The European Union signs a free trade agreement with the Mercosur bloc, 25 years after it first entered talks. The agreement, which is still awaiting ratification, will reduce import duties on more than 90% of exports over 15 years. Mercosur is likely to see a greater economic benefit; More important are the geopolitical benefits of the European Union, said economists at Standard Chartered Bank.
The European Union continues to diversify trade amid global tensions
“European Commission President Ursula von der Leyen is due to sign a free trade agreement with the South American Mercosur bloc (Argentina, Brazil, Paraguay and Uruguay) on January 17, after it was agreed in principle in 2019. The deal – which creates one of the largest free trade areas in the world – will mean the elimination of tariffs on 92% of Mercosur exports to the EU over 10 years and 91% of EU exports To the European Union. For fifteen years, the Mercosur countries had objected to the agreement – including France, Poland and Hungary – due to fears of increased competition in the agricultural sector. Last-minute concessions helped end Italian opposition and secure EU support through qualified majority votes.
“For both blocs, the deal is likely to provide a boost to GDP in the long term, although this may be greater for the Mercosur bloc. For the EU, the deal is likely to be seen as a major geopolitical win amid the damaging reciprocal US tariffs announced last year and increasing trade competition with China.”
“Assuming that EU Commission President von der Leyen and Mercosur representatives sign the deal at the end of this week, the interim trade agreement – which does not require national ratification – still needs to be approved by the European Parliament. There is no clear timetable for this and ratification is not guaranteed. The EU-Mercosur association agreement will require approval by all 27 EU member states, which is unlikely to be a quick process. The phased implementation plan means that the EU’s economic benefits are likely to accrue significantly “Very gradual; we are not reviewing our economic forecasts as things stand.”
