Brasília – Brazil has become the third Mercosur nation to ratify the landmark free trade agreement with the European Union, a move that brings the decades-long negotiation closer to fruition. The Brazilian Senate approved the deal on Wednesday, following earlier approvals from Argentina, and Uruguay. Paraguay’s lower house of Congress still needs to vote on the agreement for it to be fully endorsed by the South American bloc. The ratification signifies a major step towards establishing one of the world’s largest free trade zones, potentially reshaping economic ties between South America and Europe.
The agreement, which has been under negotiation for over 20 years, aims to eliminate most tariffs on goods traded between the EU and Mercosur countries – Argentina, Brazil, Paraguay, and Uruguay. While European nations are poised to increase exports of manufactured goods like automobiles and chemicals, Mercosur nations will gain enhanced access to European markets for agricultural products and raw materials. This development arrives as China continues to expand its economic influence in South America, particularly in the electric vehicle market, creating a competitive dynamic for European manufacturers.
EU Commission President Ursula von der Leyen announced in late February the intention to provisionally apply the agreement despite an ongoing review by the European Union’s Court of Justice. This move signals the EU’s commitment to the deal, even as it addresses concerns regarding environmental sustainability and adherence to labor standards. According to Deutsche Welle, the EU’s progress has been hampered by internal disagreements, while China has aggressively pursued trade opportunities in the region.
The Brazilian automotive industry is particularly focused on the potential benefits of the agreement. The CAOA group, a Brazilian automotive distributor, is preparing to begin production of vehicles from Chinese manufacturer Changan, building on existing partnerships with Chery. DW reports that CAOA increased production from 30,000 vehicles in 2023 to a projected 70,000 in 2025 at its Anápolis facility. This expansion reflects a broader trend of increased automotive manufacturing in Brazil, driven in part by foreign investment.
However, the deal isn’t without its complexities. Concerns remain regarding the environmental impact of increased agricultural exports from South America, particularly deforestation in the Amazon rainforest. The taz newspaper highlights the tension between European demands for sustainable practices and the economic interests of Mercosur nations. These concerns have fueled debate within the EU and prompted the ongoing legal review.
The ratification by Brazil follows a period of significant growth in the South American automotive industry. According to Worldmetrics.org, South American light vehicle production reached 5.5 million units in 2022, with Brazil and Mexico leading the way. In 2023, Brazil produced 3.0 million light vehicles, while Mexico produced 3.1 million. Sales figures also demonstrate strong growth, with 4.7 million light vehicles sold across South America in 2022.
Electric Vehicle Market Gains Momentum
The influx of Chinese electric vehicle manufacturers is rapidly changing the landscape of the South American automotive market. Elektroauto-news.net reports a surge in sales of electric and hybrid vehicles, driven by the entry of numerous Chinese brands. Bright research, cited by the Brazilian newspaper Estadão, predicts that one in five new cars sold in Brazil will be from China by 2030. This trend is putting pressure on European automakers to compete in the region.
South America’s EV Targets
South America has set ambitious targets for electric vehicle adoption. The region aims for 15% of new car sales to be EVs by 2025, increasing to 40% by 2030, as reported by Worldmetrics.org. Currently, South America’s EV market share represents 1.7% of global EV sales, with Brazil accounting for 7.4% of that figure. Automotive battery production capacity in South America was 5 GWh in 2023, indicating a growing commitment to the EV supply chain.
With Brazil’s ratification, the focus now shifts to Paraguay, where a vote in the lower house of Congress is needed to complete Mercosur’s endorsement. The EU’s Court of Justice review will also be a critical factor in determining the timeline for full implementation. The coming months will be crucial in shaping the future of trade relations between South America and Europe, and in determining whether the Mercosur-EU agreement can deliver on its promise of economic growth and sustainable development.
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