Mercosur and the EU create the largest free trade area in the world

Assumption. The Southern Common Market (Mercosur) and the European Union (EU) signed on Saturday in the Paraguayan capital an association agreement to create the largest trading bloc in the world – which represents a quarter of the world economy -, which they reached after nearly 30 years of negotiations and which was celebrated by the two blocs as a triumph of multilateralism over tariff protectionism.

“We are creating the largest free trade area in the world, a market that represents almost 20 percent of the world’s gross domestic product (GDP). Providing untold opportunities for our 700 million citizens,” said the president of the European Commission (EC), Ursula von der Leyen, who in the last year played a leading role in the materialization of the historic treaty.

The representative of the European bloc highlighted that this agreement “sends a very clear message to the world: it reflects a clear and deliberate choice. We prefer fair trade to tariffs. We prefer a productive and long-term partnership to isolation. And, above all, we intend to offer real and tangible benefits to our citizens and our companies.”

The European bloc and the founding nations of Mercosur – Brazil, Argentina, Paraguay and Uruguay – signed the pact in a ceremony held at the Grand Theater of the Central Bank of Asunción, where Mercosur was created in 1991.

The signing occurs at a time when the president of the United States, Donald Trump, threatened with tariffs of up to 25 percent to several European countries that oppose the United States purchasing Greenland.

Present at the ceremony were the presidents of Argentina, Javier Milei; from Uruguay, Yamandú Orsi, and from the host Paraguay, Santiago Peña. Also the president of the newly incorporated Bolivia, Rodrigo Paz, and the associated State of Panama, José Raúl Mulino.

The intercontinental alliance, of unprecedented characteristics and magnitude, plans to gradually eliminate tariffs on almost all goods traded between the two blocs over the next 15 years.

The EU-Mercosur treaty eliminates tariffs on more than 90 percent of bilateral trade and favors exports of European automobiles, machinery, wines and spirits to Mercosur. In exchange, it facilitates the entry of South American meat, sugar, rice, honey and soy into Europe.

EU exports to Mercosur are expected to increase by 39 percent and Mercosur exports to the EU by 17 percent.

The pact faces resistance from farmers and ranchers in some European countries, who have mobilized in strong protests against the signing because they fear a flood of South American products with less rigorous production standards. Thousands of them have been making their claim for days on the streets of France, Poland, Ireland and Belgium.

On Friday, long lines of tractors flooded the Spanish city of Burgos with signs such as “no to Mercosur”, while in France protesters burned tires and a symbolic coffin with the word “Agriculture”.

To calm the sector’s anger, the European Commission introduced a series of clauses, such as guarantees for its meat, poultry, rice, honey, eggs and ethanol sectors, which limits the quota of Latin American products exempt from tariffs and intervenes in case of market destabilization.

Some of these announcements managed to reverse Italy’s negative vote, which was the key to the approval of the agreement among Europeans, but the measures were not enough to appease the producers, who are planning a demonstration on January 20 in Strasbourg, France.

Despite the official signing this Saturday, for the agreement to come into force it must be ratified by the European Parliament and the congresses of the Mercosur member countries.