Brazil’s Federal Government releases full text of partnership agreement between Mercosur and the European Union

On Tuesday, December 10, the Brazilian Federal Government published the full text of the partnership agreement between Mercosur and the European Union, following the end of negotiations on all points of the treaty — consisting of 20 chapters, as well as appendixes and additional documents. The conclusion of the agreement was announced last Friday (December 6), at the 65th Summit of Mercosur Heads of State, in Montevideo, Uruguay.

"This Summit has a special meaning. It marks the conclusion of negotiations on the Mercosur-European Union Agreement, in which our countries have invested enormous political and diplomatic capital over almost three decades. After two years of intense negotiations, we now have a modern and balanced text that recognizes Mercosur's environmental credentials," President Lula said.

The partnership with the European Union is the largest trade agreement ever concluded by Mercosur. The two blocs represent around 718 million people and economies that, combined, add up to approximately USD 22 trillion.

"We are talking about more than 27 countries in the European Union, among the richest in the world. There are many opportunities and reciprocal gains. It can help Brazil's GDP grow further, Brazilian exports increase, income and employment increase, and reduce inflation. Studies show that exports to the European Union could increase by 6.7% in agriculture, 14.8% in services, and 26.6% in the manufacturing industry," highlighted Vice President and Minister of Development, Industry, Trade, and Services Geraldo Alckmin.

DEVELOPMENT — Mercosur and the European Union have negotiated an appendix to the chapter on Trade and Sustainable Development so as to promote international trade while also contributing to sustainable development. While reinforcing their environmental commitments, the parties reject unnecessary barriers to trade. The appendix includes provisions on multilateral environmental and labor regimes; the relationship between trade, investment, and sustainable development; trade and women's empowerment; and cooperation.

The parties agreed on a series of commitments to protect the environment and promote decent work, in addition to actions to promote sustainable products in bi-regional trade, fostering opportunities for small producers, cooperatives, Indigenous peoples, and local communities.

The new appendix includes a section dedicated to promoting sustainable value chains towards the energy transition. Moreover, 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 female participation in international trade.

PROCUREMENT — The Government Procurement chapter began to be renegotiated by Mercosur and the EU in 2023. Brazil proposed adjustments to the terms that had been agreed upon in the past, to preserve the use of the State's purchasing power as a tool of the new Brazilian industrial policy. Among the promoted adjustments, the most notable are the complete exclusion of purchases by the Unified Health System [Sistema Único de Saúde/SUS] from the scope of the agreement; maintaining space for policies to encourage micro and small businesses and family farming; and preserving preference margins for national products and services.

AUTOMOTIVE SECTOR — The final text of the agreement [in Portuguese] also established a longer tariff elimination period for the automotive sector. With new technological routes to enable the energy transition — and given the importance of the sector to Brazil — Mercosur negotiated longer timelines for tariff reduction in the case of electric vehicles and new technology vehicles:

●      electric vehicles: the tariff reduction will now take place in 18 years;

●      hydrogen vehicles: the period will be 25 years, with a 6-year grace period;

●      for new technologies: 30 years, with a 6-year grace period.

An unprecedented safeguard mechanism for vehicles was also established. If there is a surge in imports from the European Union that causes harm to the industry, Brazil may suspend the tariff reduction schedule for vehicles or resume the rate applicable to other origins (currently 35%) for a period of three years, renewable for another two, without the need to offer compensation to the European Union.

TRANSPARENCY — Brazil made a point of including in the agreement commitments that ensure transparency and inclusion. Civil society entities, unions, non-governmental organizations, as well as the private sector and representatives of various social segments, are given channels to express their voices and monitor the impacts of the agreement — which may be revised periodically to better serve the interests of society.

NEXT STEPS – There is no set deadline for signing the agreement, which will depend on the legal review and translation process. Below is a summary of the next steps:

●      Legal review: the legal process of reviewing the agreement to ensure the consistency, harmony, and linguistic and structural correctness of the document's texts is advanced.

●      Translation: once the legal review is complete, the agreement will be translated from English into the 23 official languages of the EU and the 2 official languages of Mercosur, including Portuguese.

●      Signing: the signing, in which the parties formally express their acceptance of the agreement, will take place after the legal review and translations are completed.

●      Internalization: following the signing, the parties will forward the agreement to the respective internal approval processes. In Brazil, this process involves the Executive and Legislative Branches, through approval by the National Congress.

●      Ratification: the parties notify about the completion of the respective internal procedures and confirm, through ratification, their commitment to comply with the agreement.

●      Entry into force: the agreement will enter into force and, therefore, produce legal effects on the first day of the month following notification of the completion of internal procedures. Since the Mercosur-EU Agreement establishes the possibility of bilateral validity, it would be sufficient for the EU and Brazil — or any other Mercosur country — to have completed the ratification process for its entry into force bilaterally between these parties.

TRADE — The European Union is Brazil's second largest trading partner, with a trade flow of approximately USD 92 billion in 2023. The agreement is expected to strengthen the diversification of Brazil's trade partnerships — a strategic asset to the country — as well as foster the modernization of Brazil's industrial park through integration into the European Union's production chains. The treaty is also expected to further boost investment flows, expected to reinforce the EU's current position as the holder of almost half of the stock of foreign direct investment in Brazil.