Mercosur–EU trade pact is also meant to open a new chapter for global steel

The long-negotiated Mercosur–European Union free trade agreement was formally signed on January 17, 2026 in Paraguay, marking the conclusion of more than two decades of negotiations and setting the stage for significant changes in global industrial and steel trade.

One day earlier, on January 16, European Commission President Ursula von der Leyen met Brazilian President Luiz Inácio Lula da Silva in Brasília to emphasize the strategic importance of the deal ahead of the official ceremony. Appearing together, the two leaders underlined the geopolitical and economic weight of the agreement.

“This agreement sends a powerful message,” von der Leyen said alongside Lula. “Welcome to the world’s biggest market and largest free trade zone on the planet.”

For the steel sector, the pact could bring substantial new opportunities. The EU has agreed to eliminate tariffs on around 95 percent of goods from Mercosur, including industrial products such as steel, machinery, and metal components. Tariff reductions will be phased in over periods of up to 12 years, creating more predictable access to European markets for Brazilian and regional producers.

Brazilian mills, already established suppliers to Europe, are expected to benefit from simplified customs procedures and clearer rules of origin. At the same time, European providers of rolling mill equipment, automation systems, and specialty alloys will gain improved access to South American customers as Mercosur gradually opens around 91 percent of its tariff lines to EU imports.

The agreement also carries a strong sustainability dimension, reflecting the growing focus on decarbonization in heavy industry. Both blocs commit to aligning trade with climate objectives and to promoting low-carbon supply chains. Brazil, with its relatively clean energy mix, is positioning itself as a potential source of lower-emission steel for European buyers.

Von der Leyen highlighted this aspect in Brasília, noting that the deal would create “supply chains that become highways for investments.” She also pointed to parallel talks on critical raw materials such as lithium and nickel as “key for our digital and clean transitions.”

To protect exporters, the pact includes a rebalancing mechanism that can be activated if future EU internal measures restrict effective market access – a clause seen as particularly relevant as Europe implements its carbon border policies.

Although now formally signed, the agreement has not yet entered into force. It must still be approved by the European Parliament and ratified by the respective Mercosur countries before implementation can begin.

Brazilian officials expect the pact to stimulate investment and support modernization of domestic industry. In 2025, bilateral trade between Brazil and the EU totaled about USD 100 billion, with iron and steel representing a strategic share of exports – a segment likely to grow as barriers are progressively removed.

“The signature will be only a first step,” von der Leyen said. “The whole story will only be a complete success when people and businesses can feel the benefits of our agreement.”

Source: European Commission, Brazilian Government, Photo: European Commission