"Today marks a truly historic milestone," said European Commission President Ursula von der Leyen on Friday in Montevideo, when the EU and the Mercosur trade bloc finalized their deal. She said that a "powerful message to the world" had been sent.

"In an increasingly confrontational world, we demonstrate that democracies can rely on each other."

Von der Leyen added that the agreement, which has been almost 25 years in the making, was "one of the largest trade and investment partnerships the world has ever seen."

Connecting Europe with South America

The EU-Mercosur agreement connects more than 700 million people on the European and South American continents. Some 450 million citizens in 27 EU states, and about 270 million in Brazil, Argentina, Uruguay and Paraguay.

It does not yet apply to the Mercosur trade bloc's newest member, Bolivia, nor to Venezuela whose membership of the bloc has been suspended until further notice due to democratic backsliding.

Most of the key points had already been agreed in 2019. The agreement will remove over 90% of tariffs on goods exchanged between the two blocs, which the European Commission estimates will save EU exporters more than €4 billion ($4.2 billion) per year.

Rare earth elements needed for cars, machinery

From the EU perspective, the main focus is likely to be on the import of raw materials and the export of cars and machinery. The bloc's interest in finalizing the agreement became more acute in the wake of the reelection of US President-elect Donald Trump, who threatened the EU with tariffs during his campaign.

In view of the global geopolitical situation, von der Leyen said the agreement was "a political necessity." The EU hopes to become less dependent on China for its access to rare earth elements, for example. Mercosur states will be able to supply the EU with these raw materials that are crucial for modern technological products, like mobile phones and electric vehicles.

In 2023, according to the EU, the Mercosur states exported mainly mineral products, food, beverages and tobacco to the EU, which in turn exported machinery, equipment, chemicals and pharmaceutical products. The trade volume between the two blocs that year amounted to around €110 billion.

In the EU, particularly in Germany, car manufacturers will be likely hoping that the 35% import duty on cars will be reduced, while South American producers will be looking forward to being able to more easily sell meat, sugar and other such products to the EU.

Environmental protection at risk, say critics

Over the past five years, it has proven difficult to conclude the agreement largely because the EU has demanded stricter environmental regulations. These will be set out in an additional protocol. In its press release, the European Commission stressed that the current agreement had "strong, specific and measurable commitments to stop deforestation."

Criticism of the agreement has also been voiced in South America in recent years. During his 2023 election campaign, the president of Argentina, Javier Milei, expressed his opposition to the deal, and Brazilian President Luiz Inacio da Silva has also criticized the additional protocol.

European farmers oppose deal

In recent weeks, the agreement has also sparked vehement protests from farmers in the EU, particularly in France and Belgium. They fear unfair competition from cheap South American products, arguing that producers there benefit from lower environmental standards. The German Farmers' Association has also spoken out against the agreement, calling for negotiations to be restarted. 

Environmental organizations such as Greenpeace have rejected the agreement outright, arguing that continued rainforest deforestation to produce beef and grow soy to feed cattle will be catastrophic.

Supporters of the agreement, meanwhile, argue that it will protect EU standards as well as quotas in certain areas, such as beef, poultry and sugar. The European Commission said on Friday that the interests of all Europeans, including farmers, would be protected by the agreement.

EU member states in disagreement

Opinions on the agreement also differ within the EU. France has been a staunch opponent of the deal, and on Thursday the office of President Emmanuel Macron said it had told von der Leyen that it considered it "unacceptable" in its current form. It said France would continue to tirelessly defend its "agricultural sovereignty."

Poland and Italy have also expressed their doubts, while Germany and Spain both support the agreement. Recently, Germany had pushed increasingly hard for a swift conclusion.

Though the agreement has been finalized, it's likely to be some time before it actually takes effect. Both blocs will have to ratify the deal, and it could still be blocked. The European Commission said that the end of the negotiations was a "first step."

This article was originally written in German.