The long-discussed free-trade deal between the European Union and the Mercosur bloc (comprising Brazil, Argentina, Paraguay, Uruguay, and Bolivia) is facing potential delays as Brazil pushes for restrictions on electric vehicle (EV) imports. As talks intensify ahead of the G20 summit in November, two major sticking points remain: Brazil’s demand to safeguard its domestic EV industry and the EU’s insistence on anti-deforestation measures.
Brazil is seeking to shield its market from a potential influx of European EVs, fearing that it could disrupt local industry. According to diplomats familiar with the discussions, Brazil is advocating for additional safeguards that would limit imports once certain thresholds are reached. This move mirrors the EU's own recent measures against Chinese EVs, as well as rising EV tariffs in Brazil, which will peak at 35% by 2026. “Brazil and Argentina have always been protective of their auto industries," explained Geraldo Vidigal, a trade law expert.
The EU, meanwhile, remains firm on its anti-deforestation rules, set to take effect at the end of 2024. These regulations aim to reduce deforestation linked to agricultural expansion, a critical issue for Brazil, which depends heavily on agri-food exports. Brazilian officials have requested that the EU delay implementation of these rules to avoid undermining the trade deal’s benefits.
With the trade deal poised to cover a wide range of sectors, including minerals and agricultural products, the outcome of these negotiations could have far-reaching economic and geopolitical consequences. Germany’s Chancellor Olaf Scholz has voiced support for a delay in the EU’s deforestation regulations, but internal EU disagreements, particularly with France, add further complexity.
If an agreement is reached, it would represent a major geopolitical victory for European Commission President Ursula von der Leyen, marking a significant step toward stabilizing EU-Mercosur trade relations, which have increasingly been dominated by China. However, the fate of the deal remains uncertain as both sides grapple with their key demands.
