Negotiations have taken place for almost 25 years, and now the EU and the Mercosur states have agreed on a free trade zone – despite concerns from France, Italy and Poland.
Despite ongoing concerns from countries such as France, Italy and Poland, the EU Commission has concluded negotiations on a huge free trade zone with the South American alliance Mercosur. Commission President Ursula von der Leyen announced this after a final round of talks with top representatives of the Mercosur states Brazil, Argentina, Uruguay and Paraguay.
The negotiations took place over a period of almost a quarter of a century. “This agreement is a win for Europe,” said von der Leyen in Uruguay's capital Montevideo. It will work for people and companies and create more jobs, more choice and prosperity. “Companies benefit from lower tariffs and simplified procedures,” said von der Leyen.
Most recently, the federal government in particular put pressure on the negotiations to finally be finalized and the text for the agreement presented to the EU states for a vote. Germany is relying on the fact that the trade policy part could be decided by majority vote in the Council of Member States. Member states would then only have the right to veto the planned agreements on political dialogue and cooperation. However, splitting the contract in this way could pose legal risks.
Reducing tariffs, boosting trade
The agreement between the EU and Mercosur states would create one of the world's largest free trade zones with more than 700 million inhabitants. Above all, it plans to reduce tariffs and thus stimulate trade. The German automotive industry, among others, sees clear potential to increase exports to South America. Particularly due to high tariffs, only 20,700 cars were exported from Germany to Argentina and Brazil in the entire year of 2023.
Trade politicians also see the planned agreement as a message to the future US President Donald Trump and as an important step in competition with China. The aim is to show Trump that functioning free trade agreements are better for the domestic economy in the long term than sealing off markets with new tariffs and other trade barriers. With regard to China, it is certain that if the agreement fails, the Mercosur states would turn even more economically to the People's Republic.
A basic political agreement on the establishment of the free trade zone between the EU and Mercosur had actually already been reached in the summer of 2019. However, the deal was then questioned again by several EU states such as France, Poland and Austria, and there were years of renegotiations. Critics fear that European farmers will be forced into a merciless price war in the future, while at the same time fueling the destruction of the rainforest in South America.
Germany has pushed for unity
The EU Commission and the Federal Government, however, reject the allegations as unjustified and emphasize that the overall economic benefits clearly outweigh the negatives. It is emphasized that only products that comply with the extensive European regulations are allowed to be imported into the EU. At the same time, it is estimated that companies in the EU could save several billion euros in tariffs every year. Last year, goods worth around 56 billion euros were exported from the EU to these four Mercosur countries; in the opposite direction, the export volume was around 54 billion euros. According to EU figures, a total of 60,500 European companies could benefit from the planned free trade agreements.
After the negotiations have been concluded, the texts for the agreement still have to be legally examined and translated into the languages of the contracting states. The EU Commission then has to make a decision as to whether it will be submitted to the member states for a vote as a whole or split into two parts. The European Parliament would definitely have to agree. A decision is not expected until the second half of next year at the earliest.
Contradiction from France and Italy
It is unlikely that the agreement can be implemented even if it has to be submitted to national parliaments for approval, especially because of the farmers' protests in France. The government reacted cautiously to the announced agreement with the Mercosur states. “What is happening in Montevideo is not a signing of the agreement, but simply the political conclusion of the negotiations,” said Foreign Trade Minister Sophie Primas in Paris. “This only obliges the Commission, not the member states.” Italy's Prime Minister Giorgia Meloni had previously announced that the conditions for the agreement were not currently met.
In Germany, however, there is broad support. Politicians from the SPD, CDU/CSU and FDP recently signaled their approval in the Bundestag. Government politicians such as Chancellor Olaf Scholz (SPD) as well as Economics Minister Robert Habeck and Foreign Minister Annalena Baerbock (both Greens) are also in favor of concluding the agreement.
