On January 17, 2026, the European Union (EU) and South America’s Mercosur bloc signed a landmark free trade agreement in Asuncion, Paraguay. This milestone agreement establishes the world’s largest free trade area. It’s uniting the two markets with more than 700 million consumers apiece and one-third of global gross domestic product.
The signing ceremony was attended by a host of dignitaries, including the presidents of Mercosur member countries—Argentina, Uruguay, and Paraguay—as well as Brazil’s foreign minister, representing the bloc’s largest economy. The newly approved collaboration represents a remarkable change in the EU-South American trade dynamic, largely propelled by a shared economic incentive on both sides.
The deal cuts over 90% of tariffs on goods and services traded between the European and Mercosur markets. Half of all the tariffs and most on consumer goods will go immediately. Yet others will only be slowly phased out during the next 10 to 15 years. While ambitious, this phased approach will hopefully allow greater public acceptance of the more tempered economic integration to come.
Essential ag commodities (with the notable exception of beef) will be doomed to tight quotas under the finalized agreement. This provision is a reflection of the influence of powerful cattle-raising countries in South America. They’ve been an essential player to push this trade deal over the finish line. Europe’s industrial lobbies are chomping at the bit for access to new markets for their automobiles and heavy machinery.
European Commission President Ursula von der Leyen emphasized the strategic significance of the agreement during her address at the ceremony.
“The geopolitical importance of this agreement cannot be overstated,” – Ursula von der Leyen
She further elaborated on the EU’s commitment to fostering long-term partnerships:
“We choose fair trade over tariffs. We choose a productive long-term partnership over isolation.” – Ursula von der Leyen
Many officials have heralded the agreement. Yet France continues to adamantly oppose it and has stayed critical of concrete elements of the deal. The next step for the trade agreement is ratification by the European Parliament, which will decide the deal’s ultimate fate.
