A geopolitical strategy with domestic political costs: The EU–Mercosur Agreement

The European Council’s decision to postpone ratification of the EU–Mercosur Partnership Agreement by one month may seem inconsequential, considering its negotiation has now spanned more than a quarter of a century, but the stakes could not be higher, with any further delay likely to sink the deal. Brazilian president Luiz Inácio Lula da Silva has only acquiesced to one final delay – until early January – after Italian prime minister Giorgia Meloni pleaded for more time to convince Italian farmers to accept the pact during a phone call with him on 18 December in the margins of the EU summit.

If ratified, the Europe–Mercosur pact will be the largest interregional agreement in history, covering €111bn in trade and over 780m people. It seeks to liberalize trade between the EU and the four Latin American countries of the Southern Common Market (Mercosur): Argentina, Brazil, Paraguay and Uruguay. In 2019, the two blocs reached an ‘agreement in principle’ on the deal’s Trade Pillar (i.e. specific preferential trade arrangements such as reduced tariffs) yet failed to conclude and ratify the Agreement due to strong domestic opposition in Europe. Last year, renewed geopolitical incentives – the US’s protectionist turn, China’s ever-increasing political and economic influence and the ongoing war in Ukraine – pushed the EU and Mercosur to undertake renegotiations and reach an updated agreement in December 2024. Ratification, however, continues to be challenged by fierce opposition from the EU’s agricultural sector – specifically livestock farmers in countries including France, Poland and Italy – over concerns that the deal would undercut competitiveness. In addition, an environmental backlash has arisen over concerns that it could promote deforestation in the Amazon. One year on, the European Commission has succumbed to political pressure to delay ratification, so that Italy may work through domestic opposition to the deal. Ultimately, the EU–Mercosur Agreement has been held hostage by the clash between the EU’s geopolitical ambitions and member states’ domestic political economy constraints.

What does the EU–Mercosur Agreement consist of?

Following China but ahead of the US, the EU is already Mercosur’s second-biggest trade partner, whereas Mercosur is the Union’s tenth. Trade between the two blocs is significant but it has underperformed relative to its potential. By eliminating tariffs on over 90% of that trade, the Agreement would save European exporters €4bn annually and open Mercosur’s highly protected markets to European industrial goods, while South American agricultural products would similarly receive preferential access to European markets. Given the nature of trade-flow composition between the two blocs, the Agreement has been dubbed a ‘cars for cows’ deal.¹ The negotiation’s critical challenge has been to overcome opposition from EU farmers and Mercosur manufacturers. Although Mercosur governments managed to strike deals with their respective industry organizations as early as 2016 – for instance, by securing long liberalization schedules and stringent rules of origin regulations – agricultural sector representatives within EU member states continue to lobby fiercely against the deal.

The winners

European industrial producers

Since agreement between the Commission and Mercosur was reached in December 2024, EU diplomats have gone to ‘unprecedented lengths’ to win over sceptical member states. They have stressed the significant boost to exports of cars and machinery, in addition to access to Mercosur’s critical raw minerals – a crucial factor if European dependence on China is to be reduced. Indeed, high tariffs on auto parts (35%), machinery (20%), chemicals (18%) and pharmaceuticals (14%) would be eliminated. Consequently, the European industrial sector is vocal in its support: in 2023, nineteen business associations, representing major EU industrial producers, sent a joint letter to the Commission stating that ‘Free Trade Agreements (FTA) play a vital role in mitigating the impact of the Russian aggression of Ukraine and balancing geopolitical tensions and uncertainties’, and that the Mercosur deal ‘offers Europe a unique and timely opportunity to seize a first mover advantage into the wider Latin America market’. The deal would be the first of its kind for the Mercosur bloc, giving Europe a competitive advantage over US or Japanese products in the region. Export-oriented countries such as Germany, Sweden and Denmark are unsurprisingly strong supporters of the deal. Others are divided along sectoral lines, such as Italy, whose ailing industrial sector strongly favours the deal, but whose powerful agricultural lobby has privileged influence over the Italian prime minister.

Certain European agri-food sectors also stand to benefit. The Commission has estimated that scrapping Mercosur tariffs on wine and spirits, chocolate and olive oil will boost EU agri-food exports by approximately 50%. ‘Geographic Indications’ will protect 344 European food and drink products from imitation.

Mercosur agricultural producers

In Mercosur, livestock agricultural sectors stand to reap the most benefits from the Agreement, as it will raise the EU’s Tariff-Rate Quotas (TRQs) on key agricultural products such as beef, poultry and sugar. TRQs are designed to protect domestic producers from external competition by setting limits on the quantity of imports which benefit from low tariff rates. Any imports that exceed this quota are then subject to a much higher tariff, which discourages exporters from shipping more products to the EU given the reduced profitability of their sales. For example, beef imports from Brazil and Uruguay that exceed current TRQ volumes are subject to the Most-Favoured-Nation (MFN) rate, which is effectively a 43% tariff. The Mercosur deal would thus introduce new TRQs (to be phased in over five years), increasing the volume of imports that are set to benefit from lower tariff rates. Concretely, these are: 54.5 thousand tonnes of fresh beef, and 44.5 thousand tonnes of frozen beef subject to a preferential tariff rate of 7.5%; 180 thousand tonnes of duty-free poultry imports; and 180 thousand tonnes of duty-free cane and beet sugar.

Challenges to ratification

Undercutting EU farmers’ competitiveness

In Mercosur countries, lower land and labour costs and less stringent regulatory and environmental requirements yield lower production costs in agriculture compared with the EU. This has stoked fear among European livestock farmers that the expanded TRQs will flood their markets with cheaper meat, undercutting domestic prices. In the worst-case scenario, the trade deal could contribute to the hollowing out of the EU’s agricultural sector by facilitating production transfer to countries with a competitive edge. A much more likely consequence is political: the Agreement may push farmers towards far-right parties as they become increasingly sceptical of an EU that appears willing to sacrifice their livelihoods for an abstract geopolitical strategy. Under pressure from its powerful agricultural lobby, France has emerged as the deal’s most outspoken critic, despite its decades-long advocacy for the EU to espouse a more geostrategic approach in its foreign and security policies. This contradiction captures the Agreement’s paradoxical incentives, with member states torn between geopolitical strategy and domestic political constraints. Such issues have similarly compelled Poland, Hungary, Austria, Ireland and Italy to oppose the deal. However, three important qualifications to this interpretation warrant closer examination.

Firstly, the proportion of imports granted by the deal’s TRQs relative to total EU agricultural production is very small. The expanded tariff exemptions for key agricultural imports would amount to 1.5% of the EU’s total beef production; 0.1% of total pork production; and 1.3% of total poultry production. Farmer advocacy groups in turn have criticized these macroeconomic studies for neglecting the localized and isolated impacts imported agricultural products can have in specific seasons or concentrated locations. Yet the share of imports relative to total EU agricultural production remains undeniably small.

Secondly, any potential increase in import volumes depends on the current levels of imports that surpass existing TRQs. For example, in 2024 Mercosur exported 45 thousand tonnes of fresh beef (up from 30 thousand tonnes in 2020) that exceeded current TRQs and were thus subject to the much higher MFN tariff rate. As such, the deal’s offer to allow an additional 54.5 thousand tonnes of fresh beef imports to benefit from a low tariff rate would, in practice, only incentivise a further 9.5-thousand-tonne increase in imports, since anything beyond this quantity would face the high MFN tariff. Similarly, the deal’s TRQ for sugar would substitute the exact same volume of sugar imports currently paying a €98/tonne tariff – such that no increase in trade volume is incentivized.

Existing poultry and frozen beef import levels paint a different picture. Both are roughly compliant with existing TRQs, such that imports for poultry and frozen beef would be expected to increase by 180 thousand tonnes and 40.5 thousand tonnes, respectively, by the time the deal is fully phased in.

Thirdly, extensive efforts have been made to implement further protections for farmers. In October 2025, the Commission proposed an initial set of measures intended to assuage European farmers’ concerns. Two months later, the European Parliament voted in favour of further strengthening these safeguards. In their final form, they include safeguard clauses for sensitive products such as beef, poultry, dairy, sugar and ethanol in case European agricultural goods prices are undercut by imported products; commitments to implement such protections within 21 days; and plans to enhance monitoring systems which ensure equal production standards. While these measures may remain imperfect, they represent a concerted effort to protect farmers from any potential negative effects stemming from the deal. Indeed, the Commission has also set up a new €6.3 billion ‘Unity Safety Net’ reserve, which will act as a support fund to compensate farmers in case of severe market disturbances.

Environmental risks

A second source of apprehension about the deal stems from the risk of further deforestation in the Amazon to accommodate the increased livestock destined for export. Concerns were heightened during Jair Bolsonaro’s presidential term in Brazil, whose policies enabling mass Amazonian deforestation led environmental advocacy groups to identify the Mercosur deal as a potential source of further damage. Since then, President Lula, a markedly more environmentally responsible head of state, has been elected to office. The EU Commission has also sought to enhance its commitment to sustainability by incorporating the Paris Agreement as an essential element of the deal, adding further commitments to halt deforestation, and €1.8 bn in support for the green transition in Mercosur countries as part of the Global Gateway. Although the Agreement’s environmental clauses have been criticized for not being sufficiently stringent – given the absence of a binding sanction mechanism for environmental violations – a deeper issue lies in the Commission’s incapacity to trace the origin of products adequately to distinguish between deadstock raised on legal versus illegal pasture.

Food security

Traceability is both an environmental and a food security concern. One pertinent issue that has emerged involves the use of growth hormone 17β-estradiol, which has long been banned in the EU yet is still widely used in cattle farming in Brazil. Despite the Commission’s statement that ‘any product entering the EU market must comply with the EU’s stringent food safety standards’, a 2024 audit by its DG SANTE revealed considerable shortcomings in Brazil’s capacity to trace and control the use of the hormone. Relatedly, Articles 107 and 118 of EU Regulation 2019/6 make the ban on growth-enhancing antibiotics a condition of access to European markets for all imported animal products. However, it will have taken almost nine years to implement this regulation (est. September 2026), and its enforcement is set to be verified through the production of a veterinary self-certificate provided by exporters themselves. Critics have been quick to point out the potential risks of non-compliance and corruption inherent in such an enforcement mechanism. Compounding this issue is the fact that the EU’s own control system relies on audits and sample checks, and is therefore unable to ensure total compliance.

Heightened geopolitical incentives

Given the significant risks and political backlash, the Commission’s unswerving commitment to getting the deal ratified may seem perplexing. Yet, the shifting global geopolitical landscape has lent an urgency to both the Commission and the Mercosur bloc’s rationale.

The immediate geopolitical incentive driven by the US’s aggressive revisionism of the post-1945 world order, its trade pressures and military retrenchment have challenged both blocs’ prosperity and security, forcing leaders to shift their focus towards arrangements of interregional cooperation. In addition to tariff disputes and political hostilities souring bilateral relations between the US and Brazil, the significant reduction of US development and financial assistance has heightened Mercosur’s interest in maintaining close relations with EU countries, which constitute the largest investors in the region with a stock of €390 bn in annual FDI – double that of the US and triple that of China. Moreover, as relatively weak international actors from a military standpoint, both sides are intrinsically dependent on a functioning multilateral cooperative order. The EU–Mercosur deal therefore not only signals both blocs’ normative commitment to principles of non-aggression and multilateral coordination but also represents a strategic security consideration.

A second, EU-specific geopolitical concern relates to competition with Chinese and Russian influence in Mercosur countries. Brazil, which made up 80% of total trade between the EU and Mercosur in 2024, remains strategically neutral towards the war in Ukraine, sourcing 75% of its fertilizer imports from Russia. China’s expanding influence in the region also presents challenges through alliances such as Brazil’s membership of the BRICS.

Conclusion

While partnership between the two blocs undeniably offers trade advantages to specific sectors of Mercosur and the EU’s economies, the driving forces behind the deal also include an explicitly geopolitical dimension. It is a unique opportunity for both blocs to demonstrate their enduring commitment to a rules-based international order as well as to signal their capacity to form alliances which circumvent the US entirely. The EU also has a unilateral vested interest in ratifying the deal: stopping Brazil from completely defecting to alternative alliances such as BRICS.

Regarding EU farmers’ concerns, market dislocations caused by the Agreement may in fact be much smaller than anticipated. However, this does not detract from the significant political risks the deal brings. If the deal is successfully ratified in January, it will be vital that the Commission’s safeguard mechanisms for farmers are properly implemented and upheld. Not doing so could foster further euroscepticism among European farmers, fanning the flames of the far right.

Environmental concerns over deforestation risks and food safety are entirely legitimate. However, the Mercosur bloc’s patience has long run out, such that the EU’s leverage to force Mercosur countries to accept further regulations is virtually null. At this stage, any attempt to influence policy change in Mercosur countries will be driven through closer ties rather than distant negotiations. The current breakthrough in talks represents a unique political alignment of the stars – the closest the many heads of state involved in the negotiations have come to an agreement. Not seizing this opportunity risks foregoing the deal altogether. Failure to ratify the deal in January will paint the EU in a uniquely negative light, sending the message that member states cannot agree terms even after 25 years of negotiations. For France, in particular, as the member state that has pleaded more than any other for the EU to become a strong geostrategic actor, that should be an unpalatable outcome.