A Landmark Deal In The Making: Unlocking Business Opportunities in the EU-Mercosur Trade Agreement

Signed on 17 January, the EU-Mercosur Agreement (the Agreement) will create one of the world's largest free trade areas and is set to fundamentally reshape economic and political cooperation between the two regions.

Despite this milestone, the deal’s entry into force may still be some way off. On 21 January, the European Parliament adopted a resolution – by a narrow majority of just 10 votes (334 in favour, 324 against) – requesting an opinion from the European Court of Justice (ECJ) whether the Agreement is compatible with EU Treaties. This step reflects concerns among several Member States, particularly regarding potential agricultural impacts, the competitiveness of domestic farmers, and possible constraints on regulatory autonomy. An ECJ ruling typically takes between 18 and 24 months, after which the Parliament is expected to proceed with a final vote on the deal.

Some stakeholders argue, however, that the EU could provisionally apply parts of the Agreement while awaiting the Court’s opinion and parliamentary approval.

What is already clear is that the Agreement represents an important step for Europe, forming a central pillar of the EU’s strategy to diversify international partnerships and strengthen supply-chain resilience in an era of rising global protectionism. The Agreement also reflects a broader strategic shift in the EU’s trade policy towards both expanding its network of free trade agreements and modernising existing ones. This includes not only newly concluded deals such as this Agreement and the recent agreement entered into with India (27 January 2026), but also ongoing negotiations with the UAE, the Philippines, Thailand and Malaysia, alongside forthcoming updates to established agreements like the modernised framework with Mexico that will be signed in February 2026. For businesses, it opens a new frontier for trade and investment.

Once fully ratified, the Agreement aims to create one of the world’s largest free-trade areas and promises to unlock significant commercial opportunities by eliminating billions of euros in tariffs, enhancing market access for goods and services, and establishing new legal frameworks for cooperation, investment, and sustainability.

This briefing unpacks the Agreement, from tariff reductions and market access to sustainability commitments and dispute resolution. We explore what will change, why it matters for your business, and how to prepare for the opportunities and challenges ahead.

Agreement overview

The overall framework of the Agreement consists of:

1. An EU–Mercosur Partnership Agreement, covering political dialogue, cooperation and trade; and
2. An Interim Trade Agreement (ITA), intended to apply the trade provisions ahead of full ratification.

Although the Agreement has received political approval from EU Member States, it still requires European Parliament consent and further ratification steps before entering fully into force.

In addition, a group of Members of the European Parliament has proposed referring the Agreement to the Court of Justice of the EU for a review of its legality. If approved, this could delay final entry into force by up to two years.

What Will Change

Tariff Reductions and Market Access

The Agreement will eliminate or substantially reduce tariffs on most goods traded between the EU and Mercosur:

• 91% of EU exports will benefit from tariff liberalisation over a transition period of up to 15 years.
• 92% of Mercosur exports will see tariff reductions over up to 10 years.

Currently, many EU exports face high import duties in Mercosur markets, including:

• Car parts (up to 35%)
• Machinery (around 20%)
• Chemicals (around 18%)
• Pharmaceuticals (around 14%)

The European Commission estimates that the Agreement could save EU exporters more than €4 billion per year in customs duties.

Key EU export sectors expected to benefit include:

• Automotive and automotive parts
• Machinery and industrial equipment
• Chemicals and pharmaceuticals
• Wine, spirits and food products

Sensitive Agricultural Products and Safeguards

Certain agricultural products (including beef, poultry, sugar and ethanol) will be subject to tariff-rate quotas rather than full liberalisation.

The Agreement includes safeguard mechanisms allowing the EU to:

• Suspend tariff benefits if imports of sensitive products rise sharply above historical levels; and
• Launch investigations if prices fall significantly in affected sectors.

These measures are intended to protect EU farmers from sudden market disruption.

Customs and Trade Facilitation

The Agreement introduces:

• Simplified customs procedures
• Greater transparency
• Enhanced cooperation between customs authorities

These changes aim to reduce administrative burdens and speed up cross-border trade.

Services, Investment and Public Procurement

EU companies will gain improved access to Mercosur markets in sectors such as:

• Financial services
• Telecommunications
• Transport
• Professional services

The Agreement also opens public procurement markets in Mercosur to EU businesses and strengthens legal protections for investors, increasing predictability and legal certainty.

Intellectual Property and Geographical Indications

The Agreement provides protection for over 340 EU geographical indications (GIs), safeguarding regional food and drink products and strengthening brand protection.

Sustainability, Labour and Environmental Commitments

The Agreement includes commitments on:

• Environmental protection
• Labour standards
• Sustainable development
• Climate objectives

These provisions will influence compliance obligations, ESG strategies and stakeholder expectations, particularly for companies operating in agriculture, energy, infrastructure and extractive industries.

Dispute Settlement and Legal Certainty

The Interim Trade Agreement contains a dedicated state-to-state dispute settlement mechanism governing the interpretation and application of the Agreement.

Key features include:

• A consultation phase to encourage amicable resolution
• Arbitration panels if disputes are not resolved
• Binding rulings on compliance

The Agreement also allows for choice of forum, meaning disputes may, in certain circumstances, be brought under WTO dispute settlement or other applicable frameworks.

While the Agreement does not introduce a modern investor-state arbitration system, it significantly strengthens the legal architecture for resolving trade and regulatory disputes between the EU and Mercosur.

Why This Matters for Businesses

Commercial Opportunities

The Agreement is expected to generate substantial tariff savings, improving the competitiveness of EU exporters in South American markets.

Manufacturing, automotive, chemicals, pharmaceuticals, consumer goods and agri-food sectors are likely to benefit most.

Supply Chain Diversification

In line with the EU’s strategic objective to diversify supply chains, the Agreement improves access to South American raw materials, agricultural inputs and energy resources. This may:

• Reduce dependency on a limited number of suppliers
• Strengthen resilience against geopolitical and trade disruptions
• Enable more flexible sourcing strategies

Regulatory and Compliance Impact

Businesses will need to navigate:

• New customs and origin rules
• SPS (sanitary and phytosanitary) standards
• Technical regulations
• Sustainability and ESG requirements

Compliance planning will be critical, particularly for regulated sectors such as food, life sciences, energy and chemicals.

Agriculture and Food Sector Pressures

While exporters benefit, EU farmers may face increased competition from Mercosur agricultural imports. Quota systems and safeguards will play a key role in mitigating market disruption.

Political and ESG Risk

The Agreement remains politically sensitive, particularly in relation to:

• Agricultural protection
• Environmental concerns
• Climate commitments

Ongoing political debate may affect the pace, scope and conditions of implementation.

What should I do?

The EU–Mercosur Agreement is a historic milestone in EU trade policy, concluding 25 years of negotiations and reshaping EU–South America relations.

It also forms part of the EU’s broader strategy to diversify economic partnerships and strengthen supply-chain resilience in an increasingly complex geopolitical environment.

The signature of the Agreement on 17 January in Asunción, Paraguay marks a key step. Final implementation will now depend on the judicial review of the ECJ. However, the Commission could still provisionally implement the Agreement pending the ruling and approval by the Parliament.

Businesses should therefore start considering:

• Trade strategy: Identifying new export opportunities and tariff savings
• Investment planning: Assessing legal protections and market entry routes
• Supply chain optimisation: Evaluating sourcing and production shifts
• Regulatory compliance: Preparing for new standards and procedures
• ESG positioning: Aligning operations with sustainability commitments
• Political monitoring: Tracking ratification and implementation timelines
• Dispute preparedness: Understanding enforcement and dispute resolution options.

For companies with existing or planned operations in Mercosur, or those exporting to or sourcing from the region, now is the time to review trade, tax, regulatory, and ESG strategies to align with the Agreement’s evolving framework.

Our global team can help your business navigate the complexities, manage risks, and unlock the commercial opportunities of this landmark trade deal, and you can find a more detailed analysis of the Agreement at this link (slides prepared in collaboration with João Machado de Godoy, associate of Demarest seconded in our Madrid office).

Eversheds Sutherland is closely monitoring developments as the Agreement moves toward ratification, and will be releasing further updates on this Agreement, together with an overview of the agreement entered into with India and updates to other established agreements. If you would like to discuss any of these issues with us, please do get in touch.