The EU-Mercosur deal takes effect — but the fight over it goes on

BRUSSELS — Large parts of the EU’s mega trade deal with the Latin American Mercosur bloc finally kicked in Friday, but the political fight over it continues.

Negotiations started in 1999 and have been marked by repeated setbacks, leaving officials in Brussels wondering whether the deal to create a 720-million-person free-trade area would ever take effect.

The European Commission is provisionally applying the trade part of a broader pact with the Mercosur countries — Argentina, Brazil, Paraguay and Uruguay. Final ratification of the agreement will take a while longer, however, after the European Parliament voted to send it for legal review to the EU’s highest court.

“Provisional application marks a qualitative shift in EU–Mercosur relations. After a history of more than two decades, the agreement is now beginning to take practical effect,” said Pablo Sader, Uruguay’s ambassador to the EU. 

“At the same time, May 1 should be viewed with a clear perspective: It is not the final destination, but the opening of a new phase,” he told POLITICO. 

Here’s what you need to know about the deal as it finally takes effect:

How did we get here?

Germany long championed the deal to boost its car and machinery exports, while France and Poland opposed it, fearing that cheap beef and poultry from Brazil and Argentina would undercut their powerful farming sectors. 

French President Emmanuel Macron intervened to halt the deal in early 2024, but subsequent election defeats meant he could no longer hold back Commission President Ursula von der Leyen’s push to close it. She shook hands with Mercosur leaders in December of that year and, after another last-minute struggle, signed the accord this January. 

The pro-deal camp led by Germany had the necessary supermajority to task the Commission with implementing the trade part of the deal. Von der Leyen went through with it even after MEPs voted by a narrow margin to send the agreement for review by the Court of Justice of the European Union.

What’s changing?

The agreement will gradually eliminate duties on more than 90 percent of EU exports, including on cars, pharmaceuticals, wine and spirits, and olive oil. Some so-called non-tariff barriers — such as on labeling — will be removed. Public procurement markets will open up, allowing EU companies to bid for government contracts.

The Commission estimates that EU exports to the Mercosur region will grow by 39 percent through 2040, to €50 billion. “The benefits are real and visible as of now,” von der Leyen said in a post on X. “Tariffs start falling. Companies are gaining access to new markets. Investors have the predictability they need.”

But gains will be slower to materialize on some products. “In most cases, the tariff reductions will be phased in over a period of 10 to 15 years. The economic effects will therefore become apparent primarily in the medium to long term,” said Oliver Richtberg, head of foreign trade at Germany’s VDMA engineering federation.

If either the Court of Justice or lawmakers ultimately reject the agreement, the European Commission would have to go back to the drawing board. | Luis Robayo/AFP via Getty Images

But not for French Champagne, which, along with other sparkling wines, is already duty-free, down from a previous 20 percent tariff.

At the same time, Mercosur beef exports to Europe will be subject to a lower, 7.5 percent tariff on the first 99,000 metric tons annually. Anything above that will still be charged 40 percent. The EU produces that amount of beef in five days.

“The first installment of the agriculture quotas will happen on both sides and hardly anyone will notice. Certainly, there will be no visible effect in the EU beef market,” said Rupert Schlegelmilch, a former Commission official who negotiated the agreement. Provisional application will be a fairly quiet process, he added.

What’s next?

Within sight of the finish line, it was European lawmakers who sent the deal into extra time with their request for a judicial review. 

That means the Parliament may have to wait up to two years before it can hold a final consent vote on the full partnership agreement, which would supersede the interim trade agreement that has just entered into force. Parliaments in the 27 EU member countries also need to ratify the accord. 

Europe can be “confident that by the time Parliament takes [its] final decision, [the] agreement will already have borne economic and political fruit,” said Bernd Lange, a German Social Democrat who chairs the European Parliament’s trade committee. 

In the view of Trade Commissioner Maroš Šefčovič, the Mercosur deal will withstand the legal review since many of the questions raised were satisfactorily addressed in the earlier scrutiny of a trade deal with Singapore.

If either the Court of Justice or lawmakers ultimately reject the agreement, the European Commission would have to go back to the drawing board.

With China already having ousted the EU as Mercosur’s top trading partner, that is a luxury the bloc cannot afford, said Šefčovič: “By 2032, we will be back in the situation from 10 years ago,” he told lawmakers earlier this year.

One potential positive effect is that other countries — Colombia and Panama — are now interested in joining Mercosur. Venezuela, suspended during late President Hugo Chávez’s rule, is eyeing a return, and Bolivia is making quiet progress.

A source close to António Costa, the president of the European Council, said that “expanding our partnerships with new partners is a way to promote other poles of regional integration.”

Oliver Noyan contributed reporting from Berlin.