FACTSHEET Mercosur-European Union Partnership Agreement - December 6, 2024

I. THE STRATEGIC IMPORTANCE OF THE AGREEMENT

On December 6, 2024, the leaders of MERCOSUR and the European Union announced, in Montevideo, the conclusion of negotiations of the MERCOSUR-European Union Partnership Agreement. With this announcement, the preparation of the texts of the Agreement for its subsequent signature and ratification begins.

Following the efforts of more than two decades of negotiations, the outcome achieved by the two regions is transformative from both economic and political perspectives, in addition to strengthening MERCOSUR as a platform for the international integration of its Member States.

The Agreement will bring together two of the largest economic blocs in the world. MERCOSUR and the EU gather approximately 718 million people and a Gross Domestic Product (GDP) of close to US$ 22 trillion. When analyzed by the volume of trade between the two blocs, this is both the largest trade agreement negotiated by MERCOSUR and one of the largest among those agreed upon by the European Union with its trading partners.

Considering the populations encompassed, as well as the magnitude of the economies of the two blocs, the Partnership Agreement between MERCOSUR and the European Union is one of the largest bilateral free trade agreements in the world. In an international context of growing protectionism and trade unilateralism, this outcome is a signal in favor of international trade as an element for economic growth.

For Brazil, the Agreement has manifold strategic value. The European Union is Brazil's second largest trading partner, with a trade flow of approximately US$ 92 billion in 2023. The Agreement should reinforce the diversification of Brazil's trade partnerships, a strategic asset for the country, in addition to fostering the modernization of Brazil's industries with its integration to the European Union's production chains. The Agreement is also expected to further boost investment flows, which should reinforce the EU's current position as the holder of almost half the stock of foreign direct investment in Brazil.

The Agreement announced on December 6, 2024 incorporates innovative and balanced commitments that are in line with the challenges of the current international economic context:

• The Agreement reflects an international context in which the role of the State as the driver of growth and sponsor of the resilience of national economies is gaining ground, especially in the wake of the COVID-19 pandemic. MERCOSUR and the European Union open up important opportunities for increasing bilateral trade and investment while preserving policy space for the implementation of public policies in areas such as health, employment, environment, innovation and family farming.
• MERCOSUR and the European Union recognize that the challenges of sustainable development must be faced by all, taking into account the common but differentiated responsibilities of countries. In a collaborative and balanced manner, the Agreement provides for commitments that aim at reconciling trade and sustainable development in effective ways. Taking advantage of Brazil's solid sustainability credentials, the Agreement fosters the integration of production chains to move towards greater decarbonization of the economy and encourages granting favorable treatment in the trade of sustainable products. The EU also undertakes an unprecedented cooperation package to support the implementation of the Agreement.
• In order to preserve access to the European market negotiated by MERCOSUR, the Agreement innovates by establishing a mechanism for rebalancing concessions. Accordingly, the Agreement provides comfort to our exporters in the event that internal EU measures negatively impact the ability to effectively take advantage of the benefits obtained through negotiation under the Agreement.
• Brazil made a point of including commitments in the Agreement that guarantee its transparency and inclusiveness. Civil society entities, unions, non-governmental organizations, as well as the private sector and representatives of various social segments, have access to channels to express their views and monitor the impacts of the Agreement, which may be revised periodically to better serve the interests of society. In addition, there are commitments to ensure that family farmers, local communities and women, among others, have effective access to the benefits that the Agreement can provide.

In a global context of growing challenges to the rule of law, social justice and the peaceful settlement of conflicts, the Agreement represents the association between two regions that share common values ​​and interests, such as the defense of democracy, multilateralism and the promotion of human rights. This is an unequivocal sign of the commitment by MERCOSUR and the European Union to trade integration and sustainable development, in favor of the prosperity of our peoples. The Agreement establishes several mechanisms for political cooperation between the two blocs. These spaces for dialogue will strengthen cooperation between MERCOSUR and the European Union in global debates that contribute to a more just and peaceful international order.

The Agreement also represents a milestone in the bilateral relations between Brazil and the European Union, which began in 1960 and reached the level of a strategic partnership in 2007. The establishment of the Strategic Partnership between Brazil and the European Union, the first between the bloc and a Latin American country, reinforced the political aspect of the bilateral relations, which have traditionally been predominantly intense in the economic and trade dimensions.

The conclusion of the Partnership Agreement also represents unequivocal evidence that, negotiating as a bloc, MERCOSUR is the appropriate platform for its Member States to obtain better conditions for integration to the global market.

The Agreement certainly brings important commercial results for Brazil, Argentina, Paraguay and Uruguay in terms of access to the European market and in attracting productive investment. In addition to these benefits, the commitments jointly undertaken by MERCOSUR should deepen economic integration among its members, inter alia by strengthening regional institutions such as the Common External Tariff. The Partnership Agreement with the European Union is also expected to accelerate a virtuous cycle of MERCOSUR's international footprint, since the preferential access obtained by the European bloc could increase the interest of third parties in negotiating agreements with MERCOSUR.

Under the guidance of President Lula, the Brazilian government has been committed since 2023 to ensuring that the negotiations produce a balanced result, taking into account Brazil's interests and concerns, for example, with industrial development, sustainability and space for public policies in strategic areas, such as public health and innovation. Brazil's interests were addressed in a context in which the European Union, in 2023, presented new demands to MERCOSUR in the environmental area, which in turn led to a negotiation in which both blocs proposed adjustments in relation to the so-called “pre-agreement” or “political agreement” of 2019. In contrast, the 2024 announcement marks the definitive conclusion of the bi-regional negotiations—thereby setting a difference in relation to the 2019 political understanding, when there were still pending issues for further negotiation.

Between 2023 and the definitive conclusion of the negotiations in 2024, representatives of the two blocs held seven in-person negotiating rounds, all in Brasília. These meetings were accompanied, during this period, by numerous meetings, in person and online, between chief negotiators of the two blocs and technical negotiators. High-level political support for the conclusion of the Agreement was reiterated in the six meetings that President Lula had with the President of the European Commission, Ursula von der Leyen, since June 2023. Brazil is expected to host the Brazil-EU Summit in 2025.

The adjustments made to the Agreement, through the negotiations carried out in 2023 and 2024 not only bring greater balance to the sustainability commitments but also will help ensure that Brazil can leverage public interest policies and strengthen its national industry — while providing economic opportunities for the whole of society.

II. THE BRASILIA PACKAGE IN 10 POINTS: HIGHLIGHTS OF THE 2023-2024 NEGOTIATIONS

The announcement on December 6, 2024 marks the definitive conclusion of the negotiations of the Partnership Agreement between MERCOSUR and the European Union. Unlike the “political agreement” announced in 2019, when texts remained subject to negotiation, the negotiations on all chapters are now completed.

The negotiation phase that began in 2023 took place in a different political and economic context, marked by the experience of the pandemic, the worsening of the climate crisis and the intensification of geopolitical tensions, elements that offered a new backdrop for the negotiations. Furthermore, President Lula’s government understood that it was necessary to make specific adjustments to the terms negotiated in 2019 in order to make the Agreement more favorable to Brazilian interests.

The negotiations resumed in 2023 focused on:

• drafting new texts for topics that both sides agreed to incorporate into the Agreement, especially in the areas of trade and sustainable development, the mechanism for the rebalancing of concessions, cooperation and review of the Agreement;
• adapting issues that had been previously agreed upon, in order to bring the Agreement in line with the current political and economic framework, especially in the areas of government procurement, trade in vehicles, export of critical minerals and copyrights;
• conclude the negotiations on topics that remained open since 2019, particularly regarding geographical indications and rules on the implementation of the Agreement.

While this section features the main points agreed upon in the negotiation phase that began in 2023, the following section presents the elements of the Agreement that have not undergone modifications since 2019, in particular the concessions of market access for agricultural products exported by MERCOSUR.

1. New Annex to the Chapter on Trade and Sustainable Development, reinforcing the commitment of both sides to the environmental, social and economic agenda. With a view to promoting international trade and, at the same time, contributing to sustainable development, MERCOSUR and the European Union negotiated an Annex to the Chapter on Trade and Sustainable Development. While reinforcing their environmental commitments, the Parties reject unnecessary barriers to trade. This Annex includes provisions on multilateral environmental and labor regimes; the relationship between trade, investment and sustainable development; trade and women's empowerment; and cooperation.

In the Annex, MERCOSUR and the EU agreed on a series of commitments to protect the environment and promote decent work. Cooperation is expected in the implementation of relevant multilateral agreements, such as the United Nations Framework Convention on Climate Change (UNFCCC), the Paris Agreement, the Convention on Biological Diversity (CBD) and Conventions of the International Labour Organization (ILO). MERCOSUR and the EU have also agreed to adopt actions to promote sustainable products in bi-regional trade, fostering opportunities for smallholders, cooperatives, indigenous peoples and local communities. The new Annex also has a section dedicated to the promotion of sustainable value chains for energy transition. Furthermore, for the first time, a MERCOSUR trade agreement will include provisions on trade and women's empowerment, with a view to fostering cooperation and the exchange of best practices in policies that promote women's participation in international trade.

2. Commitment to a cooperative approach regarding domestic sustainable measures that impact trade. In the new Trade and Sustainable Development Annex, the EU has committed to using data from MERCOSUR authorities to assess the compatibility of imports from MERCOSUR with compliance requirements established by laws of the European Union. This commitment is a recognition of the quality of data produced by MERCOSUR countries’ institutions in the implementation of European laws. The Parties also recognized that environmental measures that impact trade must be consistent with World Trade Organization (WTO) Agreements, must not constitute a disguised restriction on trade, and must be based on technical and scientific information. The Parties agreed as well that the new negotiated Annex does not imply an endorsement of the environmental requirements adopted by either side, reserving, in this context, their rights under the WTO.

3. Government Procurement as an instrument of industrial policy and economic development. Given the recognition of the importance of government procurement as an instrument for economic and industrial development, the Government Procurement chapter was subject to renegotiation in the resumed talks beginning in 2023. Brazil proposed adjustments to the terms that had been previously discussed, with a view to preserving the use of government purchases as a tool to support the new Brazilian industrial policy. Among the adjustments made are the complete exclusion of purchases made by the Unified Health System; the preservation of the possibility of limited tendering for technological purposes, an important policy for fostering innovation; the elimination of time limits on the use of technological and commercial offsets; the maintenance of space for policies to encourage micro and small enterprises and family farming; and the preservation of margins of preference for national goods and services.

4. Automotive sector with tariff elimination over a longer period. With new technological routes to enable energy transition, the automotive sector is undergoing a significant transformation worldwide. In this context, and given the importance of the sector for Brazil, MERCOSUR negotiated more flexible conditions for tariff reductions of electrified vehicles and of vehicles with new technologies—including those not yet commercially available. In the negotiating stage beginning in 2023, MERCOSUR removed certain vehicles from the schedule applicable to combustion vehicles, which previously established the elimination of duties in 15 years. For electrified vehicles, the tariff reduction will now take place in 18 years. For hydrogen vehicles, the period will be 25 years, with a 6-year grace period. Regarding new technologies, 30 years, with a 6-year grace period. Until this negotiating stage, no tariff reduction schedule was longer than 15 years.

5. Creation of an investment safeguard for the automotive sector. An unprecedented safeguard mechanism was established to preserve and expand investments in the automotive sector. If there is an increase in European imports that cause harm to the industry, Brazil may suspend the tariff reduction schedule for the entire sector or resume the rate which is applied to goods originating in other sources (currently 35%) for a period of 3 years, renewable for another 2 years, without the need to offer compensation to the European Union. The assessment will take into account parameters such as the level of employment, sales and production volumes, installed capacity and the degree of capacity utilization in the automotive sector. This automotive investment safeguard is more easily actionable than the general safeguard provided for in the Agreement.

6. Adoption of flexibility for public policies on critical minerals. Also as a result of the 2023-2024 negotiation stage, Brazil guaranteed the right to apply export duties on critical minerals if it deems appropriate, for instance, to foster adding value locally. If Brazil were to adopt an export tax on these products (which is not the case today), the rate applicable to the EU should be lower than that applicable to other destinations—it should also not exceed 25%. The preliminary agreement adopted in 2019 prohibited any imposition of export duties on trade between Brazil and the European Union.

7. Setting up a Rebalancing Mechanism to prevent unilateral measures from jeopardizing negotiated trade concessions. An unprecedented mechanism has now been established preventing unilateral measures by one of the Parties to put in jeopardy the balance established in the Agreement, as such measures have the potential to affect negatively the negotiated trade concessions and breach the balance of the agreed outcome. After the 2019 “political agreement”, the European Union adopted legislation that, depending on how it is implemented, could disrupt the balance reflected in the 2019 understanding on issues that were not renegotiated in the phase that began in 2023. This is the case, for example, of the quotas offered by the EU for the export of meat from MERCOSUR, which were not reopened in the 2023 negotiating phase.

Parties established that an arbitration will determine whether there was a breach of the commitments made and to what extent, irrespective of whether there was a violation of the Agreement. If that is the case, the party that restricted trade must offer trade compensation (market opening) to the other side. If there is no agreement regarding compensation, a party is allowed to adopt temporary remedies in response (suspension of benefits provided for in the Agreement), in the amount defined in arbitration, with a view to restoring the balance of the Agreement.

8. Civil society, unions and business organizations having the right to participate in the review process of the Agreement. Based on the package negotiated in 2023-2024, review of the implementation of the Agreement will become more inclusive. The review, which aims at assessing the impacts of the Agreement on employment, investment and trade between the Parties, should take into account the opinions and recommendations of civil society actors, such as NGOs, business and employers' organizations, social movements and trade unions. The periodic review of the impacts of the Agreement may lead the Parties to negotiate amendments to the text.

9. Resources for cooperation to support MERCOSUR countries in benefiting from the Agreement. Along with the conclusion of the Agreement, the EU will offer a package to support MERCOSUR countries in implementing the Agreement, particularly in its trade aspects, taking into account particularly the importance of supporting the most vulnerable sectors. This commitment is associated with the conclusion of a Cooperation Protocol, under which MERCOSUR and the European Union will collaborate to define the priorities of the projects to be supported.

10. Conclusion of pending issues from the 2019 negotiations. The 2023-2024 negotiation stage also focused on concluding the negotiation of topics that remained open in 2019, such as Geographical Indications, for example for wines. In this stage, among others, disciplines were negotiated specifying the rights of holders of Geographical Indications, including those that safeguard, in MERCOSUR countries, the right of MERCOSUR prior users of geographical names that will be protected by the Agreement.

III. THE MERCOSUR-EUROPEAN UNION PARTNERSHIP AGREEMENT

The chapter on Trade in Goods includes a broad commitment to tariff liberalization in industrial and agricultural sectors, respecting the specificities of each market.

The offer made by MERCOSUR includes broad tariff liberalization, with stages of products subject to immediate or linear tariff reduction over periods ranging from 4, 8, 10 and 15 years. This offer covers approximately 91% of goods and 85% of the value of Brazilian imports of products from the European Union. Only a very small portion of goods are subject to quotas or other non-tariff treatments, while the list of exclusions represents approximately 9% of goods and 8% of the total value of imports. For the automotive sector, special conditions were negotiated for electrified vehicles, hydrogen-powered vehicles and new technologies, with tariff elimination periods of 18, 25 and 30 years, respectively.

On the other hand, the European Union's offer presents an even broader scope of liberalization, with stages of products that will have immediate or linear tariff reductions over periods of 4, 7, 8, 10 and 12 years. These products correspond to approximately 95% of the goods and 92% of the value of European imports of Brazilian goods. Products subject to quotas or other non-tariff treatments represent approximately 3% of the goods and 5% of the value imported by the European Union, with these treatments being applied mainly to items from the agricultural and agroindustry sectors. This approach reflects the balance sought between opening up markets and protecting sectors that are sensitive to both parties.

EU’s agricultural offer

The Rules of Origin chapter defines modern criteria that ensure that trade benefits are used by the parties, with flexibility for specific sectors, such as the textile. It also provides for the adoption of self-certification to reduce costs and bureaucracy.

The Trade Facilitation chapter aims at reducing costs and simplifying processes related to import and export, with an emphasis on transparency, electronic systems and mutual recognition of authorized operators.

The Technical Barriers to Trade (TBT) chapter promotes good regulatory practices to avoid unnecessary barriers, encouraging the use of international standards and public consultations for greater predictability and integration between the blocs.

The Sanitary and Phytosanitary Measures (SPS) chapter facilitates agricultural trade, promoting transparency and predictability with mechanisms such as pre-listing and regionalization procedures for products of animal origin. The Agreement preserves the high standards of food production in MERCOSUR and the European Union.

The Dialogues chapter establishes mechanisms for technical cooperation between the blocs on topics such as animal welfare, agricultural biotechnology and antimicrobial resistance, promoting the exchange of information and regulatory harmonization.

The Trade Remedies chapter reaffirms the rights to apply anti-dumping and countervailing measures in accordance with WTO rules, ensuring protection against unfair trade practices.

The Bilateral Safeguards chapter allows domestic industries to be protected from import surges resulting from trade liberalization. The chapter now has a specific mechanism for the automotive sector, with a view to preserving and promoting investments.

The Services and Establishment chapter increases transparency and legal certainty for investors and service providers, respecting regulatory sovereignty in sensitive areas and promoting the modernization of domestic regulations.

The Government Procurement chapter ensures preferential access to the European public procurement market for MERCOSUR companies and vice versa. Brazil's specific commitments take into account the interest in preserving space for public policy in the areas of industrial development, public health, technology and innovation, small and medium-sized enterprises and smallholders.

The Intellectual Property chapter consolidates international protection standards and reinforces the recognition of geographical indications, such as “Cachaça” and “Canastra”, strengthening the Brazil’s nation branding in Europe. It is noteworthy that the chapter does not change the patent rules that were agreed upon in the WTO, an important demand for health policy in Brazil.

The Small and Medium-Sized Enterprises chapter promotes specific actions to facilitate their integration into global chains, such as training programs, partnerships and participation in public tenders.

The Competition chapter reaffirms the commitment to combat anticompetitive practices, promoting cooperation between authorities of the blocs to strengthen regulatory institutions.

The Subsidies chapter establishes rules to ensure transparency and prevent market distortions.

The State-Owned Enterprises chapter seeks a balance between commercial criteria and public objectives, ensuring that state-owned companies can operate with flexibility to fulfil their functions related to national interest.

The Trade and Sustainable Development chapter, which now has a new Annex (see previous section), reaffirms multilateral commitments such as the Paris Agreement and the 2030 Agenda, integrating sustainability into trade relations and promoting sustainable production chains. It also includes commitments to prevent that environmental claims are used to justify unnecessary barriers to trade.

The Transparency chapter promotes good regulatory practices by requiring public consultations, impact assessments and periodic review of measures, ensuring predictability in trade.

The Exceptions chapter provides safeguards to protect safety, health, the environment and culture, allowing the adoption of exceptional measures as long as they are proportionate and non-discriminatory.

The Dispute Settlement chapter defines dispute resolution mechanisms, with initial consultations and the possibility of arbitration, ensuring enforcement of obligations. The chapter now has a section dedicated to preserving the balance of the agreement, regardless of existing or not a violation of the agreed terms (see section above).

IV. NEXT STEPS

The negotiations of the Partnership Agreement between MERCOSUR and the European Union have been fully concluded.

The parties have reached an agreement on all texts, both on the issues that were reopened and on those pending issues that had remained since 2019. However, the conclusion of the negotiations does not produce immediate legal effects, which only occur with the signing and entry into force of the Agreement.

MERCOSUR and the European Union will now begin preparing the texts of the Agreement for signature and entry into force. This process involves:

(i)      Legal review: The process of legal review of the Agreement is aimed at ensuring consistency, harmony and linguistic and structural accuracy of the texts of the Agreement. This stage has already begun and is advanced.

(ii)    Translation: Once the legal review is completed, the Agreement will be translated from English into the 23 official languages ​​of the European Union and the 2 official languages ​​of MERCOSUR, including Portuguese.

(iii)   Signature: The signature, in which the parties formally express their acceptance of the Agreement, will be carried out after the legal review and translations of the Agreement have been completed.

(iv)  Internalization: Following signature, the parties will submit the Agreement for their respective internal approval processes. In Brazil, this process involves the Executive and Legislative branches, through approval by the National Congress.

(v)    Ratification: The parties notify the completion of the respective internal procedures and confirm, through ratification, their commitment to comply with the Agreement.

(vi)  Entry into force: The Agreement will enter into force and, therefore, produce legal effects on the first day of the month following the notification of the completion of the internal procedures. Since the Partnership Agreement between MERCOSUR and the European Union establishes the possibility of bilateral entry into force, it would be sufficient for the European Union and Brazil – or any other MERCOSUR country – to have completed the ratification process for its entry into force bilaterally between such parties.

V. BRAZIL-EU IN NUMBERS

European Union (sources: World Bank and Eurostat – 2023)

• 27 countries
• Population of 449 million people
• GDP of 18.3 trillion dollars
• Exports of goods of US$ 2.56 trillion to the world
• Imports of goods of US$ 2.52 trillion from the world

Brazil-European Union trade

• The European Union is Brazil's second largest trading partner
• In 2023, the bilateral trade flow, of US$ 92 billion, represented 16% of our foreign trade.

Brazil exported US$46.3 billion to the European Union in 2023

• Animal feed - 11.6%
• Metal ores and scrap - 9.8%
• Coffee, tea, cocoa, spices - 7.8%
• Oil seeds and fruits - 6.4%
• Iron and steel - 4.6%
• Vegetables and fruits - 4.5%
• Pulp and paper waste - 3.4%
• Meat and meat preparations - 2.5%
• Tobacco and its manufactures - 2.2%

Brazil imported US$45.4 billion from the European Union in 2023

• Pharmaceutical and medicinal products - 14.7%
• Machinery in general and industrial equipment - 9.9%
• Road vehicles - 8.2%
• Oil and its products - 6.8%
• Power generation machinery and equipment - 6.1%
• Organic chemical products - 5.5%
• Specialized machinery and equipment for certain industries - 5.3%
• Electrical machinery and equipment - 4.7%
• Chemical materials and products - 3.6%
• Iron and steel - 3.4%

VI – ESTIMATED IMPACTS - Simulation of the effects of the Mercosur-EU Trade Agreement for Brazil

Estimated percentage deviations for the year 2044; values ​​in reais considering the year of 2023

• Positive effect of 0.34% (R$ 37 billion) on GDP
• Increase of 0.76% in investment (R$ 13.6 billion)
• Reduction of 0.56% in the level of consumer prices
• Increase of 0.42% in real wages
• Impact of 2.46% (R$ 42.1 billion) on total imports
• Impact of 2.65% (R$ 52.1 billion) on total exports

The estimated impacts are based on the results of the recursive-dynamic general equilibrium simulation (GTAP-RD)