosur languages to ensure clarity and accuracy.

In the case of the EU, the European Commission will present the agreement to the Council of the European Union for approval. Subsequently, the European Parliament must consent to the agreement. In the case of Mercosur, each of the legislative parliaments of the integrating countries must approve the agreement for it to become enforceable.

It is worth mentioning that parts of the agreement may be provisionally applied after approval by the European Parliament and Mercosur countries, pending full ratification. This would allow for the immediate implementation of trade-related aspects while awaiting complete endorsement.
 

For more information, contact a KPMG Trade & Customs professional:

Gisele Belotto | gbelotto@kpmg.com

Matias Seru | mseru@kpmg.com.ar