Author: Ignacio Teson

The European Council endorsed what would become the European bloc’s largest trade deal. What impact will it have on these regions?

The European Council approved this Friday—by 21 votes out of 27—the free trade agreement between the European Union (EU) and Mercosur, following intense internal negotiations sparked by France’s attempt to block the deal.

The vote clears a major hurdle toward ratifying the principle agreement reached just over a year ago by the European Commission (the EU’s executive arm) with Argentina, Brazil, Paraguay, and Uruguay. The pact aims to create the world’s largest free trade area, encompassing more than 720 million potential consumers.

The agreement had been expected to receive its final signature from both blocs on December 20 during a Mercosur presidential summit in Foz do Iguaçu. However, France—later joined by Italy—managed to delay the process, citing concerns about the impact on their domestic economies.

The document is now expected to be signed at the next Mercosur summit, scheduled for this coming Tuesday and Wednesday.

Broadly speaking, the pact—nearly 25 years in the making—envisions the gradual elimination of tariffs, the creation of a free trade area between the two blocs, and rules of origin designed to ensure that the benefits accrue within Mercosur and the EU. It also includes other key provisions.

After some back-and-forth, President Javier Milei is expected to attend the regional meeting. For Argentina’s libertarian government, the summit comes at a decisive moment. Officials at the Casa Rosada are closely monitoring the potential effects of the treaty on sectors considered sensitive for the local economy.

What the EU–Mercosur trade agreement entails

According to Brazilian President Luiz Inácio Lula da Silva, the agreement stands out for its sheer economic scale. Once implemented, it would cover 722 million people and represent a combined GDP of US$22 trillion, positioning it as the “largest trade agreement in the world.”

The U.S.-based Center for Strategic and International Studies noted in 2024 that current EU–Mercosur bilateral trade amounts to €88 billion per year in goods and €34 billion in services. With the consolidation of the new free trade area, these flows would account for roughly 20% of global GDP.

At its core, the EU–Mercosur agreement seeks to gradually dismantle tariff barriers and establish a broad free trade zone with clear rules of origin, ensuring that the benefits remain within both blocs. The text also lays out a comprehensive regulatory framework covering services, intellectual property, public procurement, sustainable trade, state-owned enterprises, and dispute settlement mechanisms—an essential element for long-term predictability.

Specific Tariff Reductions

Under the agreement, tariffs would be eliminated on 90% of bilateral trade, with longer phase-out periods than those granted by the EU in previous trade deals. This timeline is expected to boost Mercosur exports in agribusiness, energy, and mining. On the European side, in addition to securing access to food, energy, and critical minerals, the bloc aims to facilitate the entry of its industrial goods into South America and to reposition itself in an increasingly competitive global landscape dominated by the United States and China.

Estimates from European sources suggest that the EU could add close to US$10 billion in additional exports each year, while European sales to Mercosur markets could grow by nearly US$60 billion.

Once signed, the agreement will still need to navigate the institutional ratification process on both sides of the Atlantic. Each Mercosur country must approve it according to its domestic procedures, as must each EU member state. That process could take months—or even years—depending on parliamentary dynamics.