EU broadens its horizons with South America deal

A common perception of the EU is that it is a lumbering, sclerotic bloc that is punching well below its weight on the world stage. However, the new European Commission of President Ursula von der Leyen is moving fast, at home and abroad, in its first 100 days, including last week’s big new trade deal with South America.
The concept of the first 100 days of a new political leadership dates back to at least the first US presidency of Franklin Roosevelt in 1933. In just over three months, the Roosevelt White House worked with Congress to pass dozens of laws, many directed toward reviving the US economy in the midst of the Great Depression.
The first 100 days has, therefore, typically been defined in terms of domestic policy. However, for the new European Commission, which took office on Dec. 1, foreign policy will be just as much at the fore. Perhaps the key reason for this is that of the incoming second US presidency of Donald Trump. Trump’s first term saw the EU shaken by his hostility toward the bloc, and Brussels had hoped that there would be no repeat experience.
Yet, following the Nov. 5 US election, top EU officials know that the period from Jan. 20 may be the most difficult four years in the bloc’s decades-long history, including a potential trade war with Washington. Trump comes into office with a different agenda from other presidents in the post-war era who, to a lesser or greater degree, saw European integration as a positive dynamic for the US. In his first term, he favored the dismemberment of the bloc.
It is in this context that von der Leyen now urgently needs to pursue a robust foreign policy that preserves and protects EU interests, at home and abroad. On the security front, perhaps the biggest challenge may come with the Ukraine war if Trump reduces or stops support for Kyiv.
Beyond this crucial issue, however, are a much wider series of foreign policy questions, as the EU seeks to broaden its range of foreign policy and economic partners following Russia’s 2022 invasion. An early key test of this approach came at last week’s Mercosur summit when the EU struck a big trade deal with partners in South America, sometimes described as the political “backyard” of the US.
To be sure, the EU is currently negotiating trade deals with multiple key world powers, including India. However, the most imminent possibility of a deal is with Mercosur, which includes Brazil, Argentina, Uruguay, and Paraguay, to create a “new” combined market of the best part of 800 million people.
While von der Leyen and a critical mass of European national leaders, including German Chancellor Olaf Scholz, pushed the Mercosur deal hard, and got it over the line, there has been rearguard opposition. This includes most notably from French President Emmanuel Macron, who has channeled concerns about the deal from the powerful farming lobby, not just in his own nation, but also across the EU. 

While Ursula von der Leyen and a critical mass of European national leaders pushed the Mercosur deal hard, and got it over the line, there has been rearguard opposition.

Andrew Hammond

In part, this is because of the deal’s import quotas of key agricultural products from the Mercosur bloc, either duty free or at reduced levy. These goods include beef, poultry, ethanol, sugar, maize, and soybean products.
To be sure, the new agreement is not all one-way traffic. For instance, EU producers secure increased access to Mercosur markets that could boost exports of products such as wine, cheese, milk powder, and olive oil.
However, the net agricultural benefit is forecast to strongly favor Mercosur. For instance, the EU sugar trade deficit with the South American bloc would rise to about €330 million ($346 million) by 2032 from €223 million in 2023, according to the European Commission’s Joint Research Center.
Amid these economic machinations, and with a darkening foreign policy context for Europe, von der Leyen pushed the Mercosur deal so hard because she perceived if it was not concluded now, any later deal might take years, if indeed it ever materialized.
Business support is also strong for the deal. Only last month, around 80 business associations in the EU and Mercosur urged their respective governments to fast-track finalization of the trade agreement.
The corporate groups highlight that, in 2022, EU-Mercosur trade reached more than €159 billion in goods and services, with mutual investments at about €380 billion. This massive economic web of investment underpins millions of jobs. The business lobbies estimate that the agreement will significantly reduce tariffs on EU exports to Mercosur, enhancing competitiveness for EU companies by saving about €4 billion annually in duties.
This underlines that one of the pressing reasons the Mercosur trade agreement has become more important for von der Leyen is that South America is potentially key to the EU’s economic diversification agenda since Russia’s invasion of Ukraine. Mercosur is, potentially, a vast new source of raw materials as Europe broadens its global supply chains, a growing imperative.
Former EU foreign policy chief Josep Borrell has even said that the South America region has the economic potential of becoming the “new Arabian Gulf” given its critical mineral assets such as lithium. He and many key European decision-makers perceive the Mercosur deal will pull the two regions closer geopolitically amid a broader, international competition for influence, including China and Russia seeking to strengthen diplomatic ties with resource-rich South America.

• Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics.