Mercosur concludes EFTA free trade deal, targets EU next

The Mercosur trade bloc, formed by Argentina, Brazil, Paraguay and Uruguay, as well as associate members, is advancing in the conclusion of free trade agreements despite the political differences among its leaders.

This week, Mercosur and the European Free Trade Association (EFTA) – comprising Switzerland, Norway, Iceland and Liechtenstein – announced the conclusion of negotiations on a free trade agreement between the two blocs during the 66th Mercosur summit held in Buenos Aires.

The announcement comes as negotiations continue between Mercosur and the European Union, which could be finalized later this year, according to analysts.

"The agreement with EFTA at this moment is very important for Mercosur to move forward with the agreement with the European Union as well, because the foundations of the agreements are very similar, and it shows that the South American countries are open to negotiating. In addition, the agreement with EFTA is quite comprehensive and also involves investments," Welber Barral, former Brazilian foreign trade secretary and founding partner of BMJ Consultores Associados, told BNamericas.

"At the moment, the main obstacles to an agreement between Mercosur and the European Union are centered primarily on French and Polish farmers, while among the South American countries there seems to be a consensus on the intention to reach this agreement by the end of the year," said Barral.

Mercosur has been trying to finalize an agreement with the European bloc for years, but has previously been hindered by resistance from the European agricultural sector.

Recently, however, doubts have also emerged regarding the willingness of Mercosur members themselves to reach such an agreement, due largely to political differences, particularly between the leaders of the two largest nations, Brazil's leftist president, Luiz Inácio Lula da Silva and his Argentine right-wing libertarian counterpart, Javier Milei.

Lula supports a multilateral agenda, pushing forward multiple agreements, while Milei has repeatedly expressed a preference for bilateral negotiations, at one point even suggesting a free trade agreement between Argentina and the US – a proposal that has seen no progress to date.

Meanwhile, Brazil, which assumed the temporary presidency of Mercosur on July 1 until December 1, is looking to leverage international concerns triggered by US President Donald Trump's tariff hikes to open new fronts for trade negotiations.

In this context, Brazil aims to advance Mercosur trade deals with Canada, Japan, Vietnam, Indonesia, Mexico and India. These countries, all impacted by US tariff barriers, have also indicated a desire to diversify their trade relations, a Brazilian government official told BNamericas on condition of anonymity.

Mercosur-EFTA deal

Under the agreement, a free trade zone will be created encompassing nearly 300mn people and combined GDP of over US$4.3tn. Both parties will benefit from improved market access for more than 97% of their exports, increasing bilateral trade and generating benefits for businesses and citizens, according to the Brazilian government.

"These results show that Mercosur is a central and effective platform for integrating our economies globally. We are able to achieve these outcomes when we work together as a bloc. From Brazil's perspective, in addition to market access, this agreement also preserves important policy space in areas such as access to health, innovation and sustainable development," Brazil's foreign minister Mauro Vieira said in a statement.

For Brazilian products, free trade access to EFTA markets will cover nearly 99% of the value exported, spanning both agricultural and industrial sectors. This includes new opportunities for agricultural products such as beef, poultry, pork, corn, soybean meal, cane molasses, honey, roasted coffee, ethyl alcohol, and various fruits and juices. 

EFTA will eliminate 100% of import tariffs on the industrial and fisheries sectors upon entry into force of the agreement.

"This agreement will also bring benefits to the oil and gas sector, because Norway is an important global player in these sectors, and to the pharmaceutical industry, since Switzerland is an important partner in this area," said Barral.