In this volume of the Europe-Brazil ECCON Letter, we will analyze the implications of the MERCOSUR-European Union Agreement, focusing on its economic impacts, trade strategies, and regulatory challenges.
MERCOSUR-European Union Agreement: Economic Impacts and Trade Strategies
In early December 2024, the Southern Common Market (MERCOSUR) trade bloc, composed of Brazil, Argentina, Paraguay, and Uruguay, signed a free trade agreement with the European Union (EU)1.
Although the agreement has been signed, bilateral trade under the new rules is expected to materialize only by mid-2025, following the legal review of various documents and their translation into the official languages. This agreement marks a significant step for Brazil, one of the largest MERCOSUR members, strengthening its relationship with the EU and expanding its access to the European market.
Negotiations for this agreement began in 2019, underwent updates over the past two years, and now raise expectations regarding its economic impacts—both in the domestic market, with the importation of new European products, and internationally, with the export of key commodities to the EU, such as beef, soybeans, coffee, cocoa, and others.
The initial forecast by the Brazilian government projected that, over 15 years, investments in Brazil could increase by up to R$ 450 billion, while trade flows could reach R$ 1 trillion. Additionally, the agreement’s conclusion has the potential to expand trade between the blocs, boosting exports and enhancing Brazil’s competitiveness, especially in key sectors such as agribusiness.
Agreement Updates and Sectoral Effects
Among the agreement’s updates, significant changes stand out in the government procurement sector, where the scope has been reduced. This could result in less competition in public purchases, potentially leading to higher prices and a greater risk of collusion among suppliers. In the automotive sector, the timeline for eliminating import tariffs has been extended, ranging from 15 to 30 years depending on the technology involved. This reflects prolonged protection for the Brazilian automotive market.
Another key aspect of the agreement is the introduction of import quotas for various products, meaning that trade for certain items will be more regulated than genuinely free. The imposition of quantitative restrictions and special tariffs—such as those applied to beef, poultry, pork, and even ethanol—demonstrates the EU’s commitment to protecting its markets while gradually opening space for imports from MERCOSUR.
Impact on Brazilian Agribusiness
The Brazilian agricultural sector, given its high competitiveness and the growing global demand for agricultural products, is one of the biggest beneficiaries of the agreement. However, the EU’s offer was cautious in opening its market to the signatory countries, adopting a managed trade model that implements tariffs and quotas for various agricultural products, such as beef, poultry, pork, sugar, rice, and ethanol.
Although MERCOSUR holds competitive advantages in these sectors, European industry protections prevent the trade from being entirely free. For example, the quota for Brazilian beef exports was set at 99,000 tons, representing only about 1% of Brazil’s total beef production. Similarly, quotas for poultry and pork are limited to 180,000 and 25,000 tons, respectively—small portions of Brazil’s total production. Other products, such as ethanol, rice, and honey, also have initially restricted export volumes, with gradual increases over time.
These limitations show that, despite Brazil’s considerable comparative advantages in sectors such as beef and sugar, the EU aims to protect its market, particularly for products highly sensitive to MERCOSUR’s competitiveness. This balance between concessions and protections characterizes the agreement as managed trade rather than completely free trade, representing both an opportunity for Brazil to leverage its potential and a challenge in navigating these restrictions.
Challenges and Opportunities for Brazil
With the agreement’s implementation, Brazil will gain access to a market of 448.8 million people and a GDP of $18.59 trillion, along with a significant increase in investment and bilateral trade. However, Brazil must continue seeking new markets and deepening trade agreements with other regions, such as the United Kingdom, Canada, and the Association of Southeast Asian Nations (ASEAN). This would ensure export diversification and reduce dependency on specific markets.
Additionally, Brazil should closely monitor regulations that could impact the competitiveness of its products, such as the EU’s Deforestation Regulation and the Carbon Border Adjustment Mechanism (CBAM), which may increase transaction costs and create new market challenges.
While the agreement is a positive milestone—especially for the agricultural sector—continuous adaptation to regulatory changes and the pursuit of new markets will be crucial for Brazil to fully capitalize on its benefits. Furthermore, sectors related to higher value-added products, such as the Brazilian wine industry, may face increased competition from European imports.
Conclusion
The signing of the MERCOSUR-European Union agreement, after 25 years of negotiations, represents a major achievement for Brazil and other MERCOSUR countries but also brings significant challenges. The Brazilian agricultural sector will be one of the biggest beneficiaries, but the tariffs and quotas imposed by the EU ensure that trade will be gradual and managed rather than fully liberalized. On the other hand, higher value-added products may struggle with increased competition from European goods.
For tailored solutions regarding the MERCOSUR-European Union Agreement, count on ECCON’s expertise. Our team is ready to help your company navigate regulatory challenges, optimize trade strategies, and ensure compliance with sustainability requirements. For more information, visit our website or contact us at: contato@ecconsa.com.br.
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Julia Maillet Rocha Lenzi
Gabriel Rosa
Yuri Rugai Marinho
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