EU to sign a free trade agreement with the Mercosur bloc 25 years after first entering talks. The deal, still pending ratification, will reduce import duties on over 90% of exports over 15 years. Mercosur likely to see greater economic benefit; for the EU geopolitical benefits more important, Standard Chartered's economists report.

EU continues to diversify trade amid global tensions

"European Commission President Ursula von der Leyen is set to sign a free trade agreement with the South American Mercosur bloc (Argentina, Brazil, Paraguay and Uruguay) on 17 January, having already been agreed in principle in 2019. The deal – which creates one of the largest free trade areas in the world – will mean the removal of duties on 92% of Mercosur exports to the EU over 10 years and 91% of EU exports to Mercosur countries over 15 years. Five EU countries objected to the deal – including France, Poland and Hungary – over fears of increased agricultural-sector competition. Last-minute concessions helped to end Italy’s opposition and secure EU backing via a qualified majority vote."

"For both blocs, the agreement likely provides a GDP boost in the long run, though this may be greater for the Mercosur bloc. For the EU, the deal is likely viewed as a significant geopolitical win amid damaging US reciprocal tariffs announced last year and increased trade competition with China."

"Assuming EU Commission President Von der Leyen and Mercosur representatives sign the deal this weekend, the interim Trade Agreement – which does not require national ratification – still needs to be approved by the European Parliament. There is no clear timeline for this and ratification is not guaranteed. The EU-Mercosur Partnership Agreement will require all 27 EU member states to agree, which is unlikely to be a swift process. The phased plan for implementation means EU economic benefits are likely to accrue very gradually; we are not revising our economic forecasts as things stand."