European Union-Mercosur Agreement: A Strategic Partnership for the Short and Long Term

Key Agreements, Trade Benefits and Economic Development

The leaders of Mercosul and the European Union (EU) announced on Friday (06/12/24) the free trade agreement between the economic blocs.

The long-awaited agreement between the European Union (EU) and Mercosur, one of the world's most important economic blocs, has moved into a new phase and is closer to becoming a reality after more than 20 years of negotiations. This treaty, which aims to reduce tariff barriers and promote greater integration between two of the world's most significant economic blocs, has the potential to transform trade dynamics and stimulate economic development on both sides, especially for countries like Brazil.

Based on recent discussions, the agreement provides for the reduction of import tariffs, both immediately and gradually, over 15 years, depending on the sector. In the case of Brazil, the measure could directly benefit agribusiness and industry, with the reduction of costs related to the import of goods from the European Union, such as machinery, equipment and industrial inputs, as well as products such as olive oils, wines and cheeses. Although the benefits for consumers may be indirect and gradual, the potential for cheaper imported products and the reduction in production costs due to cheaper inputs stand out as key elements.

Competitiveness in Brazilian agribusiness will be one of the biggest drivers of this agreement. It is estimated that Brazil could generate a significant increase in exports, with a cumulative growth of up to US$9.3 billion per year by 2040. Projections indicate that sectors such as pork and poultry meat, vegetable oils and produce will increase.

However, it's not just the agricultural sectors that should reap the rewards of this agreement. Although some Brazilian industries, such as the automobile and pharmaceutical industries, may face challenges due to increased European competition, according to studies, the overall impact tends to be positive. Imports of European products will largely replace items that previously came from other regions, such as China, balancing the effect on imports, diversifying and gradually ensuring greater openness to new markets.

Another important point of the agreement is protection for vulnerable sectors. During the negotiations, the Brazilian government guaranteed safeguards that help limit the negative impacts on some industries, such as the automobile industry. These safeguards allow Brazil, for example, to suspend or resume tariffs if the increase in imports negatively affects local production, creating an environment of greater security and predictability for entrepreneurs in the sector.

On the European Union side, the agreement seeks, in addition to expanding trade, to tackle the growing and dominant presence of countries such as China, especially in sectors such as the automotive industry. To this end, Europe is willing to accept more favorable conditions for Brazil, such as promoting investments for local production and maintaining government purchases in favor of domestically manufactured products.

In terms of the general economic impact, the expectation is that the agreement will lead to a reduction in imports from other regions, especially China, and an expansion of trade with the European Union, without major imbalances for the Brazilian trade balance. This creates a win-win situation for both blocs, strengthening trade and allowing for more solid integration between economies on different continents.

Final considerations

This agreement between the European Union and Mercosur thus presents a strategic opportunity to strengthen trade relations and create a more competitive and dynamic environment. The reduction in tariff barriers and the possibility of new imports and exports will create a more favorable scenario for Brazilian companies looking to expand their markets, as well as for European investors interested in diversifying their operations in Brazil.

In addition, the strengthening of the rules and regulations that accompany this agreement provides a more predictable outlook for entrepreneurs and investors, which can generate greater confidence in the business environment. The formalization of clear rules for trade between these regions enables not only an improvement in trade, but also a more robust legal infrastructure, capable of ensuring greater stability in transactions and trade flows.

In short, the agreement between the European Union and Mercosur is not just a reduction in tariffs and a mere expansion of markets. It is a milestone for international trade that has the power to strategically and sustainably shape the course of global economic development, providing a more connected, competitive and promising future for the countries involved.