From 35% tariffs to their non-existence through a progressive de-escalation that will advance over time. That is the new scenario that the European Union and Argentina, Brazil, Paraguay, and Uruguay have, those countries that make up Mercosur with which the European Union has signed an agreement that will create the largest free trade area in the world.
The Agreement
After 26 years of negotiations, on January 9, 2026, the news broke: Mercosur (Argentina, Brazil, Paraguay, and Uruguay) and the European Union reached an agreement to create the largest tariff-free trade zone in the world. The pact was approved by 21 European Union member countries (including Spain) and faced opposition from France, Poland, Austria, Ireland, and Hungary, with Belgium abstaining.
Following European approval, the official signing is set for January 17 in Paraguay. This project aims to eliminate existing tariffs over the next 15 years, complicating the landscape for the primary sector while significantly benefiting European industries, particularly the automobile sector.
Why the Car Industry?
Traditionally, exports from the European Union to Mercosur faced a hefty 35% tariff. The new agreement will dismantle these tariffs gradually over 15 years, making vehicle exports to South America completely tariff-free after three decades.
According to independent data from The Automotive Tribune, this change could potentially triple the volume of exports from the European Union to these countries. As tariffs diminish, export quotas to Brazil and Argentina are expected to expand accordingly.
Focus on Spain
Spain is poised to gain considerably from this agreement in the automobile sector. Although the country has seen a decline in automobile production and exports this year and stands as the second-largest European vehicle producer (behind Germany), it exports over 90% of its manufactured cars.
Moreover, Spain is a major producer of vehicle components, which will also benefit from tariff reductions. This news is particularly significant for industries affected by recent tariffs from the U.S. government, as Spain mainly exports components rather than complete vehicles to the U.S.
A Boon for European Manufacturers
The agreement is seen as a lifeline for European automotive manufacturers. Cars sold in Mercosur countries currently boast lower prices and questionable safety standards compared to European standards.
Without tariffs, manufacturers can sell more cars while amortizing investments that may soon be under pressure from stricter European emissions regulations. This flexibility allows them to meet distinct market demands efficiently.
The Challenges Ahead
While this agreement opens doors for European manufacturers, it casts a shadow over local Mercosur companies. The automotive sector in Mercosur is currently structured around producing specific vehicles for its market, protected by significant trade barriers that have maintained low import volumes. With forecasts indicating that approximately 75% of car imports in Argentina come from Brazil, the impending competitive pressure from European manufacturers is likely to transform the landscape drastically.
In summary, while the automobile industry is set to prosper from the EU-Mercosur agreement, the local industry may face challenging times ahead. The focus will now shift to how well these companies can adapt and compete.