1/12/2026 Europe and South America to Grow Closer with Historic Free Trade Agreement

The member states of the EU have approved the signing of a free trade agreement between the European Union and the Latin American states of Mercosur, Brazil, Argentina, Paraguay, and Uruguay. A recent addition, Bolivia, will eventually be able to participate in the same. The agreement, in the making since 1999, will form a trade bloc of more than 700 million people with 90% of tariffs to be removed by 2040. What this will mean in practice is two-fold in strong validation of global free trade and free trade agreements at a time when the U.S. appears to be doubling down on protectionism, and the opening of South American markets to European industry and services.

Although opposition in Europe has centered around threats to the region's farmers from cheap agricultural goods from South America, the EU reports that agricultural trade will continue to be carefully managed, including safeguards that limit increases in "import volume of more than 8% compared to the three-year average" and decreases in "prices of more than 8% compared to the three-year average". These precautions, and €45 billion in subsidies, were enough to push enough EU members to move the agreement forward.

In Europe, the EU Commission estimates an "increase [of] EU annual exports to Mercosur by up to 39% (€49 billion) supporting more than 440,000 jobs" and with "EU agri-food exports to Mercosur ... expected to grow by almost 50% ... notably wine and spirits (up to 35%), chocolate (20%), and olive oil (10%)". Regardless of the accuracy of these projections, it should be clear that European industry is expected to see great benefits in the opening of South American markets not only through an increase in exports and subsequent creation of jobs, but in a strengthening of European supply chains through investment in the vast natural resources and minerals available in South America.

In South America, the main benefits Mercosur nations are likely to see are expanded access to EU markets, a projected boost in exports by €9 billion in European estimates with the removal of European preferential tariffs on South American goods, and increased European investment as the two regions grow closer together with time and interaction. Mercosur as a trade bloc will also be very much validated by this historic agreement, and its member states and their industries encouraged to develop into faster, better, stronger, more efficient businesses in the face of increased European competition.

As the U.S. closes off its domestic markets to foreign firms, the E.U. and Mercosur signal for increased global efficiencies and business through competition rather than protectionism. The E.U. has agreements with non-Mercosur countries Peru, Colombia, Ecuador and Chile, and a trade agreement between the E.U. and Mexico has also been proposed and is currently awaiting ratification.

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References

1. https://www.nytimes.com/2026/01/09/business/economy/european-union-mercosur-trade.html

2. https://www.economist.com/europe/2026/01/11/europe-and-south-america-seal-a-trade-pact-for-the-trump-era

3. https://www.atlanticcouncil.org/dispatches/eu-and-mercosur-are-creating-one-of-the-worlds-largest-free-trade-areas/

4. https://www.europarl.europa.eu/news/fr/press-room/20251217IPR32258/mercosur-parliament-and-council-agree-on-agriculture-safeguards

5. https://luxembourg.representation.ec.europa.eu/actualites-et-evenements/actualites/commission-proposes-mercosur-and-mexico-agreements-adoption-2025-09-03_en

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