EU-Mercosur: will the long-lasting debate come to an end?

A little background history

MERCOSUR is the abbreviation for Mercado Común del Sur, the Common South American Market. The trade bloc was established by the Treaty of Asunción in 1991 and became a customs union in 1995 - the next step of economic integration.

Negotiations between the EU and Mercosur on the Association Agreement (AA) began in 1999. One part of this AA is the Free Trade Agreement (FTA). The FTA aims to reduce trade barriers - especially to lower or to abolish tariffs - and to increase the trade of goods and services across borders.

In January 2024, a legal opinion commissioned by Greenpeace showed that “the EU-Mercosur FTA does not comply with EU and international law” because it is expected to lead to higher deforestation, resulting in higher GHG emissions. This analysis highlighted that the trade agreement could exacerbate deforestation in critical areas such as the Amazon rainforest, where large sections of forest might be increasingly set ablaze for agricultural expansion.

Recently, in a lot of French and German cities, demonstrations have been held against the treaty. German farmers fear cheaper products from South America. In France, the situation is a bit different, as it seems like the whole society is united in the rejection of the agreement.

France’s opposition

A series of protests started in France, where an unprecedented coalition of farmers, environmentalists, and opponents of free trade agreements has mobilized against the EU-Mercosur deal. They have raised concerns about the potentially devastating impacts of the agreement on various sectors, particularly agriculture and livestock farming.

Farmers during protests in France. (Wikimedia/Kakoula10/License)

In response to the farmers’ demonstrations, the French National Assembly approved a government declaration opposing the signing of the agreement in its draft form. The declaration passed, but the government fell short of achieving the unanimity it had hoped for. For example, the radical left-wing party, La France Insoumise (LFI), voted against the declaration.

Despite rejecting the draft agreement, the French government remained open to a revised version. It has called on the European Commission to renegotiate the text more thoroughly, specifically by incorporating „mirror clauses“, which would require Mercosur producers to comply with the same EU regulations on issues like pesticide use and animal welfare as imposed on European counterparts. This would ensure a fair competition.

Additionally, the French government has advocated for binding environmental measures to align the treaty with the goals of the Paris Climate Agreement. And it seems that the European Commission has considered France’s wishes, because as per a briefing of the final version, both counterparts “commit to effectively implement the Paris Climate Agreement and to cooperate on the climate aspects of trade.” After finalising the negotiations in Montevideo, Ursula von der Leyen said that they have listened to the concerns and acted on them. She also stressed that the “EU-Mercosur is the biggest agreement ever, when it comes to the protection of EU food and drinks products.” Not only the protection of goods, but respecting labour rights, promoting health and safety and preserving the environment are all key concepts in the agreement. But putting these concepts into practice is not always evident for the different countries.

Mercosur states facing big challenges

While the standards concerning environmental protection in the new agreement are set high, it will be easier for some more than others to comply with them. Oscar Avila-Montealegre, a Colombian Professor of International Trade at the Universidad del Rosario in Bogotá, sees some challenges especially for the Southern American countries. For example, the EU-Mercosur-agreement entails several requirements for a Green Transition, compliance with the Paris Agreement or renewable energy technologies. “Many of the European producers already comply with standards that are consistent with these emission requirements”, says Avila-Montealegre. However, the Mercosur states have lower standards and therefore need to invest in order to transition and be able to export their products.

Such a transition requires a lot of time and financial investment. Avila-Montealegre emphasizes that to align with the EU’s stringent standards and clean technologies, South American states need substantial support. A good example of this is the Global Gateway initiative, under which the EU has committed €1.8 billion to aid Mercosur countries in their green and digital transition.

One measure to avoid that products under lower standards and at a cheaper price enter the European Union is the Carbon Border Adjustment Tax. Avila-Montealegre explains that since its implementation last year, countries that produce in a “less clean” way need to pay accordingly more tax to export their products and compensate for the cheaper production. “That is forcing Southern American companies to make investments if they want to survive or if they want to export to Europe.” According to Avila-Montealegre this is not only going to be costly for producers in the Mercosur states, but there is also a high possibility that small companies and farmers will not be able to face such a challenge. Creating incentives could be a possible solution, Avila-Montealegre says, to adopt transition measures and to support smaller companies to do the same. Big companies could help train small farmers to make energy transitions in their practice and as a reward receive tax benefits. “That way a cycle can be generated that helps for everyone to adapt in the next years.”

However, the potential illegal deforestation of the Amazon is still a difficult question. Avila-Montealegre says that a possible solution could be cooperating with civil society organizations. While in the agreement, there is a part dedicated to “overview the implementation”, it does not seem like that the Amazon would be involved in it specifically. However, communities directly living and working in the Amazon could serve as forest guards, with beforehand training making them understand the importance of maintaining the forest. Protecting the Amazon, Avila-Montealegre emphasizes, is much better for the environment than replanting it.

A real „win-win“?

Besides all concern, he still sees a big chance for South American low-middle-income countries in accessing the European market. As in the EU’s stronger economy, Southern American products can be sold for a higher price. Organic production especially opens the door to some potential gains for Southern American farmers. “There is a huge profit potential there.” In the end, for the expert of international trade, the real winners of the agreement will be consumers on both sides: “When there is a free trade agreement signed, tariffs and the costs of trade are reduced. Hence, the consumer ends up having access to a greater variety of products at a lower price.”

The EU-Mercosur trade agreement stands at the intersection of opportunity and challenge. While it promises economic growth and consumer benefits, its success depends on addressing environmental concerns and supporting Mercosur states in meeting stringent EU standards. Without robust safeguards, deforestation in the Amazon and inequality among producers risk undermining its potential. Efforts like the Global Gateway commitment and the Carbon Border Adjustment Tax offer some solutions, but the true test lies in balancing economic gains with equity and environmental protection—a critical task. Whether it becomes a true „win-win“ or a divisive misstep will become evident in the coming years as it undergoes ratification and implementation, a process that could extend over several years since it still requires approvals from EU member states and Mercosur countries.