After more than 25 years of negotiations, the European Union (EU) and Mercosur signed, on 17 January 2026, a trade agreement providing for the creation of one of the world’s largest free trade areas. Together, the two blocs represent over 700 million consumers and account for approximately 30% of global Gross Domestic Product (GDP). This agreement marks a major milestone in economic relations between Europe and South America, with direct implications for European companies seeking to enter or expand their presence in Brazil.
The agreement provides for the gradual reduction or elimination of import and export tariffs on bilateral trade between the two blocs. It also establishes common rules in areas such as trade in industrial and agricultural goods, investment, regulatory standards and sustainable development.
From a trade perspective, Mercosur countries have committed to eliminating approximately 91% of the tariffs applied to European products, while the European Union plans to remove around 92% of the tariffs imposed on South American goods. In many sectors, this liberalisation will be phased in and may take place over a period of up to 15 years, allowing for a gradual adjustment of markets.
For European investors, and particularly for companies with existing operations in Brazil or plans to expand their presence there, the agreement is of particular significance. According to data from the European Commission, Brazil accounts for over 80% of European imports originating from Mercosur and around 79% of the South American bloc’s exports to the European Union.
In this context, economic studies suggest that the agreement could stimulate an increase in foreign investment in the country, notably through the reduction of import costs for machinery, industrial equipment, pharmaceuticals, chemicals, wines, cheeses and other European goods that are currently subject to high tariffs on the Brazilian market.
Another area of interest for foreign companies is the opening of public procurement markets. The agreement creates conditions enabling European companies to participate in public tenders in Mercosur countries, including at the Brazilian federal level. It also seeks to ensure more secure access to raw materials considered strategic for the energy and digital transitions, such as niobium, for which Mercosur is the European Union’s main supplier.
From a regulatory standpoint, the agreement reaffirms that only products complying with the European Union’s sanitary and food safety standards will be allowed to enter the European market, thereby preserving the bloc’s regulatory framework. This is particularly relevant for European companies already accustomed to operating under these standards.
Beyond economic aspects, the treaty also incorporates commitments relating to sustainable development, implementation of the Paris Agreement, environmental protection, labour rights and responsible business conduct. These elements reflect the intention to align trade liberalisation with shared values and standards between the two blocs.
Despite its signature, the agreement has not yet entered into force. In order to produce full legal effects, it must be ratified by the national parliaments of the Mercosur countries as well as by the European Parliament. This process is expected to be politically sensitive, particularly in certain EU Member States such as France. In a recent development, on 21 January, the European Parliament decided to refer the agreement to the Court of Justice of the European Union. Although this decision does not have suspensive effect, it effectively prevents immediate application of the agreement and may delay its implementation.
At the same time, the possibility of provisional application of certain parts of the treaty is being discussed, in particular those relating to tariff reductions, which could allow some of its economic effects to materialise earlier.
For companies and investors with interests in Brazil, close monitoring of the ratification and implementation process will be essential in order to assess opportunities, risks and medium- to long-term strategies.
Written by Eduardo Grandchamp – French Team
