Overview
Six months into provisional implementation, the EU-Mercosur interim trade agreement is delivering significant bilateral trade gains, but regulatory barriers, quota disputes, and political and legal obstacles threaten its full implementation. While the final agreement is still being ironed out on both sides of the Atlantic, recent data already show a significant increase in bilateral trade between Mercosur members and the European Union. The two regions together make up one of the largest free trade areas in the world, covering over 700 million people. However, despite export growth for both sides, stumbling blocks have arisen after the interim version of the agreement took effect, including an EU suspension of Brazilian meat imports and disputes among Mercosur members on how to divide the beef export quota. South American diplomatic disputes and an institutional crisis in Paraguay, as well as procedural barriers and political opposition on the European side, represent additional over-the-horizon risks for full implementation.
Trade Grows Under Interim Agreement
Mercosur’s largest economies, Brazil and Argentina, reported significant export growth in the EU-Mercosur deal’s first five months (May to September). The sale of Brazilian products to Europe benefiting from reduced tariffs grew by 21% compared to the same period last year and agricultural exports from Brazil to the EU rose 14.8% to more than $12 billion. In addition to agricultural exports, Brazil increased exports of materials to the EU, including ferrosilicon-manganese and raw aluminum, which both grew over 100%, and electrical transformers, which reached $39 million from zero. Brazil also modestly increased imports of agricultural products from the EU, but maintained a positive trade balance, increasing its surplus by 17% from May to September.
Immediately following the deal’s entry into force, Argentina also saw significant export growth: from May to August, Argentina’s agricultural exports to the EU totaled $1.9 billion, a 21% increase compared with the average during these months over the past three years. Exports grew by 44% over the same period when only considering products that benefited from reduced tariffs under the agreement, including significant growth in exports of fish, beef, lamb, tobacco, and bee-related products. Despite Argentine President Javier Milei’s close ties to President Trump and sharp criticisms of EU migration and regulatory policy prompting skepticism from some European leaders, Argentina is embracing expanded economic cooperation with the EU. Argentina’s Ambassador to Belgium and the European Union recently said that Argentina is betting on becoming a long-term provider of food and energy to Europe.
Exports also grew on the European side: EU exports to Mercosur increased by 9% in the first four months of the agreement. At a meeting of the European Parliament's Committee on International Trade last week, European Trade Commissioner Maroš Šefčovič estimated that EU exports to Mercosur could grow by 40% over the next 10-15 years. Italian exports to Mercosur, the second highest of the bloc, grew by 21.1% in the month after the agreement took effect. According to Confindustria, the General Confederation of Italian Industry, Italian exports to Argentina and Brazil could grow by up to €6 billion in the long term.
EFTA-Mercosur Agreement Sweetens the Deal
On November 1, the free trade agreement between the European Free Trade Association (EFTA) and Mercosur entered into force for Uruguay and Norway, which provides improved market access and modernized custom clearance regulations. The same pact took effect for Brazil and Iceland on October 1. EFTA is made up of Iceland, Liechtenstein, Norway and Switzerland, which are not members of the EU. With only around 15 million citizens combined, they are among the highest GDP per capita nations in the world. Liechtenstein, Switzerland, Argentina and Paraguay have not yet completed their domestic approvals of the EFTA-Mercosur agreement, which was signed in Rio de Janeiro in September 2025. Once they do, the agreement will create a free trade zone covering 300 million people and $4.3 trillion in combined GDP, with preferential market access for more than 97% of exports. Argentine lawmakers initiated congressional review of the agreement in late October.
Stumbling Blocks Complicate Implementation
The first few months of the interim agreement have also come with growing pains. As tariff reductions are determined by agreed-upon schedules and quotas for various sectors, implementation has been a gradual process. For instance, the quota for beef exports from Mercosur to the EU is 99,000 tons at a 7.5% tariff. However, the Mercosur members have not yet agreed on how to divide that quota among themselves. Paraguay has called for an equal 25% share for each of the four members, while Brazil, Argentina and Uruguay advocate a proportional division based on past export volume. A meeting of Mercosur foreign ministers in Montevideo on September 2 ended without a resolution.
The compliance learning curve for access to the European market has also produced hiccups for Mercosur. On September 3, the EU suspended imports of beef, honey, and poultry from Brazil due to concerns over compliance with antimicrobial requirements. This decision came as the European Commission said Brazil had not sufficiently guaranteed the prevention of antibiotic misuse to promote livestock growth. Brazilian beef exports to the EU dropped from 22,216 tons in September to just 3,355 tons in October, according to the Brazilian Beef Exporters Association. Following a positive audit for poultry and honey, the Commission moved to propose re-listing the two commodities, which member states will vote on next week. Brazilian beef, however, will face a much longer approval process to return to the European market: potentially up to two years, due to the longer life cycle for cattle, although Brasília is seeking an accelerated authorization.
The EU Deforestation Regulation (EUDR) is also causing alarm within Brazil’s soybean industry, potentially blocking exports of 4 million tons of Brazilian soymeal to the EU over traceability requirements for deforested land. The long distance from Brazil’s central agricultural region, where large swaths have been deforested in recent decades, to the coast also complicates traceability due to the more elaborate supply chain involved. This gives the leg up to Argentine soy producers, whose farmlands are based in the Pampas plains region, not far from the coast. As a result, the European Feed Manufacturers' Federation’s risk review for EUDR’s impact on supply chains gave Brazil a medium risk rating with structural hurdles in certain regions, while Argentina was classified as low risk.
Political Risks on the Path to Final Agreement
Luiz Inácio Lula da Silva’s recent victory in the October presidential elections creates continuity for Brazilian cooperation with the EU but also preserves diplomatic tensions between Brazil and Argentina. Lula has been the driving force behind the EU-Mercosur talks, while Argentine President Javier Milei has openly criticized Mercosur in the past and signed a free trade agreement with the US this year, which Brazil flagged as potentially conflicting with Mercosur rules. Diplomatic tensions between Brazil and Argentina continued to flare over the summer, as Milei openly supported the campaign of Lula’s political opponent Flávio Bolsonaro. In July, Brazil recalled its ambassador to Buenos Aires. Mercosur has proven resilient to these tensions so far, but worsening ties between its two biggest members could weaken its ability to negotiate collectively.
Mercosur’s short-term stability is also being shaken by the financial crisis in Paraguay. The crisis unfolded amid the collapse of Ueno Bank, which Paraguay’s central bank ordered into resolution after it was found to be insolvent. Paraguayan President Santiago Peña’s resigned last week amid impeachment proceedings due to his ties to the bank’s controlling shareholder. His successor, former Vice President Pedro Alliana, is tasked with preserving institutional stability, especially as Mercosur seeks to continue negotiations for an expanded Preferential Trade Agreement with India. The talks began on September 14 with a proposed one-year negotiating timeline.
Political obstacles also remain on the European side, where the European Parliament must still ratify the deal in a plenary vote before ratification on the member-state level. Currently, however, the deal is being litigated in the Court of Justice of the European Union after being referred for review by the European Parliament in January. This process could take up to two years, in which time the political landscape in Europe could shift substantially. Elections in France, one of the strongest opponents to the EU-Mercosur agreement, are already being shaped by the provisional implementation. The populist-right National Rally and the far-left France Unbowed parties are attacking President Emmanuel Macron over the provisional trade agreement with Mercosur. Whichever side prevails could cement France’s opposition to the deal. For now, the interim version of the agreement will remain in place until the full version is formally ratified or rejected by the EU.
