In December 2024, the European Commission and Latin American Mercosur countries (Argentina, Brazil, Paraguay, Uruguay) announced a political agreement on a renegotiated version of the 2019 EU Mercosur Association Agreement.
In their communication, Mercosur countries celebrated the introduction of a new “rebalancing mechanism” that would allow them to ask for compensation, should their trade flows be impacted by EU unilateral policies.
Such a mechanism targets flagship EU measures adopted under the European Green Deal, namely the Carbon Border Adjustment Mechanism (CBAM) and the EU Deforestation Regulation (EUDR). Uruguay hailed it as a “new advantage for Mercosur” against its global competitors, which “will allow it to counter the effect that the EU’s unilateral measures (such as the Green Deal) have or could have on exports” (unofficial translation).
A European Commission representative denied this interpretation, arguing that this new mechanism does not constitute a derogation from EU measures, a point that has been confirmed recently by the EU Trade Commissioner. For now, we are left with interpretations. A definitive answer to this debate will only come if a party actually appeals to the Agreement’s dispute settlement mechanism, which might never occur.
The fate of the EU Mercosur agreement is indeed far from certain. Member States and a sharply divided European Parliament will need to approve it, most likely at the end of 2025 – something that should not be considered a done deal.
The European Peoples Party, which has taken a much more right-wing political stance in the past year, claiming to champion small farmers who often oppose the deal, is likely to be quite divided. France, where the agriculture sector has political clout, is also trying to forge alliance with other EU countries in order to reject the deal.
The renegotiated agreement contains other EUDR and forest-specific provisions. Fern will publish a full analysis of the text from a forest and rights perspective in the coming weeks.
In the meantime, however, it is striking that the EUDR seems to have become a bargaining chip, or at least an incentive, for forested countries to sign free trade agreements with the EU, tempering environmental rules. The EU Mercosur agreement’s rebalancing mechanism is likely to create a precedent for other ongoing negotiations. Indeed, Malaysia and Indonesia, historically very critical of the EUDR, have already signalled their interest in inserting similar measures in the trade agreements they are currently negotiating with the EU.
The Commission has already been challenged by the EU Ombudsman (FW 264) for its lack of openness in the previous round of Mercosur negotiations, and for failing to insist on the sustainability impact assessment prior to concluding the agreement. It has followed the same playbook in this new round of negotiations, keeping Member States, parliamentarians, NGOs and other stakeholders in the dark.
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Image: Joerg Boethling / Alamy
Categories: News, Forest Watch, EU-Mercosur Free Trade Agreement, EU Regulation on deforestation-free products