The trade agreement between Mercosur and the European Union establishes one of the world’s largest free trade zones, granting Brazilian products preferential access to a market of nearly 450 million consumers across the EU. The deal also provides the gradual elimination of import tariffs on agricultural and industrial goods, significantly improving Brazil’s export competitiveness.
For Brazil, the agreement represents far more than a commercial milestone. It is a strategic economic, industrial, and geopolitical achievement, years in the making, and one that reinforces the country’s position in a rapidly changing global trade environment.
In fact the agreement between the European Union and Mercosur is a step forward for both Brazil and Europe at a political moment dominated by protectionist actions and a type of opposition to multilateralism from the US government.
Opportunities, Risks, and Brazil’s Industrial Future
Although it is an undeniable positive step towards multilateralism, there are also risks associated with this agreement.
Economist Paulo Gala, for example, argues that while the Mercosur–European Union agreement may represent a political and diplomatic advance, it raises serious concerns from a development perspective.
According to his analysis, the deal risks reinforcing an asymmetric trade pattern in which Brazil predominantly exports low–human-capital commodities, such as agricultural goods and raw materials, while importing high–value, technology-intensive industrial products from Europe.
This dynamic, he warns, could deepen Brazil’s dependence on primary exports, limit learning and innovation spillovers, and hinder the country’s ability to move up the industrial and technological ladder. Without a robust domestic strategy focused on industrial policy, technological upgrading, and human capital formation, the agreement may accelerate what Gala describes as a “regressive specialization,” locking Brazil into a middle-income trap rather than fostering long-term development.
Expanded Market Access and Greater Competitiveness
Therefore, by reducing and eventually eliminating tariffs, Brazilian exports, especially in agribusiness, food processing, mining, and manufactured goods, are expected to become more competitive in European markets. Lower trade barriers can translate into reduced export costs, higher margins for Brazilian companies, and stronger integration into global value chains.
The agreement also sends a clear signal to international investors: Brazil is committed to rules-based trade, long-term stability, and deeper economic integration with advanced economies.
A Long and Complex Negotiation Process
Negotiations between Mercosur and the EU took more than two decades, largely due to the complexity of aligning interests among dozens of countries, sectors, and regulatory frameworks. While resistance persisted in some European countries (particularly France, Poland, and Hungary), the final outcome may reflects a “win-win” compromise, balancing agricultural sensitivities with industrial and services opportunities.
Importantly, business communities across Europe, especially in Germany, Spain, Italy, and France’s industrial and services sectors, have shown growing optimism about the deal’s potential.
Why Europe Also Benefits, and Why That Matters for Brazil
While Mercosur countries are often seen as the main beneficiaries, Europe also stands to gain substantially. The EU is a global leader in high-value industrial goods, technology, and services, and the agreement opens new demand for these products in South America.
For Brazil, this dynamic is crucial. European companies may increasingly choose to produce or expand operations in Brazil, attracted by the country’s abundant supply of clean and affordable energy. Around 60% of Brazil’s electricity comes from hydropower, complemented by strong growth in wind and solar energy, offering a competitive advantage amid Europe’s energy constraints.
Industrial Development, Clean Energy, and Jobs
The agreement has the potential to accelerate industrial investment in Brazil, particularly in sectors linked to energy-intensive manufacturing, green technologies, and infrastructure. This can lead to job creation, technology transfer, and productivity gains, strengthening Brazil’s industrial base over the medium and long term.
At the same time, increased competition may encourage greater efficiency on both sides, including in Europe’s heavily subsidized agricultural sector.
The Risk of Deindustrialization and the Strategic Bifurcation
One of the central risks highlighted in the debate over the Mercosur-EU agreement is the so-called “competitiveness shock.” While greater exposure to international competition could theoretically stimulate efficiency and innovation, this mechanism tends to work best when domestic industries already possess a solid technological base and access to financing.
Critics argue that much of Brazil’s manufacturing sector enters this agreement from a position of structural weakness, shaped by decades of high interest rates, volatile exchange rates, and logistical bottlenecks.
Under these conditions, sudden trade liberalization might lead not to modernization, but to deindustrialization and firm closures, as domestic producers struggle to compete with highly capitalized and technologically advanced European firms.
This dynamic places Brazil at a strategic bifurcation, according to Gala: on one hand, a path of resignation, deepening its specialization in commodities while increasing reliance on high-value imported goods, which risks worsening the middle-income trap. On the other hand, a path of persistence, which requires active industrial policies and investments to build a diversified and complex productive structure. The concern is that, without robust safeguards, the agreement may tilt Brazil toward the first path, limiting its long-term development options.
Brazil’s Unique Geopolitical Position
Brazil’s role goes beyond trade. As a member of BRICS, Brazil will become the only country in the group with a free trade agreement with the European Union, positioning itself as a strategic bridge between Europe and major emerging economies such as China, India, and South Africa.
This unique status can enhance Brazil’s relevance in global supply chains and reinforce its influence in multilateral trade and diplomacy, especially at a time when global commerce faces fragmentation and protectionist pressures.
More Than Trade: A Political and Social Connection
Beyond economics, the Mercosur–EU agreement strengthens long-standing political, cultural, and social ties. Brazil’s deep historical connections with Europe, through migration, shared values, and institutional cooperation, add another layer of integration that supports stability and long-term collaboration.
Why This Agreement Matters Now
Signed amid growing global trade tensions and challenges to multilateralism, the Mercosur–EU agreement demonstrates that cooperation remains possible. For Brazil, it represents a decisive step toward economic diversification, sustainable growth, and greater international relevance.
In short, the deal positions Brazil not just as a major exporter, but as a key global partner in trade, energy, and geopolitics.
