Damián Rodríguez and Bruno Theodoro Luciano The Association Agreement between Mercosur and the European Union: Dilemmas and prospects at the global crossroads Abstract This paper analyses the conclusion of the Association Agreement between Mercosur and the European Union and examines its geoeconomic and geopolitical implications for both regions within a context of increasing uncertainty in the international system. To this end, it addresses the main challenges and opportunities both blocs face in terms of strategic autonomy from a critical perspective which focuses on the structural determining factors of development, particularly in Mercosur countries. Introduction On 6 December 2024, during the 65th Summit of Presidents of the South American bloc, the European Union(EU) and Mercosur concluded an Association Agreement(AA) after more than twenty years of negotiations. Since an Agreement in Principle on trade had been reached in 2019, followed by the conclusion of the political and cooperation pillar a year later, a series of tensions arose that cast doubt on the agreement´s viability which even led to consider its abandonment on several occasions. At the same time, global events such as the outbreak of the COVID-19 pandemic in 2020 and Russia’s invasion of Ukraine in 2022 accelerated the transformations that had started to emerge in the international system since the 2008 financial crisis. In particular, the challenge to the liberal international order and the multilateral system by far-right parties and movements, with a strong anti-globalisation narrative, which have gained ground in the political arena in recent years, has intensified. Likewise, globalisation has been reshaped: supply chains have become increasingly dependent on security considerations, protectionist practices by states have increased along with the resurgence of industrial policy, and tariffs are being used as a pressure mechanism in global economic relations(Sanahuja and Rodríguez, 2024). The Association Agreement between Mercosur and the European Union: Dilemmas and prospects at the global crossroads 1

In this context, developed countries and most emerging economies have implemented development and international integration strategies in a scenario marked by geopolitical tensions, technological races and climate challenges(Zelicovich, Zanetto, Schapiro, 2024). After several years of inaction, the EU took renewed interest in Latin America and the Caribbean(LAC). Be tween 2017 and 2022, negotiations progressed towards the modernisation of the agreement with Chile, which finally entered into force in January 2025. At the same time, the European bloc focused its efforts on signing the Mercosur-EU Agreement and updating the Modernised Global Agreement with Mexico, with negotiations finishing in January 2025. In the meantime, in July 2023, high-level summits between the EU and the Community of Latin American and Caribbean States(CELAC) resu med, and the European Commission launched the Global Gateway agenda for the region, which aims to promote green and digital investments in the region. This initiative is part of the trade and investment agreements aimed at achieving the Sustainable Development Goals(Euro pean Commission, 2023). For its part, LAC has promoted reindustrialisation programmes based on green growth, digital transformation and energy sovereignty, as in the cases of Brazil, Chile and Mexico. At the same time, the region has adopted a strategy of“non-active alignment“’, maintaining relations with the EU, China and the US. In a context of unpromising growth prospects the region plays a key role in the provision of critical raw materials for economic transformation and the global energy transition. In addition, for the second consecutive year, there has been a decline in foreign direct investment(FDI) flows, with the US and the EU re maining the main investors, while China reduced its investments in the region(ECLAC, 2024). Against a backdrop of growing geopolitical volatility, Donald Trump’s return to the US presidency and his announcement of new tariffs on strategic sectors— affecting his preferred partners in the TMEC(Treaty between Mexico, the United States and Canada) and the EU, as well as China and LAC— emphasise the relevance of the agreement between Mercosur and the EU. It is a strategic milestone, as both regions want to send a signal highlighting their readiness to defend a rules-based international order, as well as their commitment to the fight against climate change and the promotion of sustainable development(Rodríguez Díaz, 2025). Following this introduction, the text is structured in four sections. First, it examines the differences regarding trade between the 2019 Agreement in Principle and the agreement signed in 2024. The second and third sections address its implications in terms of autonomy and development for Mercosur and the EU. Finally, the agreement´s impact on bi-regional relations are analysed and future challenges are outlined. Differences between the 2019 Agreement in Principle and the 2024 Association Agreement between Mercosur and the European Union After more than twenty years of negotiations, Mercosur and the EU reached an Agreement in Principle regarding the tra de pillar during the G20 Summit in Osaka in June 2019. A year later, two other pillars, political dialogue and cooperation, were finalised. Finally, at the Mercosur Summit held in Montevideo in December 2024, the agreement was signed, although its ratification is still pending. Throughout this period, six rounds of negotiations were held, marked by strong criticism and disagreements from sectors that had been traditionally reluctant to accept the agreement and from states of both regions, particularly of the chapters focusing on the environment and sustainable development. These tensions were exacerbated by the traditional conflicts between offensive and defensive interests that have historically characterised the bi-regional negotiations. The agreement signed in 2024 is part of a geopolitical re configuration with substantial differences when compared with 2019. Donald Trump’s arrival at the White House in January 2025 has accelerated a series of transformations which give rise to new alignments and power dynamics at the global level. In this scenario, LAC emerges as a key strategic partner for the EU’s foreign policy. As has been mentioned before, the modernisation of the Association Agreement with Chile was the subject of nego tiations, which took place between 2017 and 2022. The agreement was signed in December 2023 and entered into force in 2025, once the ratification process had been com pleted. For their part, the EU and Mexico concluded negotiations on the Modernised Global Agreement in January 2025. The agreement, which is currently undergoing legal review and ratification, has been the cornerstone of the Strategic Partnership between the EU and Mexico since 2008(Rodríguez Díaz, 2025). In this context, the agreement with Mercosur should be understood as part of a broader EU strategy to strengthen its ties with LAC, diversify its supply chains and ensure access to strategic resources. Thus, the 2024 AA not only updates the content negotiated in the 2019 Agreement in Principle, but also incorporates new priorities in response to the challenges of the contemporary international scenario. The agreement between Mercosur and the EU provides for the gradual elimination of tariff barriers to boost trade and attract investment, ensure sustainable access to raw materials, and promote the integration of value chains between the two regions. It also includes binding commitments on environmental, labour and gender issues. However, beyond its economic implications, the AA is of fundamental geopolitical importance, as it constitutes a tool for both parties to strengthen their The Association Agreement between Mercosur and the European Union: Dilemmas and prospects at the global crossroads 2

strategic autonomy and expand their margins of action in a global context characterised by growing geoeconomic tensions, tariff wars and the coercive use of trade and investment as instruments of power(Dannemann, 2024). Barreto and Wollrad(2025) highlight three innovative ele ments in the final version of the 2024 agreement, as com pared to the 2019 draft: the inclusion of specific mechanis ms to promote sustainable value chains, the protection of the automotive sector through safeguard clauses and longer tariff elimination periods, and greater flexibility in the provisions on government procurement. First of all, the possibility of restricting the export of strategic minerals is being considered in order to promote the creation of added value within the region by avoiding an exclusively extractivist model and promoting local industrialisation(Barreto and Wollrad, 2025). Brazil was the main proponent of this aspect, after the 2019 agreement had prohibited any incidence of export duties on trade between this country and the EU. Second, in a context marked by rapid technological chan ge, the automotive sector has once again become strategic in the resurgence of industrial policies. The agreement signed in 2024 significantly extends the deadlines for the libe ralisation of vehicle trade, as it establishes periods of between eighteen and thirty years depending on the level of the vehicles´ technological development. The elimination of tariffs for electric vehicles is set at eighteen years, while a period of twenty-five years has been established for hydrogen-powered vehicles, with a grace period of six years. A safeguard clause is also included, allowing the liberalisation of imports to be suspended for up to five years, if they are considered to have a negative effect on production and employment in the automotive industry of the Mercosur. It should be noted that the agreement reached in 2019 alre ady provided for special treatment for this sector. At that time, it was envisaged that Mercosur would eliminate tariffs on all car parts from the EU through a linear reduction over a period of ten years(for 60% of items) and fifteen years(for 30%). For finished vehicles, a similar scheme was established, although with a seven-year grace period, during which up to 50,000 units from the EU would be allowed to enter annually with a 50% tariff preference(Sa nahuja and Rodríguez Díaz, 2019, p. 19). Finally, provisions relating to government procurement have been relaxed, allowing Mercosur countries to use state contracts to promote domestic industry, support small and medium-sized enterprises, and protect strategic sectors such as health(Barreto and Wollrad, 2025). Brazil excluded purchases by the Unified Health System, thus preserving the possibility of requiring local technological content in public procurement to promote innovation. It is important to note that in 2019, the agreement did not entail unrestric ted and reciprocal liberalisation, as access thresholds were established at the federal, state and local government levels, reserving part of the contracts for domestic suppliers. Mercosur had achieved preferential treatment and transitional periods of adaptation depending on the sector, which allowed Argentina and Brazil to promote SME and productive innovation policies(Sanahuja and Rodríguez, 2024). In this regard, additional cooperation commitments were made to offset the economic costs that certain productive sectors will face with the entry into force of the AA, in particular MSMEs, women, small producers, indigenous peoples and local communities(Uruguayan Ministry of Fo reign Affairs, 2024). Implications of the AA for the autonomy of Mercosur The AA with the EU is strategically important and has fundamental implications for the defence and promotion of the autonomous international integration of the Mercosur countries. This perspective is reflected in the statements of their heads of state and government, after the negotiations had finished in December 2024. First of all, the agreement negotiated with the EU is the largest trade agreement ever concluded by the South American bloc and one of the lar gest bilateral free trade areas in the world. The two blocs bring together around 718 million people and economies that, together, are worth approximately 22 trillion dollars (Brazil, 2024a). In addition to the agreement´s weight in terms of trade and population, the Brazilian government, which had been in charge of the negotiation process on behalf of Mercosur, affirmed that the negotiated text opened up opportunities for trade and investment without compromising the ability to implement public policies in crucial areas such as health, industrial development, and innovation. Unlike the text negotiated in 2019, the renegotiation of the agreement focused on preserving space for public policies, as explained above, in commitments relating to government procurement, trade in the automotive sector and exports of critical minerals, aspects considered strategic for the autonomy of Mercosur countries. In his statement on the occasion of the Mercosur Summit in Decem ber 2024, President Lula da Silva affirmed that Mercosur countries had managed to preserve their interests in government procurement, which will allow them to implement public policies in areas such as health, family farming, and science and technology(Brazil, 2024b). The defence and protection of Mercosur’s industrial sector as a strategy for the bloc’s autonomy is evident in some aspects of the concluded negotiations. In the context of the agreement with the EU, Mercosur negotiators will seek to extend the timetable for opening up the bloc´s automotive market without jeopardising the industrial sector’s promotional capacity(Brazil, 2024b). According to the Brazilian government, the agreement would contribute to strengthening the diversification of trade partnerships, a strategic asset for the country, as well as promoting the The Association Agreement between Mercosur and the European Union: Dilemmas and prospects at the global crossroads 3

modernisation of Brazilian industry through its integration into EU production chains(Brazil, 2024c). On the other hand, the agreement also offers mechanisms to address potential negative impacts of unilateral measures that could affect Mercosur exports, a major concern for the autonomy of the bloc’s countries. To make sure that the negotiated gains in access to the European market are preserved, the agreement innovates by establishing a mechanism to rebalance concessions. Therefore, the agreement satisfies Mercosur exporters if internal EU measures compromise the effective use of the advantages obtained (Brazil, 2024c). As another crucial contribution to ensuring regional autonomy in the negotiated agreement the two blocs have agreed on commitments to sustainable development that take a collaborative and balanced approach, thereby recognising that the challenges in this area are shared and must be addressed from a balanced, cooperative perspective. In this regard, the inclusion of a new annexe in the chapter on trade and sustainable development stands out, as it reinforces the commitment of both parties to the environmental, social and economic agenda, as well as to a cooperative approach to sustainable national measures that may affect trade. Finally, the agreement also contributes to deepening Mercosur’s regional integration and demonstrates its role as an efficient platform for the integration of the bloc’s economies into external markets. This aspect is also evident in President Lula’s statement at the Summit: Our external agenda is repositioning Mercosur in international trade. By the end of 2023, we will conclude a trade agreement with Singapore, the first such agree ment with an Asian country. Today, we are also laying the foundations for the future trade liberalisation with Panama, a country, where 6% of world trade passes through. Negotiations with the United Arab Emirates are progressing rapidly and are expected to be concluded in 2025. The possibility of expanding economic and tech nological cooperation with China, Japan, Vietnam and other Asian markets will benefit all members of the bloc (Brazil, 2024b, our translation). A similar position can be observed in the statements of Pa raguayan President Peña following the conclusion of the agreement negotiations. He considered it“a unique opportunity for Paraguay to attract investment, strengthen its competitiveness and project itself more forcefully onto the world stage“( Swissinfo, 2024). Similarly, the Uruguayan Foreign Ministry considers the signing of the agreement with the EU, the conclusion of negotiations with the European Free Trade Area(EFTA) and the United Arab Emirates in the coming months, as well as the resumption of negotiations with Canada and South Korea, to be priorities( La Diaria, 2025). On the other hand, President Milei of Argentina took ad vantage of the conclusion of the agreement negotiations at the Mercosur Summit in December 2024 to offer a more sceptical view of the Mercosur agenda, which he interpreted in terms of autonomy, but taking a more critical view of the way in which trade agreements are negotiated by the bloc´s countries. Milei invited the other countries to gain autonomy while continuing to respect the agreements that unite us and to loosen the ties that today suffocate them instead of strengthening them(Argentina, 2024). In general, Mercosur governments have shared the perception that the conclusion of the agreement constitutes an important step towards reorienting the bloc as a platform for international integration. However, the negotiation pro cess is still firmly rooted in an intergovernmental approach, which has so far limited the adoption of a broader perspective, both sectoral and social, on the benefits of the agreement and on the possibilities of implementing regional policies to mitigate its negative impacts on certain sectors. For example, the preferential access to raw materials granted to the EU—considered key to the diversification of global suppliers—can also be interpreted as a restriction of the right to process these raw materials locally in Mercosur, thus reducing its margin of action in a strategic area. Implications of the AA for the autonomy of the EU For the European Union, the AA with Mercosur could be an important tool for implementing its concept of Open Strategic Autonomy. Launched in 2016, this approach fo cused on security and defence issues within the context of an increasing rivalry between China and the US. Subse quently, the concept was expanded to other issues, such as EU industrial and energy policies in the face of European dependence on Russian gas and Chinese microprocessors(Sanahuja, 2025). The association between the European Union and Mercosur, which was previously governed by the rules of a liberal order, is being redefined under a logic of strategic autonomy and resilience in the face of the current geoeconomic scenario(Sanahuja and Domínguez, 2025). Despite the opposition of various European sectors to the agreement, the conclusion of the trade negotiations with Mercosur is considered a strategic priority for the EU, as it would allow for the diversification of its trade with China and access critical raw materials, but it would also be a response to the new wave of protectionism that has emerged since the start of the new Trump administration. In this sense, reaching out to Mercosur countries through the creation of the world’s largest trade association in terms of population is a significant part of the European strategy to position itself as a global player with an increased margin of action and autonomy vis-à-vis the US and China. First of all, the European Union-Mercosur agreement can be interpreted as an effort to create alternative routes The Association Agreement between Mercosur and the European Union: Dilemmas and prospects at the global crossroads 4

(third ways) within the European objectives of trade diver sification and reduction of its economic dependence on China, but also on the US, in the face of new protectionist dynamics and the application of tariffs by the Trump administration. In other words, the bi-regional agreement has geopolitical significance: to build channels for the implementation of the EU’s strategic autonomy through a model of friendshoring, based on preferential links with like-minded and trusted partners. Therefore, the geopolitical significance of the agreement lies in distancing the two regions from the confrontation between the US and China and reducing their subordinate position with regard to this confrontation(Sanahuja, 2025), a fact that has been clearly reflected by statements of the current EU Trade Commissioner, Maroš Šefčovič: The conclusion of negotiations strengthens our political and economic ties, giving EU companies a first-mover advantage in a region where trade with China is dominant – for instance, China is the main exporter to and importer from Brazil(European Commission, 2025c). In the context of reducing European dependence on global players such as China, the European Trade Commissioner has repeatedly addressed the issue of access to critical raw materials and the role of the agreement with Mercosur:“Mercosur countries can become one of our best sources of critical raw materials, thereby increasing our resilience by diversifying our supply chains“(European Commission, 2025c). This issue was particularly relevant during the discussions between the EU Trade Commission and the European Parliament’s Internatio nal Trade Committee, a key body for the ratification of the European Union-Mercosur Agreement, in January 2025. In his defence of the agreement before MEPs, Commissioner Šefčo vič emphasised that: This is a win-win agreement which paves the way for new export opportunities for EU companies. It can also boost our economic security, notably by developing resilient value chains in strategic sectors, such as raw materials, and contribute to our shared, ambitious sustainability(European Commission, 2025a). Indeed, the agreement has the potential to increase the EU’s efficiency by benefitting from growth in other regions and gaining access to the inputs needed to advance the green and digital transitions, such as critical raw materials. According to the Trade Commissioner, the agreement also contributes to increasing European resilience to potential economic shocks, as it enables the EU to diversify its supply chains to source inputs from a wider range of partners, in this case from South America. Furthermore, access to key raw materials is essential for the European green transition, as it ensures a steady, secure and sustainable flow of essential raw materials. In this way, the agreement supports the EU’s commitment to the global green transi tion and encourages the growth of environmentally friendly industries. In fact, the agreement strengthens economic security and supply chain resilience, as the EU is heavily dependent on imports to meet its raw material needs. Therefore, the preferential access generated by the agreement is essential for the EU, as it prohibits export taxes on most critical raw materials as well as export price requirements and export monopolies, which would contribute to the EU’s economic security, increasing resilience and protecting imports that are essential for European industries(European Commission, 2025b). Apart from contributing to diversification, the agreement simultaneously strengthens the autonomy of both the EU and Mercosur as a mechanism for resilience and reinforcement of multilateralism. In fact, the agreement not only includes a liberalisation of trade, but also seeks to reinforce multilateral commitments and principles at the bi-regional level at a time, when such principles are subject to wides pread global questioning:“Against this backdrop, even though flexible partnerships are less ambitious, they play a key role in contributing both to the strategic autonomy of both regions and to the strengthening of multilateralism“ (Caetano and Pose, 2025). In the words of Commissioner Šefčovič, the conclusion of the agreement negotiations“proves that regional blocs can commit to shared values and advance joint efforts to deli ver concrete results for the mutual benefit of our citizens“ (European Commission, 2025a). For example, by including the Paris Agreement on climate change as an essential ele ment, the EU-Mercosur AA sends a strong message of support for multilateral cooperation on climate change(Euro pean Commission, 2025c). Finally, it is important to note that the agreement is a fundamental instrument for Europe´s strategic autonomy, but it is not the only tool in place. In terms of investments, the European Commission launched the Global Gateway agenda for Latin America and the Caribbean in 2023 in the context of the revita lisation of the EU-CELAC summit meetings, with an estimated investment volume of€45 to€50 billion until 2027. In fact: The Global Gateway investment agenda represents a tool for expanding the scale and impact of the EU’s pre sence in the world. In doing so, it simultaneously reinforces several aspects: its geopolitical role vis-à-vis the Chinese and American powers, its strategic autonomy, and the expansion of its capacity for external action(Calden tey del Pozo, 2025). The Association Agreement between Mercosur and the European Union: Dilemmas and prospects at the global crossroads 5

Conclusions and outlook The AA between Mercosur and the EU represents a turning point in bi-regional relations, not only because of its economic and commercial relevance, but also because of its strategic dimension in an international scenario marked by uncertainty, the reshaping of alliances and the return of industrial and protectionist policies. Beyond the internal differences that persist in both blocs, the agreement reflects the effort to position the bi-regional relationship in terms of strategic autonomy, resilience and sustainability. In the short and medium term, its implementation poses a number of challenges. First, the ratification process still faces political and social resistance, particularly in some EU Member States, where the agricultural and environmental sectors continue to express concern. As a“mixed” agreement, it requires the approval of the national parliaments of all 27 member states, regional chambers in some coun tries, the EU Council and the European Parliament. To avoid deadlock, the European Commission proposed to split the agreement: first, approve the EU’s exclusive com petences, such as the trade chapter and sustainability safeguards, which require a qualified majority in the Council. Then, the European Parliament will decide on this part. Ra tification of the agreement as a whole, including trade, political dialogue and cooperation, would be left for a later stage, subject to unanimity in the Council and a new par liamentary vote(Sanahuja and Rodríguez, 2024). The viabi lity of the agreement will therefore depend on the ability of the governments of both blocs to build internal consensus and articulate compensatory policies that address the sectors most affected by trade liberalisation. This is vital to prevent the agreement from leading to a process of asymmetric liberalisation and reproducing patterns of centre-periphery integration, which would weaken the possibilities for a more equitable and autonomous development of Mercosur countries. Second, effective compliance with the commitments made—especially in the area of sustainable development—will require solid governance mechanisms, civil society participation, and bi-regional cooperation schemes that transcend the commercial approach. Likewise, the AA in its current terms can contribute to the autonomous international integration of Mercosur, if accompanied by active industrial policy, technological development, and productive diversification strategies. In this regard, the flexibility clauses negotiated in 2024—such as longer tariff eli mination periods and safeguard clauses—offer some margin of action that should be used by the States Parties to promo te productive transformation and move towards more inclusive and sustainable development. In the words of President Lula at the Mercosur Summit in December 2024:“The global geopolitical and economic reality shows us that integration strengthens our societies, modernises our productive structures and allows us to compete more effectively in the world” (Brazil, 2024b). For the EU, the agreement is part of a broader strategy of partner diversification, economic security and friendshoring in the face of China’s advance and the return of protectionism in the US. In the medium term, the consolida tion of this partnership could help to strengthen its role as a global player in a multipolar world in dispute. Finally, the future of the agreement will depend not only on institutional and economic factors, but also on the political orientation adopted by governments in both blocs. In a context of growing polarisation and ideological dispute, bi-regional cooperation can be strengthened if it manages to articulate a shared vision of the triple transition: green, digital and socio-economic, capable of transcending the ups and downs of the current situation and projecting itself as a sta ble pillar of the international order in transition. The Association Agreement between Mercosur and the European Union: Dilemmas and prospects at the global crossroads 6

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About the authors Damián Rodríguez Díaz. Lecturer and researcher at the FCS-UDELAR International Studies Programme. PhD in International Relations from the Universidad Complutense, Madrid, Master’s degree in Political Science from the University of Salamanca and Bachelor’s degree in Political Science from the University of the Republic of Uruguay. Bruno Theodoro Luciano. Postdoctoral researcher at the Free University of Brussels. PhD in Political Science and International Studies from the University of Birmingham. Associate researcher at the Institute for Comparative Stud ies on Regional Integration at the United Nations University. Editor of the journal Contemporary European Politics. Friedrich-Ebert-Stiftung Centro Regional Sindical Gral. Arturo Baliñas 1145, Piso 8 Montevideo, Uruguay Responsible Dörte Wollrad Director Viviana Barreto Project director Proofreading Laura Zavala Translation Dieter Schonebohm Design and layout Cooperativa de comunicación SUBTE ISBN 978-9915-9833-2-5 Additional information: ↗ www.sindical.fes.de Contact: sindical@fes.de Centro Regional Sindical The Association Agreement between Mercosur and the European Union: Dilemmas and prospects at the global crossroads 8