Mercosur-EU Trade Off?

Eamon Drumm
Preserving the Mercosur-EU free trade deal is critical for Europe’s economic security. National and EU leaders can harness rising concerns about the United States, Russia, and European defense to sway opponents, particularly in Poland.

French President Emmanuel Macron on February 22 reiterated his commitment to blocking the ratification of the Mercosur-EU free trade deal. Debate over the agreement has been eclipsed by the most recent diplomatic fallout over Ukraine, but will likely be back with a vengeance in the spring when the deal goes up for a vote at the Council of the European Union. 

Paris is leading the charge against the deal and Poland also opposes it. Both object to potential impacts on domestic agriculture. Export-oriented Germany, Spain, and others support it. But the stakes now go well beyond agriculture and even economic growth.

The potential for growth is real. If finalized, the Mercosur-EU partnership would create a market covering more than 700 million people and 25% of the world’s GDP—though its GDP impact is modest and unlikely to materialize for a few years. This argument is unconvincing to its opponents because the benefits will be unevenly spread and will indeed have a negative impact (though also modest) on smallholding farmers in Europe. 

However, the events of the past month have made European citizens deeply aware that the continent needs to rearm to defend itself and Ukraine. There is now a critical political opportunity to persuade countries on the fence that the trade deal can be beneficial for Europe. The agreement can reinforce Europe’s geopolitical standing and alliances with like-minded countries, defend its robust norms in an increasingly protectionist world, and secure access to major supplies of critical minerals (differentiating Europe in the process from the Trump administration’s dealmaking with Ukraine). 

The political tradeoffs in question are fraught for several reasons. Macron was speaking at the Salon de l’Agriculture, France’s premier agricultural trade fair. Agriculture represents less than 2% of France’s annual economic output; food processing, including high value-added products like wine, cheese, and olive oil contribute about 5%. Farmers and products like beef and poultry stand to get hurt by the deal, but wine and cheese stand to profit from new markets. And agriculture’s importance in French political life, cultural identity and rural communities surpasses its economic impact. The far right and, to a lesser extent, the far left have widespread support in rural areas. Any wrong move on food security and agricultural trade policy could further destabilize France’s shaky parliamentary coalition, raising fresh fears of a far-right takeover this year. 

Macron is therefore unlikely to reverse his stance, though given his support for an earlier version of the deal, he may cynically be hoping for other countries to wobble so that it passes over French opposition. This would be possible because at least four member states representing 35% of the EU’s population are needed to block the deal in the Council (assuming it is presented in the expected format) when it goes to a vote. France sees Poland, but also Austria, Hungary, and Ireland, as potential allies. 

In Poland, these issues are now converging with tight political deadlines and acute fears about Russian aggression. Polish farmers vocally oppose the agreement, and candidates running in the May presidential election have expressed near-unanimous opposition. But as a frontier state with Russia and Ukraine and a hawk on defense spending, Poland is also acutely sensitive to the need for new funds, access to critical minerals, and support for continent-wide rearmament. It is also the only country opposing the Mercosur-EU deal with a large enough population to form a blocking majority. Italy has expressed ambivalence but will likely not vote against it.  

Pro-agreement leaders including the forthcoming Merz government have a strategic opportunity to persuade Poland on the following points:

  • Though overall European growth potential is modest, new markets opened by the deal are particularly important for Germany’s continued growth and thus its ability to raise its defense spending. A bilateral cooperation agreement on tightening migration enforcement and cooperation on other issues—the new Merz government is already amenable—could help soften the Polish position.
  • Mercosur countries are key EU suppliers of lithium, copper, platinum, nickel, manganese, and other materials that have direct applications for defense and economic security in aerospace, telecommunications, batteries, nuclear power, and AI. Securing the deal would help the EU responsibly diversify away from Chinese and Russian imports for many of these materials just as the United States races to close or develop deals in Ukraine, Kazakhstan, and elsewhere.
  • Given that Poland currently occupies the presidency of the Council of the European Union, and with Poland’s Piotr Serafin as EU budget commissioner, it should be possible to negotiate additional assurances for farmers on compensation schemes, transitional grants, capital subsidies, and other mechanisms to help tip the scales.

Such arguments are unlikely to sway Macron or the French agricultural sector, but they may be enough to persuade more hawkish Polish leaders, responding to citizens, not to capsize the deal when Europe urgently needs more allies and to defend its strategic economic interests.