A Look at the Sustainability Aspects of the EU-Mercosur Free Trade Agreement

In December 2024, the EU and the Southern Common Market (Mercosur), which comprises of Argentina, Bolivia, Brazil, Paraguay and Uruguay,concluded negotiations on an EU-Mercosur partnership agreement, with the deal creating a free trade agreement (FTA) between the regions.The EU-Mercosur FTA follows an ongoing EU policy to negotiate sustainability provisions for EU FTAs.

Chapter on Trade and Sustainable Development

The FTA incorporates a chapter on Trade and Sustainable Development (TSD chapter) containing labour and environmental provisions that are strongly based on the existing multilateral frameworks (e.g. conventions of the International Labour Organization (ILO) and multilateral environmental agreements). The TSD chapter, originally announced in 2019, contains limited new and binding sustainability commitments by the EU and Mercosur (the parties).. Nevertheless, it does incorporate certain key provisions, such as a requirement that parties do not weaken, derogate from, fail to effectively enforce or misapply environmental or labour protection to encourage trade or investment.

Importantly, the TSD chapter is excluded from the scope of the general dispute settlement mechanism of the FTA. Instead, the TSD chapter contains its own dispute resolution mechanism. Noticeably, and contrary to the general dispute settlement mechanism, the TSD chapter does not provide for the suspension of concessions in case of breach (i.e. the retaliatory reversal of a benefit arising under the FTA). It therefore appears less easily enforceable than other parts of the FTA.

The Trade and Sustainable Development Annex

The FTA also incorporates a new annex to the TSD chapter, negotiated after 2019, which brings clarifications on the TSD chapter. It also specifically entrusts a sub-committee on trade and sustainable development created by the TSD chapter with monitoring its effective implementation, as well as that of listed multilateral agreements (including the Paris Agreement, conventions on hazardous chemicals and waste, and various ILO conventions and protocols).

The EU and Mercosur commit not to weaken protection afforded in their environmental laws, and to implement measures to prevent deforestation and stabilise or increase forest cover from 2030. They will collaborate in designing initiatives that support sustainable interregional value chains.

Within a year of the entry into force of the FTA, the parties will also establish a list of products from Mercosur countries deemed to contribute to forest and vulnerable system preservation. Such products should be given trade incentives by the EU (possibly including preferential EU market access).

A key aspect of the annex is that the EU recognises that the FTA and actions taken to fulfil it will be favourably considered in its risk classification of countries. As such, Mercosur countries could receive preferential treatment over non-Mercosur countries as part of the implementation of the EU Deforestation Regulation (EUDR).

The annex also provides that documentation, licenses, information and data from certification schemes and traceability and monitoring systems recognised, registered or identified by Mercosur countries must be used as a source by EU authorities to verify compliance of products with EU traceability requirements (this could e.g. be the case for the purposes of the EU Corporate Sustainability Due Diligence Directive (CS3D).

In addition, the FTA incorporates a new provision specifying that remaining part of the United Nations Framework Convention on Climate Change and its Paris Agreement is an “essential element” of the FTA.

A Real Sustainability Commitment?

The EU-Mercosur FTA constitutes a new stage in the evolution of TSD chapters incorporated in EU trade agreements since the conclusion of the EU-Korea FTA in 2009. The precise normative value of sustainability commitments under the EU-Mercosur FTA remains unclear. However, it appears that there could be concrete consequences for the implementation of key EU legislation, such as the EUDR or the CS3D. Overall, the FTA constitutes an opportunity for companies in both blocs, as well as insight into future policies of their governments.

The negotiated text now needs to be ratified by both the EU and Mercosur. The path ahead in the EU seems unclear. Some EU Member States may argue that it constitutes a so-called “mixed agreement” extending beyond the EU’s exclusive competences, for which approval is needed in each of the EU’s 27 Member States (thus rendering ratification more complex). Furthermore, some Member State governments have expressed their outright opposition to the FTA’s adoption. 

Other EU FTAs

On 17 January 2025, the European Commission and Mexico reached an agreement to modernize the existing EU-Mexico Global Agreement, including new sustainability provisions. Additionally European Commission president Ursula von der Leyen has also identified sustainability as an objective as part of the recent relaunch of trade negotiations with Malaysia.