Free Trade Agreement Between The EU And Mercosur: Market Access Wins And Legal Headwinds

A quarter‑century in the making, the EU‑Mercosur Free Trade Agreement has finally crossed a historic threshold, yet the decisive steps that will determine its ultimate fate still lie ahead.

On 17 January 2026, the European Union ("EU") and South American trade bloc Mercosur sealed a long‑anticipated free trade agreement in Asunción, Paraguay, establishing what will become one of the world's largest free trade zones. The deal marks a strategic shift in the global trading landscape, opening significant opportunities for cross‑border investment, infrastructure development, and regulatory cooperation between Europe and South America.

Mercosur currently comprises six countries, four of which—Argentina, Brazil, Paraguay and Uruguay—are parties to the agreement with the EU. Bolivia, having recently acceded to Mercosur, is expected to join the FTA in the coming years as accession procedures move forward. Venezuela, whose membership in the bloc remains suspended, is not included in the pact.

Background

Negotiations between the European Union and Mercosur for a comprehensive trade deal began in 1999 and, after years of intermittent progress, were finally brought to a close on 6 December 2024. The process entered a new phase on 3 September 2025, when the European Commission adopted proposals for Council decisions on the signature and conclusion of two parallel, legally distinct instruments: the  EU-Mercosur Partnership Agreement ("EMPA") and the  interim Trade Agreement ("iTA"). 

The iTA contains the trade and investment‑liberalisation pillar of the broader EMPA and is designed to operate as a stand‑alone agreement until the full partnership agreement enters into force. Its objective is to unlock the economic value of the negotiated trade commitments as early as possible and provide early certainty for businesses looking to expand or reinforce their presence across the transatlantic corridor. 

After years of deadlock, progress accelerated only once geopolitical pressures intensified (EU efforts to diversify trade) and new safeguards addressed longstanding concerns of key EU members (particularly around the impact on European farmers), creating the political space needed to move the agreement forward. On 9 January 2026, a qualified majority of EU member states in the Council gave the green light to the agreement with 21 voting in favour and five (i.e. Austria, France, Hungary, Ireland and Poland) opposing. Belgium abstained. Just days later, on 17 January 2026, representatives of the EU and Mercosur convened in Asunción for the formal signing ceremony, marking a pivotal milestone in the long trajectory of EU‑Mercosur relations.

The Key Economic Implications of the Agreement

Tariff reduction

A core feature of the EU‑Mercosur Agreement is its extensive tariff‑liberalisation schedule. Mercosur will reduce tariffs on 91% of EU exports, including cars, currently facing duties of up to 35%, over a 15‑year phase‑in. In return, the EU will remove tariffs on 92% of Mercosur exports within ten years, opening the door to significantly expanded trade on both sides.

Significance for agriculture 

Mercosur will eliminate tariffs on a range of EU agricultural products such as wine (27%) and spirits (35%). In exchange, the EU will increase import quotas for sensitive goods, including an additional 99,000 tonnes of beef annually and a tariff‑free quota of 30,000 tonnes for cheese, alongside expanded quotas for poultry, pork, sugar and ethanol. These adjustments create both market opportunities and competitive pressures for agriculture operators.

Growth in Exports and Imports

The European Commission expects the agreement to boost EU exports to Mercosur by around 39%, benefitting sectors such as automotive and agriculture. At the same time, South American producers will gain improved access to the EU market for key commodities, including beef and soybeans, further deepening bilateral supply‑chain integration.

Controversies Surrounding the Agreement 

Despite securing a qualified majority, the agreement remains politically contentious. Austria, France, Hungary, Ireland and Poland voted against it, with French President Macron calling the deal “an agreement from another age.” His criticism coincided with  farmer protests across France and parts of Germany, reflecting fears that increased Latin American imports will undercut EU producers and bypass European environmental and food‑safety standards. The Commission firmly rejects these claims, stressing that only products meeting EU rules may enter the market.

Environmental organisations, including Friends of the Earth, have also sharply criticised the agreement as “ climate‑wrecking,” warning that it may incentivise further deforestation, particularly in the Amazon, as Mercosur countries expand agricultural exports.

In response to these concerns, the Commission introduced several safeguards. These include a mechanism allowing the suspension of preferential treatment for sensitive agricultural products if import volumes rise sharply or prices fall. At Italy's request, the trigger threshold was reduced from eight to five percent. The agreement also foresees enhanced import controls and access to a EUR 6.3 billion crisis fund to support EU farmers in the event of market disruptions. Additionally, the Commission announced reductions in import tariffs for certain fertilizers, whose prices have risen significantly in recent years.

Germany, a long‑standing proponent of the deal, welcomed the breakthrough. German industry reacted positively as well: “ The adoption of Mercosur is an important success for the German and European economies” said Tanja Gönner, Managing Director of the Federation of German Industries (BDI), noting that the agreement demonstrates the EU's continued relevance as a geostrategic actor.

Delays for Entering into Force

With the agreement now signed, the process has entered a new and unexpectedly turbulent phase. On 21 January 2026, the  European Parliament voted by a narrow margin to refer the EU‑Mercosur Agreement to the Court of Justice of the European Union ("CJEU") for a legal opinion, effectively putting the Parliament's own approval procedure on hold.

The CJEU's opinion may take months or even years, and until then, the legislative process on the EU side remains frozen. The EU Commission could, in principle, decide to apply the agreement provisionally while awaiting a court ruling and parliamentary approval. Yet doing so would carry significant political risk given the likely backlash, and the European Parliament would still retain the authority to overturn the agreement at a later stage.

For the agreement to enter into force, it must be ratified by all EU Member States in accordance with their national constitutional procedures, by the European Parliament, and by the national legislatures of the Mercosur countries.

Relevant Features of the Dispute Settlement Mechanisms under the Agreement

The Chapter 21 of EMPA encourages the Contracting Parties to resolve disagreements through cooperative, good‑faith consultations rather than adversarial proceedings. Formal consultations may be requested by either side, but must meet specific procedural requirements: the written request must identify the contested measure, set out the reasons for the request, cite the relevant provisions, and be copied to the Trade Committee. As no panels have yet been established, disputes cannot currently move beyond the consultation stage.

Special rules apply to disputes involving tariff‑rate quotas, staged liberalisation, or landlocked developing countries. Mutually agreed solutions are made public unless they contain confidential information.

Furthermore, the agreement preserves strategic flexibility: a complaining party may choose between the EMPA's dispute settlement mechanism and the WTO's DSU, enabling parties to tailor their forum choice to the legal or political dynamics of a given dispute. When interpreting any obligation under the Agreement that is identical to an obligation under the WTO, the arbitration panel shall take into account the relevant interpretations established in decisions of the WTO Dispute Settlement Body.

It is noteworthy that the EU-Mercosur omits a chapter on investment protection.

Conclusion

The EU‑Mercosur Agreement represents a major step toward creating one of the world's largest free‑trade zones, offering substantial commercial and strategic benefits. Yet political resistance, environmental concerns, and the European Parliament's referral to the CJEU mean its immediate future remains uncertain.

With legal and political timelines now unpredictable, businesses should not wait. Early planning—mapping tariff changes, adjusting supply chains, and strengthening ESG and dispute‑management strategies—will be essential to capturing the agreement's opportunities as soon as it becomes operational.

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