What The EU-Mercosur Agreement Means For Companies
Interview with Prof. Dr. Dr. Peter Sester
The free trade agreement between the European Union (EU) and the Mercosur states (Brazil, Argentina, Uruguay and Paraguay) was signed in January 2026 after years of wrangling. In order for it to enter into force and for companies from both regions to do business with each other more easily, the agreement still needs to be ratified. There remain some formal hurdles to overcome. Prof. Dr. Dr. Peter Sester is a German-Brazilian expert in commercial law and international arbitration as well as a board and family office advisor. In an interview with the Board Journal, he sheds light on what the next steps look like and how companies should prepare and protect themselves.
Prof. Sester, what is the EU-Mercosur agreement in a nutshell and how exactly do which companies benefit from it?
Sester: The agreement is not limited to creating of a classic free trade zone through tariff reduction, but also granting companies the free movement of goods, the freedom to provide services, the free movement of capital and even equal access to public procurement procedures in the Mercosur countries. The latter is of outstanding importance, especially in Brazil. The agreement also increases legal certainty and reduces bureaucratic hurdles, i.e. it lowers transaction costs and risks for companies.
How should the EU-Mercosur agreement be assessed as a whole from a strategic point of view of companies?
Sester: From a strategic point of view, the agreement has two decisive advantages. Firstly, it creates a level playing field for European companies in competition with companies from Mercosur, because it introduces the National Treatment Principle.
Secondly, it gives European companies in Mercosur a competitive advantage over competitors who are not based in either the EU or Mercosur, as the agreement is the only one of its kind ever concluded by Mercosur. Brazil has also never put a comparable document into force bilaterally.
However, the competitive advantage could be limited in time, as the Mercosur states, especially Brazil, are currently striving for similar agreements (e.g. with India). Therefore, European companies should use the strategic advantage now.
The agreement has been signed, but not yet ratified. What is it still dependent on at the moment?
Sester: It depends above all on the European Parliament, which did not directly agree to ratification at the end of January, but requested a legal opinion from the European Court of Justice. In Argentina and Brazil, there is no resistance to ratification. No problems are expected in Uruguay and Paraguay either.
What are the next steps and by when could the agreement enter into force?
Sester: Both Argentina and Uruguay completed ratification on February 26, 2026. Brazil will follow in early March; one of its two congressional chambers already approved the agreement on February 25, 2026. Rapid ratification also appears likely in Paraguay. Regarding the EU experience shows that the ECJ takes up to one or two years for supplying a legal opinion on matters like trade agreements. Only then will the Parliament in Strasbourg vote on ratification.
The threat of losing time cannot be conveyed in the current economic and geopolitical environment, as it would jeopardize the competitive advantages outlined above and damage the goodwill that the EU still enjoys in Mercosur. Argentina would probably concentrate on the USA, while Brazil would focus even more on the BRICS club.
What has to happen on the European side as soon as at least one Mercosur state has ratified the agreement?
Sester: The President of the Commission, the Trade Commissioner and the German Chancellor have promised to push for the provisional applicability of the agreement as soon as the first Mercosur state has completed ratification. They should keep their word, because the condition set will be fulfilled in the near future, because Argentina already ratified and Brazil will soon follow. The Brazilian government in particular will exert massive pressure afterwards. European companies and industry associations should do the same. The EU should declare provisional application in late March.
But provisional applicability can also be reversed if it later turns out that the agreement is not compatible with EU law, right?
Sester: The opinion to be rendered by the ECJ will be the result of a purely legal review. A negative outcome is unlikely, as a look at similar cases (Singapore Agreement) shows. However, there is a certain residual risk. Furthermore, it cannot be ruled out that the European Parliament will ultimately not agree to the effectiveness of the agreement for political reasons, regardless of the outcome of the legal opinion. A lifting of the provisional applicability would hardly be politically and economically justifiable.
What risks, damages or economic disadvantages could occur for companies if the provisional applicability of the agreement is later reversed?
Sester: Reverting a possible provisional applicability can lead to disruptions in contracts that were calculated, financed and concluded on the basis of it. Investments by the contracting parties in new business relationships (e.g. capacity building or reserves) may prove to be useless in retrospect. Profit margins can collapse and costly delays can occur. In extreme cases, there could be market disruptions and the loss of the basis of the transaction.
How can companies protect themselves if they conclude cross-border transactions between the EU and Mercosur states in reliance on the provisional applicability of the agreement and then the provisional applicability is later reversed?
Sester: The risk that a provisional applicability of the agreement will later be lifted is probably to be classified as political risks. The very fact that you raise this question shows that the occurrence of this risk may not be considered unpredictable. Therefore, it is essential that the parties make provisions in the contract on how the risk is distributed. Political risks are difficult to insure, except through export credit agencies or state-owned investment banks.
Against the background of the still unclear situation, what should companies regulate in contracts with regard to disputes?
Sester: European companies should insist on arbitration clauses, and in general, not only with regard to the risk that has just been discussed. If the foreign counterparty does not agree on seating future arbitrations in Germany and refuses a German arbitration institution (e.g. DIS), the German party should insist on a neutral arbitration seat (e.g. London, Geneva or Zurich), if possible, and also insist on the choice of an international arbitration institution (e.g. SIAC, LCIA or ICC). If the negotiating power is too low to prevail in this respect, it is still better to agree on an arbitration providing a seat in Brazil (Rio de Janeiro or Sao Paulo) and a local arbitration institution (e.g. CAM CCBC or CAM FGV) than to conduct a dispute before state courts in South America. Unlike arbitration clauses, jurisdiction clauses are not always robust in the Mercosur states.
What role could European promotional banks such as the European Investment Bank (EIB) play in this context?
Sester: As I have already said, the risk that a provisional application of the agreement will be reverted or ended qualifies as political risk. Therefore, development banks such as the EIB or, in Brazil, the BNDES are most suitable to cover that risk class.
How should Argentina’s latest initiative be assessed, which at the beginning of February 2026 concluded the Arti Agreement in parallel with the USA, according to which some products will be duty-free?
Sester: The agreement is a strain on cooperation within Mercosur, especially in the relationship between Argentina and Brazil. The current Argentine government maintains particularly close relations with the actual U.S. government. However, I estimate the impact of the US-Argentina deal on the EU-Mercosur agreement to be rather small. Of course, it harms European companies if they compete with US companies in the Argentine market. In terms of EU-Brazil business, it is of little importance.
What is the significance of the EU-Mercosur agreement in geopolitical terms?
Sester: It offers the opportunity to become a little more independent of the USA and China, especially in two respects: additional sales markets (over 300 million consumers) and access to raw materials. Argentina and especially Brazil have large reserves of rare earths and natural gas as well as crude oil. Brazil in particular will not tie itself to only one geopolitical superpower, but will do everything in its capacities to assert itself as a democratic middle power in the world. The EU needs such partners. It is not a coincidence that both, the EU and Brazil, strengthened its ties with India in the very same month, February 2026.
Thank you very much for the interesting conversation.
Board Journal – 26 February 2026
Prof. Dr. Dr. Peter Sester is a German-Brazilian expert in commercial law and international arbitration as well as a board and family office advisor based in São Paulo.