Montevideo (Reuters) –

The European Union and four South American countries have finalized a free trade agreement after over two decades of negotiations.

Key Challenges Ahead

Before implementation, the agreement faces significant challenges in Europe, particularly resistance from France and several other EU members.

Support from Mercosur Members

The four founding members of the Mercosur bloc—Argentina, Brazil, Paraguay, and Uruguay—have expressed their support for the deal, contingent on approval from their respective national legislatures.

Complicated EU Process

The ratification process in the EU is more complex. After the legal review and translation of the agreement, the EU could expedite ratification by breaking the deal into parts. The core trade agreement might be approved by a simple majority of EU lawmakers and a qualified majority of EU governments, requiring 15 countries that account for at least 65% of the EU population.

To block the expedited process, at least four member states representing more than 35% of the EU population must oppose it. France is working to gather support and may find allies in Austria, Poland, and the Netherlands, contributing to roughly 30% of the EU population. Meanwhile, Germany, Spain, and several other member countries, representing around 40% of the population, encourage swift ratification this year.

Wider Political Accord

The broader political agreement between the trading blocs, which includes new rules for cross-border investments, will likely need approval from the national parliaments of all 27 EU member countries, a considerably longer process.

Importance of the Agreement

Leaders describe this accord as the world's largest trade and investment partnership, merging a market of over 700 million people. Economists predict it could eliminate up to 4 billion euros ($4.8 billion) in tariffs annually, which are expected to be phased out over several years.

The deal is anticipated to boost European exports of automobiles and manufactured goods while securing critical mineral access for energy transitions. However, it may lower trade barriers for South American meat and grain, raising concerns among European farmers.

Long Negotiation History

Negotiators reached a trade deal version in 2019, but European states hesitated to ratify due to environmental issues following the election of former Brazilian President Jair Bolsonaro and increased Amazon rainforest fires. The EU demanded assurances on environmental policies through supplementary letters, which Mercosur viewed as protectionism, triggering further negotiations.

Recent discussions in Brasilia and Montevideo have successfully addressed environmental protections, government contracts, and other contentious topics, enabling the signing of the new deal.