What Does Mercosur-EU Trade Agreement Mean for South America

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Written by Amir Richani for IIR News Intelligence (Sugar Land, Texas)

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Summary

The Mercosur-EU deal will bring agricultural, mining and manufacturing opportunities to South American producers.

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Decades in the Making, Challenges Remain

More than two decades have been spent negotiating the Mercosur-EU deal, and even after initial signings on January 17, the agreement faces growing scrutiny from European Union member states and several industrial groups in Europe, who are protesting against it.

South American countries have expressed frustration over ongoing delays after 25 years of discussions. For more background and details, see January 29, 2026, article - EU Signs Landmark South American Trade Deal.

In summary, the deal promises increased export opportunities, new investment and technological upgrades, but increases competitiveness in Mercosur industrial sectors and raises environmental recompliance needs for EU market access.

Minerals

Global attention is set on Brazil and Argentina's mineral resources, and the EU wants to step up its influence and diversify its mineral supply. The agreement reduces tariffs on mineral production from Brazil and Argentina to European industries that require the raw materials to diversify their suppliers and strengthen domestic supply chains, such as renewable technologies.

Brazil is a key producer of lithium, niobium, bauxite, manganese and copper, all of which are deemed critical minerals by the EU. In addition, Brazil has the world's second-largest reserves of rare earths, with 21 million tons, according to the U.S. Geological Survey (USGS), only behind China's 44 million tons, which provides the vast majority of the EU's supply.

Brazil's mining prospects are bright, with Industrial Info tracking more than 500 capital mining-related projects across the country, with investments totaling US$52.9 billion. Subscribers to Industrial Info's Global Market Intelligence (GMI) Metals & Minerals Project Data base can view the project reports here.

Meanwhile, Argentina is a lithium leader with expanding production and multiple projects expected to come online in the next few years. At the same time, copper is projected to play a major role in Argentina's future, making it one of the world's largest producers in the next two decades, as several projects are in various development phases.

Industrial Info is tracking 13 existing lithium plants and mines, and 60 capital lithium mining projects worth US$16.73 billion, with 49 capital copper-related projects amounting to US$16.79 billion in Argentina.

The EU-Mercosur deal is expected to attract European investors to Mercosur's growing mining industry. In a recent statement, Brazil's minister of energy and mines said that "Brazil is structuring a cooperation agenda with the European Union based on clear criteria, predictability and alignment with our public policies. We want to attract investments that generate value in the national territory, promote regional development, strengthen industry and contribute to a just, sustainable and inclusive energy transition."

Agriculture and Ethanol

The agricultural agreement has faced one of the strongest pushbacks from European farmers. Mercosur countries are among the world's key producers of beef, sugar, poultry, soybeans, corn and pork. Argentina and Brazil are poised to be the biggest winners in the agricultural sector.

However, the EU has only allowed Mercosur exports of 99,000 tons of beef per year with an import duty of 7.5%, 55% fresh or chilled meat and 45% on lower-value frozen meat, which represents about 1.5% of total European beef production, less than half of Mercosur beef imports in 2024, and about 0.6% of Mercosur beef production in 2023.

For poultry, the EU has agreed to duty-free imports (phased out over five years) of 180,000 tons per year, representing about 1.3% of EU production and below the 293,000 tons imported in 2024.

For sugar, 180,000 tons of duty-free raw sugar cane for refining will be allowed into the EU, and a new duty-free quota of 10,000 tons has been agreed with Paraguay under the new agreement.

Brazil is the world's largest sugar cane producer and leading producer of sugar cane-ethanol. Ethanol plays a key role in Brazil, as it is blended with gasoline for fuel consumption and is also used as a stand-alone fuel.

The EU-Mercosur deal will open a duty-free quota of 450,000 tons of ethanol for the chemical industry and a quota of 200,000 tons, with an in-quota rate of one-third of the full duty, to be added for all other uses. Duties will be phased over gradually over five years. In 2024, Brazil produced 37 billion liters of ethanol (about 29 million tons).

Mercosur will benefit from duty-free EU machinery imports in several sectors, including farming, enabling technology upgrades at lower prices across sectors.

However, stricter EU environmental and deforestation standards will require South American exporters to comply with rules to retain EU market access.

The EU highlighted, "As of the end of 2026, only deforestation-free products will be allowed to enter the EU market, including products such as soya bean, beef, palm oil, wood, cocoa, coffee and rubber. This rule will also apply to imports under the EU-Mercosur partnership agreement."

Other Sectors

The automotive industry also will be heavily affected. The deal would open the door to more competition for Brazil and Argentina's car manufacturing sectors by removing a 35% car parts import tariff, to be phased out over 15 years. Both countries are important regional manufacturers of automotive components. Industrial Info is tracking 557 automotive manufacturing facilities and 194 automotive projects worth US$9 billion across Brazil and Argentina. GMI subscribers can view a list of detailed plant profiles and project reports.

In addition, the deal brings significant changes to the chemical and pharmaceutical industries. European companies will benefit from an up to 18% and 14% phase-out of import taxes, respectively. Industrial Info's plant database includes profiles of more than 3,600 active pharmaceutical & biotech plants across Europe (including non-EU members), and it is tracking more than 1,550 capital projects across the region, with investments totalling US$107 billion.

The EU estimates the deal will save about 4 billion euros (US$4.7 billion) in duties annually.

Key Takeaways

• Argentina and Brazil are poised to be the winners of the new agricultural duty-free trade.
• Mining investment opportunities for European investors will open up with the deal.
• Brazil will benefit from the ethanol import quota, given its status as the world's largest producer of sugarcane ethanol.

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About IIR News Intelligence
IIR News Intelligence is a trusted source of news for the industrial process and energy markets, powered by Industrial Info Resources' Global Market Intelligence (GMI).

About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).