The European Union and the South American trade bloc Mercosur have finally crossed a diplomatic threshold that had resisted compromise for a quarter of a century, signing a sweeping free trade agreement that now stands as Europe’s largest-ever external trade pact by market size.
Yet even as officials celebrated the breakthrough in Asunción, Paraguay, the deal’s future remains uncertain, caught between geopolitical urgency and domestic resistance on both sides of the Atlantic.
The agreement, signed on Saturday by European Commission President Ursula von der Leyen, European Council President Antonio Costa, and leaders from Argentina, Paraguay, and Uruguay, is the culmination of negotiations that began in 1999 and stalled repeatedly over agricultural protection, environmental safeguards, and shifting political winds. Brazilian President Luiz Inácio Lula da Silva, whose return to office helped revive talks, was represented by his foreign minister but had earlier thrown his full weight behind the pact.
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If ratified, the deal would bind together two economic blocs representing about 700 million people and formalize trade ties that reached €111 billion in 2024. European exports to Mercosur are dominated by machinery, chemicals, and transport equipment, while South America’s exports lean heavily on agricultural goods, minerals, wood pulp, and paper. Supporters say tariff reductions and regulatory cooperation could unlock billions of euros in additional trade and investment over time.
The agreement is about more than commerce for Brussels. It lands at a moment when the global trade system is under strain, tariffs are once again being wielded as geopolitical weapons, and Europe is seeking to hedge against overreliance on a narrow set of partners. Von der Leyen cast the pact as a strategic statement as much as an economic one, arguing that Europe was choosing openness and long-term partnerships at a time when protectionism is gaining ground elsewhere.
“This agreement sends a very strong message to the world,” she said at the signing ceremony. “We choose fair trade over tariffs. We choose a productive, long-term partnership over isolation.”
That message was sharpened by events unfolding far from Asunción. Just hours before the ceremony, President Donald Trump threatened to impose escalating tariffs on eight European countries unless the United States is allowed to purchase Greenland, reinforcing European concerns about the volatility of transatlantic trade relations. EU officials privately say the Mercosur pact is part of a broader effort to diversify economic alliances and strengthen Europe’s strategic autonomy.
Antonio Costa echoed that view, describing the agreement as a milestone in strengthening economic security without abandoning core values. He argued that deeper ties with Mercosur would help both regions navigate a world marked by geopolitical shocks, trade fragmentation, and rising uncertainty.
Still, the celebratory tone masks significant political challenges ahead. The agreement must now pass through the European Parliament and be ratified by the national legislatures of Argentina, Brazil, Paraguay, and Uruguay.
In Europe, opposition from farming lobbies and environmental groups remains intense. Farmers fear that cheaper South American beef, poultry, and other agricultural products could undercut domestic producers already grappling with high costs and strict environmental rules. Environmental organizations warn that expanded agricultural exports could accelerate deforestation in the Amazon and other sensitive ecosystems, despite sustainability clauses built into the deal.
These concerns have already shaped the pact’s long gestation and are likely to dominate ratification debates. Several EU governments that backed the deal last week have signaled that they will push for strict enforcement of environmental commitments and safeguard mechanisms to protect sensitive sectors. Failure to reassure skeptical lawmakers could still derail the agreement in national parliaments.
In South America, the calculus is different but no less complex. For Brazil, Argentina, and their neighbors, the deal offers preferential access to one of the world’s largest consumer markets at a time when global growth is slowing, and competition for investment is intensifying. Lula has framed the agreement as central to Brazil’s strategy of expanding and diversifying export markets, reducing dependence on any single partner, and attracting foreign capital.
Brazil’s government said the pact was emblematic of Lula’s broader push to reposition the country as a key player in global trade, noting parallel negotiations with the United Arab Emirates, Canada, and Vietnam, as well as efforts to expand a tariff-preference agreement with India. Mercosur officials, however, have acknowledged unease over the EU’s regulatory standards, which some fear could limit industrial development or impose compliance costs on exporters.
Beyond economics, the agreement carries geopolitical weight. It reinforces South America’s ties with Europe at a moment when China has become a dominant trade partner for much of the region and the United States is adopting a more transactional approach to trade. For Europe, closer links with Mercosur could help secure access to critical raw materials and agricultural supplies while opening new markets for European manufacturers.
However, analysts believe that the pact’s ultimate entry into force will depend on how convincingly leaders can address fears at home while selling the promise of long-term gains.