Mercosur-EU deal is partially underway. That doesn’t mean negotiations are over

May 1 marked a turning point for the history of South America: a part of the trade agreement between regional bloc Mercosur and the European Union (EU), which had been in talks for over two decades, finally became operational. The deal is a key step to boost Mercosur exports, allowing Argentina, Brazil, Uruguay, and Paraguay to enter or increase their presence in European markets, especially regarding agricultural products. In turn, it will allow those countries to receive industrial machinery, cars, pharmaceuticals, and other manufactured products from Europe. The deal created the largest free-trade area in the world, representing around 20% of the global GDP. While it’s a huge opportunity for the South American region, it doesn’t come without challenges or hurdles. What exactly is underway? Following years of negotiations, Mercosur and the EU decided to split the agreement into two. The first is a trade-only segment, which eliminates tariffs for most products sold by both blocs and grants preferential, lower tariffs to some Mercosur products like beef, soy, honey, and rice to export to Europe via a quota system. The other part is a broader association agreement, which includes clauses relating to environmental protection, sustainable development, and human rights. What became provisionally operational on May 1 is the interim trade-only segment, after it was approved by the EU and Mercosur countries. The broader association agreement needs to be greenlighted by the European Parliament and the national parliaments of the EU countries to enter into force. “The agreement is a great opportunity for Mercosur to improve its structural competitiveness as a bloc, because we will be competing in super-strict markets and moving forward with good trade practices,” Esteban Actis, a lecturer and researcher in international relations, told the Herald. In addition, it is a strategic geopolitical move, allowing both blocs to diversify their markets and supply chains “in a fragmented world that is tending more and more towards protectionism,” said Actis, who teaches at the National University of Rosario. However, to fully reap the benefits of the agreement, Mercosur countries must first sort out some obstacles: adapting to strict European regulations, working out differences within their own bloc, and complying with EU climate protection norms that may clash with current legislation. In addition, a negative European Parliament vote on the deal could even bring it all down. 1. Adapting to European standards One of the main challenges for Mercosur to move forward with the trade-only pact will be to comply with the EU’s strict trade regulations, which will require an adaptation process that, in some cases, may take years. This is a necessary step producers will have to take in order to take advantage of the agreement.  Actis explained that while certain sectors, especially small and medium companies, are not in a good enough financial position to face those changes now, moving forward towards better quality standards will likely benefit the region’s economy in the long run. “The European market is extremely demanding in terms of regulations and standards, and if you don’t meet those requirements, you’re out,” Actis said. “This will certainly create pressure to improve the quality of Mercosur’s export offerings, and that’s a very positive development.” In Argentina, complying with such rigorous standards means that public control offices become key. However, many of them are being defunded or even shut down; at the same time, the Javier Milei administration is deregulating quality controls. Problems are already emerging: in March, Bulgaria rejected a sunflower shipment from Argentina after pesticide residue levels were found to be five times above the permitted limit. At the time, workers from the SENASA agrifood quality control service warned that the dismantlement of the agency could lead to more events like that. 2. The quota problem The trade agreement established export quotas on certain products, particularly beef, which still have to pay tariffs, but at a preferential rate of 7.5%. Only a limited amount, different for each product, can enter the EU. Any amount over that limit pays the standard, much higher rate. The quotas are not pre-allocated to the Mercosur countries but will rather operate under a first-come, first-served mechanism.  This means that the first company to successfully sell its product to the EU will be the one that gets to make use of the quota freely until another comes and continues to sell the same product until the quota is exhausted. Mercosur will have a quota of 99,000 tons of beef with reduced tariffs, which is expected to be available in June. It will likely be a fierce race to sell first. Brazil has the upper hand in this and other areas due to its robust industries and export capability. Smaller companies from the region are at a disadvantage, as they will struggle to win the quotas over those with larger structures. An agreement regarding distribution of the quotas between member countries would solve this problem. For Actis, in order to take full advantage of the deal, Mercosur “urgently” needs to improve internal coordination within the bloc and encourage greater dialogue between governments, “which is not happening between Argentina and Brazil” due to political and ideological differences between Milei’s far-right administration and center-left President Lula da Silva. 3. The European Court issue Despite strong opposition by several European countries with robust agricultural sectors, the agreement was ultimately approved in January, and its trade-only segment was put into effect provisionally without waiting for the required European Parliament approval. The other half of the deal is a broader association agreement including trade but also investment, political cooperation, sustainable development, and environmental protection clauses. It must be ratified by the European Parliament and the national parliaments of EU countries, which could take years. However, implementation of the broader half of the agreement was pushed back after the European Parliament voted to send the deal to the European Court of Justice for a legal check regarding whether it clashes with existing EU laws. The ruling is expected to take one to two years. If the court finds the deal to be incompatible with EU legislation, it would have to be amended, putting the trade-only segment on hold and delaying the implementation of the full deal. Beyond whether it needs amendment or not, it would then go to vote at the European Parliament. If the body rejects it, the entire agreement would fall. According to Actis, it remains unclear what would happen if the European Parliament passes it, but it is rejected by the national parliaments of EU countries. 4. Climate change regulations The agreement is already raising doubts on whether the deal and the opportunities it offers will clash with Europe’s strict environmental protection regulations. In February, several environmental NGOs signed a statement warning that a modification of a law that protects glaciers in Argentina — which aimed to allow mining in certain areas where it is currently banned — puts the Mercosur-EU at risk because it clashes with its climate protection clauses. “The Mercosur-EU agreement imposes a ban on flexibilizing environment protection standards to promote investments, which is exactly what the glaciers law reform did,” said Cristian Fernández, a lawyer coordinating the legal area of the Environment and Natural Resources Foundation (FARN, by its Spanish acronym), one of the NGOs that signed the statement. “The norms aimed at deregularizing environmental protection laws clash with EU regulations and international accords, like the Paris Agreement,” Fernández said.  He added that while the Argentine government aims to make it easier to produce and export, it is creating “a paradox” in which producers “stumble upon a wall” when they face EU’s strict norms, causing them more uncertainty. The full agreement — which is not in place yet — also includes a clause stating that Mercosur has to comply with the Paris Agreement, a legally binding international treaty adopted in 2015 to combat climate change. While President Milei is known for his skepticism towards climate change and environmental protection, “this explains why Argentina has not left the Paris Agreement,” Actis mentioned.  In early 2025, Milei had said he was analyzing withdrawing the country from the Paris Agreement. As of May of this year, there has been no official confirmation that the government has moved forward with this. “Beyond whether the Argentine government believes in climate change, it will have to comply with European requirements on sustainable trade and production practices,” the analyst said. “If they don’t, the country will have trouble accessing the markets.” You may also be interested in: What benefits and challenges does the Mercosur-EU deal bring for Argentina? Cover photo credit: Government of Uruguay