In a move hailed as historic, the European Union (EU) and the Mercosur bloc, comprised of Brazil, Argentina, Paraguay, Uruguay, and Bolivia, have officially signed a free trade agreement aimed at creating one of the world's largest free trade areas. The signing, which took place in Paraguay on Saturday, January 17, 2026, marks the culmination of over two decades of negotiations.
The agreement intends to reduce tariffs and increase market access for both blocs. The EU hopes to demonstrate its commitment to open global markets amidst rising protectionism. The EU views the accord as essential to offset business lost to U.S. tariffs and reduce reliance on China by securing access to critical minerals. It is estimated that the agreement will drive a 39% increase in annual exports to Mercosur, a value of approximately €49 billion, while supporting hundreds of thousands of EU jobs. The deal will gradually eliminate customs duties on approximately 90% of goods traded between the two regions, which is expected to reduce trade costs and increase market openness.
While proponents tout the economic benefits, concerns linger, especially regarding the impact on local markets, particularly the European agricultural sector. European farmers fear increased competition from lower-priced Mercosur goods produced under less stringent environmental and social standards. Specifically, the agreement imposes import quotas on certain agricultural goods, including meat, poultry, sugar, and rice, which has unsettled many European farmers who view it as a threat to their food security and competitiveness.
Beyond economics, the agreement also addresses public procurement, opening markets in Mercosur countries to European companies, particularly in infrastructure, energy, and water sectors. This aspect has raised concerns about possible effects on local companies in those countries.
The agreement includes commitments to sustainable development and environmental protection, including respecting the Paris Climate Agreement and combating deforestation. However, critics argue that these commitments are not legally binding and lack robust enforcement mechanisms. Concerns have been raised that the agreement could accelerate deforestation in the Amazon region, a sensitive issue for environmental organizations.
The European Parliament must now ratify the treaty, a process that could take months. A group of 145 EU lawmakers say the EU Court of Justice should give its opinion on aspects of the agreement before the European Parliament can approve it. The EU assembly is set to vote on January 21 on whether to refer the deal to the court. The European Parliament's final vote may only take place in April or May. Securing the backing of all 27 EU member countries in trade negotiations is tough, given occasionally conflicting national priorities. While member states backed the deal this month, Austria, France, Hungary, Ireland and Poland voted against it, largely over concerns for farmers. Belgium abstained. Lawmakers from those countries could vote against the agreement, with the far-right and hard-left also opposed.
