Reporter's observation: The strategic choice of the South Common Market EU Free Trade Agreement to go beyond trade

Rio de Janeiro, May 6 (Xinhua) -- The Southern Common Market (Mercosur) - EU Free Trade Agreement came into temporary effect on May 1, and both sides began to cancel tariffs on some products. After 25 years of lengthy negotiations between the Southern Common City and the European Union to create a free trade zone, the agreement was only signed on January 17th in Asuncion, the capital of Paraguay. Paraguay's President Pe ñ a, who holds the rotating presidency of the Southern Common Market, said in a media interview that the tariffs imposed by the US President Trump's administration "scared" Europeans and facilitated the final conclusion of the free trade agreement.

In the current unique context, the significance of this free trade agreement goes beyond trade itself, becoming a strategic choice made by the Southern Common Market and the European Union to break away from dependence on the United States and seek trade diversification.

A free trade zone with 700 million people

The Mercosur EU Free Trade Agreement covers the 27 member states of the European Union and the four founding member states of Mercosur, Argentina, Brazil, Paraguay, and Uruguay, connecting a huge market with a total population of approximately 720 million. The total gross domestic product of countries within the free trade zone is $22 trillion, accounting for about one-fifth of the world's total.

The EU is the second largest trading partner of the Southern Common City, accounting for nearly 17% of the total trade volume of the Southern Common City in 2024; Mercosur is the tenth largest trading partner of the European Union. In 2024, the trade volume between the two sides will exceed 111 billion euros, with over 80% of the trade volume occurring between the European Union and Brazil. The main commodities exported by the EU to Mercosur include machinery and equipment, chemical and pharmaceutical products, automobiles, etc; The main commodities exported from the Southern Common Market to the European Union are agricultural products, mineral products, paper, etc.

The European Union is the largest source of investment for the countries of the Southern Common Market, with an investment stock of approximately 390 billion euros in the latter as of 2023.

The temporary entry into force of the free trade agreement means that the Southern Common Market and the European Union will cancel some product tariffs, providing predictable rules for trade and investment. According to the agreement, both parties will ultimately eliminate tariffs on over 90% of goods in bilateral trade and establish common rules for industrial and agricultural trade, investment, and regulatory standards. This will facilitate the entry of goods such as cars, machinery, wine from EU member states, as well as meat, sugar, rice, honey, soybeans and other products from Mercosur member states into each other's markets.

The South Common Market EU Free Trade Agreement consists of two legal documents: one is the Temporary Trade Agreement, which only covers the trade field; The other is the "Mercosur EU Partnership Agreement", which includes political and other areas of cooperation in addition to trade. The latter is more complete and requires separate approval from the parliaments of each EU country. Once the "Mercosur EU Partnership Agreement" comes into effect, the "Temporary Trade Agreement" will be replaced, effectively achieving free trade in two steps.

Promote growth, create employment, and attract investment

For the countries of the Southern Common Market, signing a free trade agreement with the European Union will promote economic growth, create employment, and attract investment.

According to the National Federation of Industries of Brazil, after the free trade agreement comes into effect, 54.3% of products covered by the agreement will immediately enjoy zero import tariffs from the European Union.

The report released by the Argentine Presidential Office states that after the free trade agreement comes into effect, Argentina's exports to the European Union may increase by 76% in 5 years and 122% in 10 years. The government expects that the export of agricultural and industrial products in the country will achieve a maximum growth of about 15% and about 30% respectively.

The Uruguayan Ministry of Economy has preliminarily predicted that after the free trade agreement comes into effect, the country can achieve a maximum of about 4% growth in commodity exports, about 0.5% growth in employment, and a real wage growth of nearly 1%.

Paraguayan economic expert Amirca Ferreira believes that South American countries will benefit more from investment than trade.

At present, the agreement has been ratified by Argentina, Brazil, Paraguay, and Uruguay, but it has sparked disagreements within the European Union. France and other major agricultural countries in Europe have taken the lead in opposition due to concerns about the interests of their own farmers being harmed. On January 21st, the European Parliament voted to submit the agreement for judicial review. The legality of the agreement is still pending a ruling by the European Court of Justice, and the final decision may take two years to be known.

Strategic choices beyond trade

The significance of the Mercosur EU Free Trade Agreement goes far beyond trade.

Oliver Stinkel, a senior researcher at the Carnegie Institute for International Peace in the United States, said that the signing of the free trade agreement indicates that European and South American countries are seeking strategies to enhance their economic and strategic autonomy in the face of US trade protectionism and military threats. On the one hand, Europe is striving to diversify its trading partners and accelerate negotiations with the Southern Common Market; On the other hand, the countries of the Southern Common Market also see the agreement with the European Union as a hedge to avoid being squeezed by great power competition.

Leonardo Trevisan, a professor of international relations at the Brazilian Institute of Media and Marketing, believes that the free trade agreement between Mercosur and the European Union reached at this time is more of a strategic consideration in the context of the United States raising tariffs. For the Southern Common City, this is a rare opportunity to enhance its positioning in an increasingly divided world. He said that the Trump administration's imposition of tariffs will inevitably lead to a reduction in exports from European countries, directly affecting the industrial and agricultural sectors of the European Union. For Europe, at a time of tense relations with the United States, the free trade agreement with the Southern Common Market is a gateway to markets and natural resources.

Felipe Prado Macedo da Silva, a professor at the Institute of Economics and International Relations at the Federal University of Ubertia in Brazil, wrote in the Brazilian magazine Foreign Relations that for Europe, the United States is increasingly becoming a "partner" with "political coercion" and "strategic unpredictability". As a result, the European Union has changed its strategic considerations and begun to view its high dependence on the US market as a weakness, seeking diversification of strategic partners and accelerating the signing of the Mercosur EU Agreement.