From the Amazon to the Alps: The EU-Mercosur Free Trade Agreement

By: Camilo Ayadi
Edited by: Olivia Paik and Alexa Tan

In a speech given at the 2026 meeting of the World Economic Forum in Davos this January, Canadian Prime Minister Mark Carney described a “rupture in the world order… where the large, main power is submitted to no limits, no constraints.” [1] Carney was speaking on what the global response to an “America First” foreign policy should look like. For decades, Carney explained, the United States’ commitment to free trade and submission to the international rules-based order made it a predictable and reliable trade partner. “But more recently,” Carney remarked, “great powers have begun using economic integration as weapons, tariffs as leverage, financial infrastructure as coercion, [and] supply chains as vulnerabilities to be exploited…” [2] Carney argued that although the “middle powers” (countries without the power act hegemonically) once relied on the U.S. to act as a critical global middleman in international economic integration, they must now find alternatives. That alternative, Carney contended, should be a “plurilateral trade” regime, wherein the “middle powers” all rely on each other rather than on “global hegemons.” [3]

Viewing the new global trade regime from the perspective of “plurilateral trade” can help us draw insights into drivers of recent European Union (EU) and Canadian foreign policy. Over the past six months, both economies have taken major steps towards plurilateralism. One such action, the EU-Mercosur bilateral free trade agreement (henceforth referred to as the EMTA), stands out as a major step towards global realignment, as it seeks to establish one of largest free-trade zones worldwide. [4] Nevertheless, there are significant challenges to such a comprehensive market merger, and pundits/politicians across both economies think the EMTA is the wrong approach. The economic and legal implications of the EMTA have led to it being challenged in European courts even before any of its measures have taken effect. How were the many differences in regulatory and commercial practices between the EU and Mercosur reckoned with during negotiations? On what grounds is the EMTA being challenged? And what will it take for the EMTA to reach its full potential? This article seeks to answer such questions from both an economic and legal perspective.

History of the EMTA

Although its ratification process was undergone hastily, the EMTA had one of the longest negotiation processes for a free trade agreement in recent memory. European and South American policy makers first met in 1992 to establish (although not ratified until 1999) an “interregional framework cooperation agreement between the European Community … and the Southern Common Market” that would act as a dialogue forum for creation of the EMTA. Following the 1992 summit, policy makers would spend decades in negotiation rounds to draw-up an amicable agreement. ​​In 2019, an “agreement in principle” between the two parties was reached but soon broke down over a lack of environmental protections . In October 2024, almost five years later, a final draft of the agreement was reached. It is that 2024 version that both European and South American lawmakers agreed to ratify in early 2026.

Cost-Saving Benefits

The EMTA links the European Common Market, of twenty-seven member states, with the South American Common Market, of five full members and seven associate member states. While their interdependence has weakened in recent decades, both economies still rely on each other to a significant degree; the EU is Mercosur’s second largest trading partner, making up 14.5% of Mercosur’s total trade in 2023, while Mercosur is the EU’s tenth largest trading partner. [5] 

Despite high trade volumes, tariffs between the two economies are relatively high and unbalanced, with Mercosur maintaining a much higher tariff rate than the EU. In key manufacturing sectors such as machinery and transport equipment, EU exporters face tariff rates up to 35%. [6] This is why many provisions in the EMTA guarantee both countries will lower effective tariff rates by up to 100% in certain sectors, while maintaining strategic tariffs in highly vulnerable industries. To ensure a competitive and strategic transition, the tariff schedules will be reduced over 10-15 year “transition periods.” [7] The reduction in tariffs alone is projected to raise Mercosur countries’ GDP and as a result welfare spending by 0.3%, while gains toward the EU could be upwards of 0.1%. [8]

When reducing tariffs at this magnitude, certain domestic industries formerly reliant on import protection will suffer. European agriculture stands out as a particularly vulnerable industry; policy-makers expressed worry during negotiations about adverse impacts on the sector. This worry is largely the result of historically high tariffs on European agricultural imports coupled with a cheaper and less stringently regulated South American agricultural industry. [9] To ensure the continued competitiveness of European agriculture, the EMTA contains quota clauses that prevent a significant increase in imports of products like beef, poultry, and dairy at their post-EMTA rates. Once an agreed-upon import level is met, the safeguards will raise tariffs, again making imported products more expensive. [10] Researchers from France’s Agricultural Research Institute and from Trinity College Dublin found that these safeguard quotas, along with a general European consumer preference for domestic goods, will prevent a significant shock to the European agricultural industry. [11]

Aside from tariffs, the EMTA also takes steps to reduce non-tariff barriers between the two economies. Non-tariff barriers come in the form of incongruent regulations, duplicative standards, and other costly bureaucratic red tape that ultimately slows down trade. The agreement’s provisions commit both sides to transparency in the rule-making process and mandate a comment period before regulations are ratified. The agreement also seeks to reduce customs and transit costs by mandating investment in more efficient border technology along with better communication of customs rules to importers. [12] Furthermore, the EU maintains some of the most stringent food safety and sanitation standards in the world. Many Europeans are concerned that relaxed South American standards will compromise Europe’s ability to enforce their own sanitary regulations, which is why the EMTA mandates importers to inspect food products before they are sold in Europe. 

Environmental and IPR Regulations 

When it comes to free trade, however, cost reduction measures are not lawmakers’ only concern. In fact, the EMTA considers both environmental preservation and climate change mitigation. The agreement addresses sustainability in the aptly named Trade and Sustainable Development Chapter, which commits both sides to incorporating  sustainability into their regulations. It also binds parties to implement the 2015 Paris Climate Accord and encourages the recognition of various ILO and multilateral sustainable development agreements (MSDAs) including but not limited to the 1992 Convention on Biological Diversity, sustainable fishing clauses in the 1994 United Nations Convention on the Law of the Sea, and the 2008 Declaration on Social Justice for a Fair Globalization. [14]

One area of particular concern for EU regulators is the persistence of deforestation in the Brazilian Amazon. As it stands, the EU is the world’s second-largest importer of emissions from deforestation, only surpassed by China. [15] Researchers are concerned that the EMTA’s boost to the Brazilian agriculture industry through the liberalization of soy and corn imports could accelerate deforestation in the region. Moreover, despite the aforementioned commitments, many criticize the agreement for its failure to address deforestation specifically, although some argue the agreement’s commitments to sustainability and adherence to MSDAs do limit deforestation. [16] There are also concerns that many of the commitments to sustainability are non-binding and therefore will only have a limited ability to reduce the effects of unsustainable commerce. [17]

Another non-barrier concern between the two parties during negotiations was intellectual property rights (IPRs). When formulating a free trade agreement generally, intellectual property rights are of particular concern as different legal systems have different standards for patent recognition, property protection, and dispute procedure. The EMTA largely relies upon existing multilateral IPR treaties and frameworks for substantive mandates. [18] However, the EMTA does break new ground specifically regarding Geographical Indicators (GIs), which the agreement defines as “the designation or presentation of a good that indicates or suggests that the good in question originates in a geographical area.” [19] These indicators pertain to certain European products like wine, cheese, and wood that gain value from the region they originate from. The GI protections in the EMTA prevent companies from indicating a product is from a particular place unless it actually originates from that place. For example, under the GI provision in the EMTA, only wineries in Bordeaux, France would be allowed to sell “Bordeaux Wine,” as the name indicates a certain geographical region.

While the GI clauses represent a serious concession from Mercosur, there were concessions from the EU as well, especially towards IPR enforcement. The agreement explicitly excludes any international enforcement mechanism for IPR, which purportedly “safeguards national legislation.” [20] This was a position that Mercosur held throughout the two decade and a half-long negotiation and ultimately prevailed in ratifying.  

Political Reactions in the EU

The EMTA represents a significant compromise, especially from protectionists in the EU. Many in Europe view the agreement as too large of a concession from a bloc that ultimately possesses more economic power than Mercosur, especially given that Mercosur is likely to experience greater economic growth as a result of the EMTA than the EU. Hence, on January 21, 2026, the European Parliament, on a narrow 334-324 vote, forced the agreement into review by the European Court of Justice (ECJ). [21] The grounds for review appear on multiple fronts of the political spectrum. The protectionist camp, composed predominantly of French and German farmers, echoes the aforementioned concerns about the continued competitiveness of the European agriculture sector. [22] They argue that by the time the safeguard measures kick in, the damage to European agriculture will already have been done. [23] Others say that the non-binding nature of the EMTA’s food safety and sanitation clauses compromises the health of European consumers. Progressives are concerned that the agreement will lead to further encroachment onto indigenous land via deforestation. [24] While all these concerns are addressed within the agreement, all sides argue that it doesn’t go far enough to preserve European values, a sentiment shared by much of the European public. [25]

Interestingly, there is a precedent of the ECJ striking down trade deals. In October 2024, the ECJ ruled that a trade agreement between the EU and Morocco was signed without the consent of the people of Western Sahara, a disputed territory within Moroccan borders. [26] They found that an agreement which excluded from negotiations a recognized nation under international law violated that nation’s fundamental right to self-determination. [27] Although possible, experts predict an ECJ ruling against the validity of the EMTA would be unlikely. A more probable outcome is a significant delay in the EMTA’s implementation as ECJ reviews can take months or even years. [28] Backers of the agreement are pushing for the European Commission to begin implementing clauses of the agreement before the ECJ’s ruling, as they technically possess the power to do so. However, such a move would strain the already tenuous relationship between the branches of the EU government, something commission heads are actively trying to mend. [29]

The EMTA’s potential is vast. From creating one of the largest trans-Atlantic markets to improving South American regulatory and sustainability infrastructure, policymakers hope this agreement will be the first in a long line of collaborative efforts to reshape the global economy.  This begs the question: are Europeans finally ready to accept the difficult realities that come with global competitiveness? If so, the EMTA, along with efforts in India and elsewhere, could redefine where global hegemony lies. If not, the western alliance could slowly cede its position in the new global economy to players like China who are more willing to make sacrifices for the sake of growth.

Notes:

1. Mark Carney, “Speech at Davos 2026” (speech, Davos, Switzerland, January 20, 2026), World Economic Forum, https://www.weforum.org/stories/2026/01/davos-2026-special-address-by-mark-carney-prime-minister-of-canada/

2. Carney, 2026

3. Carney, 2026

4. Patricia Cohen, “E.U. and South America to Form Free-Trade Zone With 700 Million People,” New York Times, January 2026, https://www.nytimes.com/2026/01/09/business/economy/european-union-mercosur-trade.html

5. Jan Hagemajer et al., “An update on the economic, sustainability and regulatory effects of the trade part of the EU-Mercosur Partnership Agreement,” European Parliament Committee on International Trade (July 2025): 10

6. Michael Baltensperger and Uri Dadush, European Union-Mercosur Free Trade Agreement: prospects and risks (Bruegel, September 2026): 3-4

7. Baltensperger and Dadush, European Union-Mercosur Free Trade Agreement: 3

8. Hagemajer et al., 2026: 20-21

9. Łukasz Ambroziak et al., “Comparison of the Agricultural Production Potential of Mercosur Countries and the EU in the Context of the EU–Mercosur Partnership Agreement,” Sustainability 17, no. 24 (December 2025): 9-16

10. European Union-Mercosur Partnership Agreement, chp. 9, art. 9.5-9.9

11. Alexendre Gohin and Alan Mathews, “The European Union-Mercosur Association Agreement: Implications for the EU Livestock Sector,” Journal of Agricultural Economics 77, no. 1 (September 2025): 1

12. Luciana Ghiotto and Javier Echaide, Analysis of the agreement between the European Union and the Mercosur (Berlin: The Greens/EFA, 2019): 54-56

13. Luciana Ghiotto and Javier Echaide, Analysis of the agreement between the European Union and the Mercosur: 55-57

14. European Union-Mercosur Partnership Agreement, chp. 18, art. 18.1-18.14

15. Oliveira et al., “The European Union-Mercosur Free Trade Agreement as a tool for environmentally sustainable land use governance,” Environmental Science and Policy 161, 103875 (November 2024): 3-4

16. Fuchs et al., “The EU’s new anti-deforestation law has severe loopholes that could be exploited by the forthcoming EU-MERCOSUR trade agreement,” Environ. Res. Lett. 19, 091005 (August 2024): 2-3

17. Olivera et al., “The EMTA as a Tool”: 6

18. European Union-Mercosur Partnership Agreement, chp. 13, art. 13.3-13.4

19. European Union-Mercosur Partnership Agreement, chp. 13, art. 13.35, sec. 1, cl. B

20. Blasetti et. al., “Intellectual Property in the EU-MERCOSUR FTA: A brief review negotiating outcomes of a long-awaited agreement,” South Centre 128, (February 2021): 6, 20-21

21. Philip Blenkinsop, “EU lawmakers deal blow to Mercosur trade deal by referring it to top court,” Reuters, January 21, 2026, https://www.reuters.com/world/eu-lawmakers-vote-whether-launch-legal-challenge-mercosur-trade-deal-2026-01-21/. 

22. Udo Bullmann, “Europe’s strategic sleepwalking,” IPS, April 2, 2026, https://www.ips-journal.eu/topics/european-integration/europes-strategic-sleepwalking-8838/ 

23. Bilaterals.org, “EXPLAINING Why the safeguard clause in the Mercosur agreement fails to protect the EU poultry meat sector,” 7 October 2025, https://www.bilaterals.org/?explaining-why-the-safeguard

24. Bilaterals.org, “EXPLAINING Why the safeguard clause.”

25. Anders Larsen, “European public opinion opposes Mercosur trade deal,” January 21, 2021, https://www.regnskog.no/en/news/european-public-opinion-opposes-mercosur-trade-deal. 

26. C‑779/21 P and C‑799/21 P, European Commission and Council of the European Union v Front populaire pour la libération de la Saguia el-Hamra et du Rio de oro (Front Polisario), 2024 ECLI 835: 36

27. Julia Payne, “ECJ rules EU-Morocco trade deals invalid in Western Sahara,” October 4, 2024, https://www.reuters.com/world/ecj-rules-eu-morocco-trade-deals-invalid-western-sahara-2024-10-04/. 

28. Lea Marchel, “Listen: Could the EU court of justice kill the EU-Mercosur trade agreement?” January 23, 2026, https://euobserver.com/198532/listen-could-the-eu-court-of-justice-kill-the-eu-mercosur-trade-agreement/. 

29. Bullman, “Europe’s strategic sleepwalking.”

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